Bratianu Zbuchea Anghel Hrib Strategica 2020

International Academic Conference
- eighth edition -
Bucharest, October 15-16, 2020
Strategica
Preparing for Tomorrow, Today
Edited by
Constantin Brătianu
Alexandra Zbuchea
Flavia Anghel
Bogdan Hrib
STRATEGICA
Conference Honorary Chair
Remus Pricopie, Rector, National University of Political Studies and Public Administration,
Bucharest, Romania
Conference Co-chairs
Constantin Brătianu, Professor, Bucharest University of Economic Studies, Romania
Florina Pî�nzaru, Dean, Faculty of Management, National University of Political Studies and Public
Administration, Bucharest, Romania
Scientific Committee
Andreia Andrei – Alexandru Ioan Cuza University, Iasi, Romania
Nedra Bahri-Ammari – IHEC of Cartage, Tunisia
Cristina Barna – Pro Global Science Association, Romania
Nick Chandler – Budapest Business School – University of Applied Sciences, Hungary
Cristina Galalae – University of Leicester, UK
Patrizia Gazzola – Insubria University, Italy
Daniel Glaser-Segura – Texas A&M University San Antonio, Texas, US
Loredana Ivan – National University of Political Studies and Public Administration, Romania
Adam Jabłoński – WSB University, Poznań, Poland
Omkumar Krishnan – Indian Institute of Management Kozhikode, India
Aleksandra Machnik – University of Applied Sciences in Wałbrzych, Poland
Raquel Meneses – University of Porto, Portugal
Przemysław Niewiadomski, Zielona Góra University, Poland
Mariana Nicolae – Bucharest University of Economic Studies, Romania
Luminita Nicolescu – Bucharest University of Economic Studies, Romania
Marina Ochkovskaya – Lomonosov Moscow State University, Russia
Cristian Păun – Bucharest University of Economic Studies, Romania
Mauro Romanelli – University of Naples Parthenope, Italy
Victoria Seitz – California State University, San Bernardino, US
Ž� ivilė Stankevičiūtė – Kaunas University of Technology, Lithuania
Agnieszka Anna Szpitter, Gdańsk University, Poland
Petropoulos Sotiris – University of the Peloponnese, Greece
Lajos Szabo – Corvinus University of Budapest, Hungary
Eduardo Tomé – European University, Lisbon, Portugal
Wioletta Sylwia Wereda – Institute of Organization and Management, Military University of
Technology in Warsaw, Poland
Jacek Wozniak – Military University of Technology in Warsaw, Poland
Veres Zoltán – University of Pannonia, Veszprém, Hungary
Organizing Committee
Alexandra Zbuchea, SNSPA, Bucharest, Romania
Flavia Anghel, SNSPA, Bucharest, Romania
Bogdan Hrib, SNSPA, Bucharest, Romania
Andreea Mitan, SNSPA, Bucharest, Romania
Irina Isvoranu, SNSPA, Bucharest, Romania
STRATEGICA
International Academic Conference
-Eighth Edition-
Bucharest, Romania, October 15-16, 2020
Edited by
Constantin Brătianu
Alexandra Zbuchea
Flavia Anghel
Bogdan Hrib
All the rights of this version belong to the Faculty of Management (SNSPA), 2020.
Wording, contents and translation quality of the paper are entirely in the charge of authors.
Articles or extracts from this book may be reprinted on condition that the names of the
authors and the title of the book are clearly stated.
SNSPA, Faculty of Management

30A Expoziț�iei Blvd., Sector 1, 012104 Bucharest, Romania
www.facultateademanagement.ro
Tritonic Publishing House

5 Coacazelor St., Sector 2, 022651 Bucharest, Romania
www.tritonic.ro
ISBN: 978-606-749-508-9
ISSN: 2734 - 746X ISSN-L 2734 – 746X
Message from the Editors
When we proposed in 2019 the topic for the 2020 edition of the Strategica Conference
we aimed to challenge the academic community to think about the future in an
interdisciplinary way. We launched several questions, such as What does the future
hold for people, organizations, networks, societies, and economies? What challenges will
redefine the overall landscape? What is going to turn into yesterday’s news or is prone to
become tomorrow’s MUST? We did not know at the time that the COVID-19 pandemic will
unleash a disruptive force giving new meaning to our questions.
Nevertheless, our initial insights remain valid. Today, meeting tomorrow mirrors
articulate visions, irreplaceable resources, strong engagement, and open minds, all of
them embodied by farsighted leaders. Only going by the book has fallen short to be the
norm, foregoing the imperative of change becoming the norm itself. The only admissible
standard for tomorrow is innovating today on solid, yet flexible grounds. Creatively
integrating new technologies in managerial approaches and business practices generate
advantages never matched before.
The 2020 edition of Strategica was fully online, which diminished the enriching
experience generated by the direct encounters with fellow scholars from Europe and
other regions of the world. The COVID-19 pandemic did not influence only the format of
the conference or the academic experience. It also influenced the content of the studies
presented. We organized a panel dedicated to Crises and Risk Management, but almost
all the other sections of the conference included papers referring to the current crises,
with its complex implications.
The COVID-19 is a complex crisis with impacts in all our social life systems: health,
economy, finance, management, education, culture, religion, sports, and others. However,
it created not only disruptive changes and dramatic human and material destruction,
but it showed some opportunities as well. We tried during our conference to identify
some of these opportunities and discuss them. Understanding the future means to be
open to unpredictable events and phenomena, and to construct emergent strategies and
viable solutions for complex problems.
Looking towards the next editions of Strategica, we are convinced online presentations
and digital cooperation between participants will be the norm, but we hope to meet
again in Bucharest, for fulfilling academic as well as cultural experiences.
Contents
Section 1. Economics
Chair: Cristian PĂ� UN
Analysis of Economic Protectionism from the Perspective of Constructal Theory / 14

Radu ISAIC
Statistical Insights on Capital Markets in Central and Eastern Europe – A Comparative

Approach / 28
Luminiț�a NICOLESCU, Florentin Gabriel TUDORACHE, Monica Teodora TUDORACHE,
Adrian Tudor TUDORACHE,
The Belt and Road Initiative and the Economic Stakes in the Gulf Cooperation Council Region / 40
Flavius-Ieronim CABA-MARIA, Radu-Cristian MUȘ� ETESCU
The Regional Importance of Efficient Romanian Natural Gas Strategic Planning. Study Case – Three
Seas Initiative / 53
Miruna Constantina Ț� UȚ� UIANU
Strategic Cultural Valences of Corruption Behavior in Romania. A European Approach / 65

Ioan PETRIȘ� OR, Dana NEDEA
The Historical Banat and Its Geostrategic Europeanity at the Interference Between the Occident, the
Orient, and the Balkans / 81
Andreea-Eva SOMKEREKI, Ioan PETRIȘ� OR
China’s Urban Development. A Regression Analysis Before and After 1990 / 92

Adriana GRIGORESCU, Amalia-Elena ION
The Impact of Environmental Protection Expenditure on Environmental Protection in Romania.

Empirical Analysis / 106
Raluca Mihaela DRĂ� CEA, Laura CIOBANU, Anca Alina BUZIERNESCU
Consequences of the Growth of the Power of Large Companies Around the World: Effects on
Employment and Small Companies / 115
Paulo FELDMANN
Black Zero and Its Consequences on Sustainable Development. Case Study: Exploitation of Forest
Resources in Romania / 123
Laurenț�iu CIORNEI, Paula MUNTEANU
Past, Present, and Future of Behavioral Economics. the Paradigm of Homo Economicus / 141
Alexandra UNGUREANU
Section 2. Management and Leadership
Chairs: Mariana NICOLAE & Victoria A. SEITZ
The Impact of a Multigenerational Workforce on Human Resources Practices / 152

Cristina PRUND
Quo Vadis in Military and Security Organizations Governance? The Way Between Leaderment and
Manageship / 162
Dorel BADEA, Elena Diana RANF, Gabriel MĂ� NESCU, Crenguț�a MACOVEI, Dumitru IANCU
Assurance of Business Continuity Towards Uncertainity-Based Thinking / 175

Ioseb GABELAIA, Olga BUCOVETCHI, Radu D. STANCIU
Strengthening the Competitive Position of High-Tech Enterprises / 186

Jacek WOŹ� NIAK
Specific Machine Learning Algorithms as Efficient Solutions for Complex Business Processes / 209
Marian Sorin IONESCU, Olivia NEGOITA
Leadership in the Artificial Intelligence Era / 224

Elsy SARKIS, Vincenzo PALLOTTA
The Mediator Role of Transformational Leadership Between Assertiveness and Job Performance / 240
Marius C. ROMAȘ� CANU, Dan F. STĂ� NESCU
The Influence of Organizational Culture on Types of Innovation / 252

Mafalda de CASTRO, Raquel MENESES
Preparing Today’s Leaders for VUCA Environments / 263

Paul TUDORACHE, Lucian ISPAS, Ghiț�ă BÂ� RSAN
Corrections and Corrective Actions – Instruments for the Continuous Improvement of a Management
System / 275
Valentina Irena TUDORAN (NICULIȚ� Ă�), Corina Aurora MARIN (BARBU), Elena CONDREA
Higher Education in the Post COVID-19 World – Leadership and Management Challenges / 288
Susan TOWNSEND, Elena NICOLAE
Section 3. Marketing and Consumer Behavior

Chair: Luminiț�a NICOLESCU
Ecotourism: Traveling and Discovering Nature Consciously Case of Atlas Kasbah – Agadir –
Morocco / 301
Ikrame SELKANI
Vintage – One Fashion, Two Generations. Purchasing and Consumption Behavior of Baby Boomers
and Z Generations / 312
Cristina LEOVARIDIS, Mădălina Claudia IONIȚ� Ă�, Gabriela POPESCU
Markets on Trade Show Platform: Aspects of Business Communications and Transactions

Management / 334
Kirill SIMONOV
How Organizations Adapt to Global Crisis: Shifting the Social Media Communication Approach / 350
Mădălina-Teodora ION, Maria-Diana CISMARU
The Augmented Reality as a Sales Promotion Tool / 362

Marcelo VALLE, Nuno MOUTINHO, Rui RODRIGUES
The Role of the Digital Customer in the Contemporary Market. Aspects of Trust, Risk, and Safety / 373
Wioleta WEREDA, Natalia MOCH
Section 4. Finance and Banking

Chairs: Lucian ANGHEL & Laurenț�iu-Mihai TREAPĂ� T
Reverse Charge and VAT Gap – A Mechanism to Tackle Intra-Community VAT Fraud / 396
Ionela BUTU, Petre BREZEANU, Raluca-Andreea GHEȚ� U
Imраct of Sociаl Security Exрenses on the Economic-Sociаl Life / 412

Oаnа OРRISАN, Norina POPOVICI, Elena CONDREA, Ana Maria DUMITRACHE
(Ș� ERBĂ� NESCU)
Flexible Adaptation of Innovative Investment Funds Architectures Dedicated for Technological

SMEs / 421
Mircea BOSCOIANU, Gabriela PRELIPCEAN
Venture Capital and Public Policy / 433

Flavia ANGHEL, Anca LUNGU, Bogdan GLĂ� VAN
Section 5. Towards Sustainable and Digital Organizations and Communities

Chair: Mauro ROMANELLI
Digital Transformation Generates a New Business Paradigm: “Human-Made in the Age of Artificial
Intelligence“ / 443
Lavinia-Andreea GRUIA, Nicolae BIBU, Alexandru ROJA
Barriers to Digital Transformation in SMEs: A Qualitative Exploration of Factors Affecting ERP

Adoption in Romania / 453
Miruna-Elena ILIESCU
Modelling the Implementation of HR Business Processes to Achieve Sustainable Development in a

Telecommunication Company / 462
Ioana Miruna TATARU, Elena FLEACA, Bogdan FLEACA
Sustainability Reporting in Universities. Comparison Between Two European Universities / 473

Luana LA BARA, Irene LITARDI, Gloria FIORANI
Internet of Things and Employee Happiness in the Digital Era / 486

Alina-Alexandra GOROVEI
Digital Talent in a Learning European Union / 495

Carmen SĂ� VULESCU, Corina-Georgiana ANTONOVICI
Teleworking in Romanian SMEs After COVID-19 Pandemic / 507
Adriana GRIGORESCU, Andreea MOCANU
Digitalization. Global Challenges and Economic Prosperity. Example: Romania / 520

Alina Mirela BĂ� LȚ� Ă�Ț�EANU
The Circular Economy Public Discourse Through Online Media Analysis / 531
Daniela STAICU
Changing Public Organizations Through Information Technology / 550

Mauro ROMANELLI
Driving Smart Cities and Projects in Romania / 565

Mauro ROMANELLI, Ana Maria IONESCU
Smart Leadership – Examples of Best Practices in Governing Smart Cities / 579

Catalin VRABIE
Towards Inclusive Cities Meeting Immigrants / 591

Mauro ROMANELLI
Section 6. Sustainable Human Resource Management and Employee Wellbeing

Chair: Ž� ivilė STANKEVIČ� IŪ� TĖ�
Principal of Equal Opportunities as an Implication for Sustainable Human Resources Management:

Legal and Managemental Approaches / 604
Aurelija PŪ� RAITĖ� , Rūta ADAMONIENĖ�
Linkage Between the Millennials’ Perception of CSR and Their Occupational Well-Being / 616
Ž� ivilė STANKEVIČ� IŪ� TĖ� , Wioletta WEREDA
Geographical Mobility Barriers Identification for Persons to Become Active / 631

Adriana GRIGORESCU, Cristina LINCARU, Cristina STROE, Speranț�a PÎ�RCIOG
Motivation of Academic Staff: Internal Marketing Concept / 645

Natalia POLZUNOVA, Lyudmila KOSTYGOVA
Transformational Leadership and Employee Affective Wellbeing: the Mediating Role of Psychological
Empowerment / 656
Dan F. STĂ� NESCU, Alexandra ZBUCHEA, Florina PINZARU
Section 7. Crisis and Risk Management

Chair: Sergiu STAN
Managing the Unexpected: the First Effects of COVID-19 Outbreak on the Global Economy / 668
Adriana GRIGORESCU, Denisa-Atena COSTOVICI (MEMA)
Museums in Times of the COVID-19 Pandemic. Focus on Romania and Italy / 680
Alexandra ZBUCHEA, Mauro ROMANELLI, Monica BIRA
Books Reaching Readers in Times of COVID-19 / 706
Alexandra ZBUCHEA.Adina SANIUTA, Bogdan HRIB
The Impact of the COVID-19 Pandemic on Business. A Preliminary Overview / 721

Florina PINZARU, Alexandra ZBUCHEA, Lucian ANGHEL
Decisions Under Uncertainty in the COVID-19 Era / 731

Sergiu Octavian STAN, Mihai Laurenț�iu TREAPĂ� T, Corina Elena DRĂ� GĂ� NESCU
Section 8. Knowledge Economy

Chairs: Constantin BRĂ� TIANU & Alexandra ZBUCHEA
Mapping Key Components of Entrepreneurial University Models / 744

Daniela Mihaela NEAMTU, Ruxandra BEJINARU
Assessing the Driving Factors of Business Profitability in European High-Tech Versus Low-Tech
Industries / 758
Alexandra HOROBET, Consuela POPESCU, Georgiana VRINCEANU, Lucian BELASCU
Artificial Intelligence and the Ethical Use of Knowledge / 773

Cristian VIDU, Alexandra ZBUCHEA, Rares MOCANU, Florina PINZARU
The Impact of a Country’s Reputation in the Economic Development of a Nation / 785

Adina SĂ� NIUȚ� Ă�
Integrating Intellectual Capital and SMEs Internationalization Into a Common Conceptual

Framework / 792
Elena-Mădălina VĂ� TĂ� MĂ� NESCU, Andreea MITAN, Violeta Mihaela DINCĂ� ,
Andreia Gabriela ANDREI
The Importance of Emotional Intelligence in the Time of the Coronavirus / 806

Moldvoy AKOS
Emotional Intelligence and Entrepreneurial Skills / 815

Norina POPOVICI, Ionela MUNTEANU FLOREA, Oana OPRISAN
Specializations of the Future. Challenges and Opportunities for Generations Y, Z, and Alpha / 825
Daniela Mihaela NEAMTU, Cristian Valentin HAPENCIUC, Ruxandra BEJINARU
Section 9. Challenges and Opportunities in the Social Economy

Chair: Cristina BARNA
The Impact of Social Business on the Economy: The Case of Lithuania / 842
Zaneta SIMANAVICIENE, Eimantas KISIELIUS, Arturas SIMANAVICIUS, Daiva BICKAUSKE
Food and Humanitarian Non-Profit Organizations in Greece: Synergies, Networks of Knowledge and
Innovation / 853
Smaro BOURA, Orestis VATHIS, Nikolaos TZIFAKIS, Asteris HULIARAS
Promoting Social Resilience in Rural Areas Through Social Economy in Time of the COVID-19
Pandemic / 873
Simona Maria STĂ� NESCU
Activist Museums – Between Intentions and Perceptions / 883
Alexandra ZBUCHEA, Monica BIRA, Mauro ROMANELLI
Section 10. Challenges of Project Management

Chair: Lajos SZABÓ�
How Do the Due to the Pandemic Revised Frame Conditions Influence Project Management? / 896
Elvira KUHN
Challenges in Project Management During COVID-19 Crisis / 909

Delia-Simina DĂ� NILĂ� , Octavia-Andreea ADAM
Organization of Monitoring of Financial Flows of a Franchisee Transportation Company to

Minimize Risk / 918
Elena GAVRICHENKO, Olga LUSKATOVA, Marina ROBERTS, Elena BELOUSOVA
1
Economics
Chair
Cristian PĂUN
14 Strategica 2020
ANALYSIS OF ECONOMIC PROTECTIONISM FROM THE

PERSPECTIVE OF CONSTRUCTAL THEORY
Radu ISAIC
University of Economic Studies
Piata Romana 6, District 1, 010374, Bucharest, RO
isaicradu@yahoo.com
Abstract
In this article, I will try to use and apply the thinking apparatus created by the Constructal Theory
to economic protectionism. Economic protectionism is approached mainly through the prism of F.
List and M. Manoilescu. We consider the emergence of states necessary; the reasons for the existence
of states will be briefly addressed in the article; therefore, we consider it appropriate to use the logic
of Constructal Theory (C.T.) to analyze the economy of a state. The state is a way of life of social
organization; in fact, it is an obligatory step to achieve social relations and that is why it is necessary
to find ways of state economic development using the concepts of the mentioned theory. The existence
of a state cannot be ruled out; a state must be developed; protectionism may be feasible; that is why
protectionism must be analyzed and this is what we will do in this article. C.T. is created by Professor
Adrian Bejan of Duke University in America. It is a Theory initially built in the conceptual framework
of thermodynamics, but later proved its applicability in many fields including economics. It is a theory
generated by an intuition of Professor Bejan that identifies existence (being) with the flow.
Everything is a flow and takes place within a flow system, a system surrounded by a certain
environment. Human existence takes place within this general flow and is also a flow. Professor Bejan
intuited that the flow of a system is not chaotic but follows certain mathematical and logical rules
and principles. The conclusions of C.T. in economics approaches the statements of the Austrian School
of Economics and Law. But in this article, we will force C.T. and we will direct the light provided by it
to other approaches to economics, that is, to understand and analyze, through its prism, economic
protectionism the existence of the state. We will finally address some concrete, historical problems
and we will try to break them into pieces, to understand their mechanism, and to find solutions. My
article is a completely new approach both in the field of protectionism and especially in the use of
C.T. concepts. We conclude that we can use C.T. to better understand the existence of states,
protectionism and that we can think of ways to economically develop states. At a certain level and
with certain compromises on both sides we can reconcile C.T and protectionism in its light form.
Keywords
Constructal Theory; flow system; protectionism; socialism; economic cycle; crisis.
Introduction
In this article we will try to approach economic protectionism through the eyes of C.T.
Protectionism is thought mainly through the theories developed by F. List and M.
Manoilescu. I will seek to find the area of overlap between two seemingly irreconcilable
theories: C.T. and economic protectionism. I think that at a certain point Professor
Adrian Bejan was wrong. We cannot analyze only the ends of a system: the point and the
whole (i.e. the individual and the global system). In the interval between extremes there
are very important, independent systems of organization: the states. These must be
considered taking into account: the individuals of which they are composed and the
global system in which they are included. It remains to be seen what underlies the
formation of a state and why they are different from each other.
Economics 15
The approach I am trying to take is completely new. C. T. leads to the Austrian School
and yet I state in this article: the state is important and the economy of a state can be
understood (theoretically and practically) through the thinking apparatus of C.T. so that
we can accelerate development.
For C.T. everything is flow. At first, the flow is diffuse (unorganized) then it turns into an
organized flow through flow channels. There are precise mathematical relationships
everywhere: between diffuse and channel flow; between the flow of different types of
channels; between flow and outside; between the different sizes and measures of the
channels; between different types of channels; between the measures of speeds and
times.
In biology, the question has always been at what level the laws of natural selection act
and what is the basic unit of selection. University careers were created, intellectual
celebrities were created, and high-circulation books were written by biologists who
looked at things differently depending on the place, level, and direction in which they
pointed their flashlight. The basic unit was thought to be: the gene, the individual, the
population, the species, the ecotope, and the ecosystem as a whole (each basic unit gave
rise to a treaty and a way of looking at things). But all these are integrated into each
other, the laws act at every level and as a whole. It is difficult to understand for the
limited capacity of man how the whole evolves as a whole and in parts.
Mostly C.T. tries to avoid common mistakes and limitations inherent in a theory; which
looks at only a small part of the truth and then tries to extrapolate it to the whole system.
C.T. starts from the individual and his goals and aspirations, then gradually a
hierarchical structure of flow is formed consisting of different stages of hierarchy.
Hierarchy is mandatory, it is necessary for a more efficient flow. The system constantly
adapts, if left free, and the difference in wealth is implicit (inherent) in efficient
operation. Although it starts with the individual, Adrian Bejan emphasizes that the
system as a whole is what matters.
C.T reaches approximately the same conclusions as the Austrian School because the two
schools point their flashlight at two places: the individual and the system as a whole. The
intermediate stages of reality disappear, steps that must be considered important and
that require a theoretical analysis and penetration into the functioning mechanisms.
In this article we will try to penetrate with the help of C.T. in the formation of states and
the protectionist economies of the state; as hierarchical steps in the formation of the
global flow system. To achieve this, we will have to take into account other elements that
economists usually go over quickly. They function as barriers in the global flow system.
They can be thought of as the limits of the flow channel. They form the ideational system
of thinking and feeling of a population. The religion, way of thinking, beliefs, and feelings
of an entire population form a system of thinking through which the information system
passes; this information system is the foundation of the flow of goods/services.
Fundamentals of analysis
C. T. considers that flow systems are formed in areas where resources exist and from
there radially propagate outwards. The extension is done mathematically respecting
16 Strategica 2020
certain proportions. Flow systems formed in disparate areas by development connect

and form a larger flow system. I consider that on the route of connection between
important flow systems, states are formed. States are formed not only because of
resources but also because of psychic factors (discussed in this article). Not every flow
system formed around a resource becomes a state. A critical force mass of the system is
required.
Nothing can be thought of outside a pre-existing system of conceptions within a

population. Nothing can be created in the objective world if it was not first conceived in
a population. The ideational system of a population of differentiates populations from
each other. It makes some more suitable for a job, others more suitable for another type
of work, differentiate their skills and abilities. Original creations within a population
materialize through an individual or the original collaboration of several individuals.
If the material system determines the ideal system or there is mutual conditioning, this
aspect goes beyond the present work. Instead, we can see globally, according to C.T.,
flow systems that integrate other flow systems. When a certain critical mass of
development is reached (within a system) a clear differentiation from other neighboring
flow systems occurs. Here I am referring to the emergence of states that differ from each
other. The state seen as a flow system has different characteristics from the neighboring
system and the greater the distance in space and time the greater the difference.
Empires were attempts to unite different systems of flow and attempt to make them
more efficient, but different ideational systems (which were part of empires)
fragmented empires into different states. To include states in larger flow systems
requires effort (theoretically and practically) because each of these states tries to
differentiate its borders and create different flow systems from its neighbors.
For the emergence of states, we can think of as a resource: geography or the distribution
of resources on a certain territory; as indeed says C.T. I will part here with Adrian Bejan
and I will say that the emergence of states has at its origin in the thinking structure of a
population that includes: religion, will, archetypal images. There are populations with
greater internal strength and they include minor populations within them; which they
suffocate and include altogether.
For simplicity, I will talk about the will to power. Reaching a critical mass of willpower
in a certain area will lead to the creation of a state. The state is an important stage of the
general flow system, it is an important level of organization, it can be thought of as a line
of fragmentation in the global system. Of course, all states are included in the global
system, but the state is an important step in the organization (and thinking) of the
general flow system. Why? Because it is based on the will to power (archetypal images
of thinking). Those who form the state as a flow system want to differentiate themselves
from neighboring systems.
The desire of an isolated individual is to be included in a certain flow system, depending

on the affinities of thought. In the past, a conscious choice was unlikely to take place;
obstacles to the movement or circulation of information were numerous. Today a
conscious choice is possible. Unlike the old states (which offer an affinity for a
sentimental living), the U.S. offers an affinity for philosophy, for conscious thinking. So
today the borders of states are permeable to different ideational structures.
Economics 17
States form unitary flow systems; unity is given by the system of values and beliefs in
the first place. The vascularization of states, thought of as flow systems, is different.
Political systems favor or impede freedom of movement. We have the example of an 18th
century Spain that destroyed all its potential and deliberately (through its legislation,
through fanaticism) stopped any normal course of evolution, ankylosed the system, and
did not let it evolve. The decision-makers believed that they had achieved a perfect
political system and no change was needed. Classes favored by a certain state refused to
change the system as a whole.
There are three ways to look at perfection in a system. One. The belief that perfection is
behind you, in a golden age and you are doing everything possible to change the system
by turning it back to the past. It is the way of thinking of Plato, European antiquity, and
the Chinese before communism. Two. The belief that perfection is at the forefront and is
quite well defined and the current system must do everything in its power to move
towards that ideal state and be willing to make any sacrifice. It is the communist faith
and the Nazi faith. Three. The ideals to which we refer are permanent and parallel to the
development at any moment, ideals to which we refer permanently. They only give rules
of a trend, they are general rules that offer a broad framework of development and
behavior but offer certain barriers, limits, which define the walls of the flow system. The
flow channels in this third case are formed by the limits given by the ideal behavioral
prescriptions. Here I include Christianity.
Social plans, as strict recipes to follow, can never be fully fulfilled. A social plan is
successful only as simple trends and by and large. This is because the social sciences
cannot fully anticipate the behavior of the object of their science; this being: man as a
whole. Social plans are approximate and constantly reviewable. A single individual,
taken as a separate entity, cannot know (not even him) how he will react, what decisions
he will make in all situations in his life. No individual can anticipate all the situations in
his life in which he will have to make decisions. The factors on which the reactions of an
individual's behavior in various events in his life depend, go beyond the scope of this
paper.
The properties, the characteristics by which a group can be defined cannot be reduced
to the characteristics of individuals; the group is much more than a sum of individuals.
Groups behave impossibly. Minor things change their properties and direction of action.
The interaction of individuals gives rise to a multitude of particular situations in which
individuals have to make various decisions. A momentary inspiration of a single
individual changes the course of action of the whole group. No individual can know
himself absolutely; even less, will it be known how a group of such people acts.
The state, as already mentioned, can be thought of as an independent vascular system.

Its hierarchical structure and operation comply with the general rules of C.T. That is, it
tends to flow more easily and efficiently. Goods transported through certain flow
channels are in different percentage ratios of similarity or difference with goods
transported through other channels. That is, some goods are identical in all flow
systems, some are present only on certain channels, others are present in only one
channel.
What does protectionism mean in terms of C.T.? It can only mean an attempt to
accentuate vascularization of certain areas to the detriment of others. The resources of
18 Strategica 2020
a system are limited. The attempt at strong artificial vascularization (forced

industrialization) is the taking over of resources from areas where they would have been
distributed naturally and their direction (by the state administration) to certain
bureaucratically favored areas. An administration that anticipates certain profits in
certain investment areas.
The main factor behind protectionism is the will to power. The struggle between various
vascular systems (state level) makes everyone try a race to forced industrialization, with
the thought of anticipated future benefits, independence of production, and strength to
maintain their structure; possibly imposing its structure on other systems.
Issues to discuss
I consider that there are two problems of a state (flow system) to be explained in the
C.T.: One, the permeability of the borders compared to a neighboring system; Two
operations of the flow system inside the borders.
For an easier understanding of the issues discussed, the vision of a state is analogous to
a cell structure in biology. We will use the metaphor: the membrane between the states
of flow systems. This is represented by barriers, regulations on imports. Decreasing the
permeability (raising barriers to imports) of membranes between state flow systems
also could lead to positive effects within a state flow system. These positive effects are
linked to forced industrialization and the freedom of the system within borders.
We can subsume some of the effects of protectionism: forced consumption of resources,

production of unnecessary goods (for which there is no demand), forced vascularization
of some areas to the detriment of others. Example: First. The current automotive
industry. It produces more than it needs, it consumes more resources than the consumer
market is willing to absorb, reduced innovation (because state subsidies stifle
innovation). It is necessary so that profits do not fall in this industry (in which resources
are forcibly invested): a technology change, supported by state law so that the car fleet
is changed. I see the second example in the communist economy. Forced vascularization
by industrialization with the removal of resources from areas where they did not serve
the industry. The result is a production in stock for which no outlets were found.
More precisely: a system that is forced to industrialize inland, due to barriers to imports
and at the same time has freedom of movement inland, this system can give positive
effects. That is inner freedom plus protection at the border = rapid development. This
formula can shorten the time required for industrialization. A free indoor system
capable of changing its configuration and having the freedom to adapt its architecture
to changes in the outdoor environment can have the ability to generate positive effects
when raising barriers at the border. For Example, England of sec. XVI - XX.
A flow system to give rise to positive effects on protectionism needs critical mass (of a
minimum amount required) in terms of area, natural resources, population, means of
transport, stage of development, value system, and beliefs. The Inca and Aztec empires
had sufficient resources, a large population, sufficient capital goods did not have an
adequate system of beliefs and values, and a sufficient stage of spiritual material
development to cope with a more evolved flow system, i.e. the Spanish one.
Economics 19
Flow systems that have the freedom to change the architecture diminished inside
fanaticism, legislation cannot benefit from any positive effect of protectionism. On the
contrary, what is bad inside the system is accentuated, and what is good disappears.
Example Spain of sec. XVII-XIX.
To respect the scientific truth, the advantages of forced industrialization (artificial and
forced vascularization) must also be reviewed. These would be increasing productivity
for the economy as a whole; hiring workers with more purchasing power than those left
in agriculture; increase general purchasing power; increasing the efficiency of the
economy as a whole; raising the level of agriculture. Agriculture is raised by
mechanization; reducing the number of agricultural workers needed; increase
production; raising prices for agricultural products and incomes.
We want to discuss artificial hyper vascularization. In which direction do we overstate

the economy of a state through the forced actions of the state economic administration?
In all known directions or only in certain directions? The first is the Stalinist approach,
the second is according to Manoilescu's theory. The first leads to serious errors because
we do not have objective criteria to separate the industrial branches from each other
(the flow channels that form the system as a whole), and thus we do not know from
where to withdraw resources (flow) and where to direct them; the only real criterion is
the goodwill of a man or group of people. Manoilescu's approach requires a certain stage
of the economy to see which inclinations a certain state (economy) is heading towards
and then to accentuate those inclinations. And this second mode suffers from problems
because the system can adapt (change) over time so that what was valid at a certain time
is no longer valid over a certain period, but the exact opposite is true. Any intervention
is a forcing of the freedom of one system in one direction and the withdrawal from
others.
There will certainly be an endless two-point discussion. The first point of the discussion
is the degree of freedom between the flow system of a state and the external
environment. More precisely, the degree of permeability of the membrane between the
flow system that forms a state and the outside. The second point of discussion is the
degree of freedom of the indoor flow system. And further on this point: how much to try
to over vascularize certain areas to the detriment of others. That is, how much to
withdraw sources from certain areas and where to direct them.
The Austrian School and C.T. it essentially says to leave the system completely free.
Because these schools look at the system as a whole. The global system will certainly
adapt to the most efficient way of flowing mass/ideas. The problem arises when we
insert in the global system the cultural differences and the archetypal images of different
groups of people. These together with geography will form the history of the states.
States will inherently vascularize differently, with different speed and power depending
on the characteristics of the subsumed population. The cause of these characteristics
cannot be identified but can only be ascertained and described. The result will be a
spatial succession of states with different development. How will a less developed state
succeed in overtaking the other more developed ones? Leave everything free, hoping
that your flow system will adapt effectively to the external environment, or intervene?
And if he intervenes where he intervenes, in what direction?
20 Strategica 2020
I believe that a state must intervene in the membranes that delimit it so that these
membranes have a selective permeability according to the needs of internal
development. At the same time, the interior must have as much freedom as possible so
that the system adapts its hierarchical configuration. I consider a viable alternative:
building moderate flow reserves at the central level and managing them very carefully
to moderately vascularize certain areas that need help (e.g. health, education, army,
strategic branches).
Where do economic cycles and crises fit into what is presented? Understanding that
hierarchical flow systems must be left free, and the forced vascularization of certain
areas to the detriment of others (by directing resources administratively or through the
banking financial system); raising artificial barriers at the border of states on the flow
of goods/materials/information will inherently lead to a crisis. The system as a whole is
stronger than the state administrations, it is subject to immaterial principles, principles
to which both the material and the immaterial world are subject. These principles guide
the global flow system in certain directions, and the change of directions
bureaucratically deviates the system from its direction, and sooner or later it will try to
return to its womb, in the natural direction. During crises, the system as a whole must
be left free, as the Austrian School says in theory so that it can find its natural trajectory.
Although the consequences of C.T. applied in economics say that freedom and non-
intervention are the best ways to deal with the system as a whole, I believe that we can
think of states as independent flow systems connected to the global system; connected
but not fatally connected. And in continuation of the above idea, that we can still proceed
to a change in small steps, artificially the flow of the state system. This change must occur
after a deep knowledge of how the global system flows, and interventions must be
progressive, especially through selective permeabilization of the membranes that
delimit the state flow systems and by emphasizing the exploitation of own resources.
Crises will be the price that will have to be paid, but it must be a price assumed.
A river with its tributaries is subject to construction law, this does not mean that this
river cannot be artificially influenced by the construction of canals, dams, sills, dams, etc.
so that the force of the river is optimally exploited by man. Certainly, society and its
economy are subject to many variables as I said above, most of them unknown, but a
deep theoretical knowledge plus the adoption of small steps (trial and error) I think can
be adopted.
Development of the analysis
Related to the two problems discussed above, we will try to answer two other problems:
One the relationship between states on different lines of evolution and Two the problem
of colonialism, i.e. the relationship between the structure of a state and non-state
stretches (i.e. colonialism).
The relationship between states at different stages of development and evolution means
states with different hierarchical flow systems. That is, a system with strong vascularity;
dense; with wide hierarchical structures and on numerous levels (like Russian dolls: one
in the other); with a wide circulation of goods/information; with an efficient and
productive system (transports a lot of goods, high energy consumption, but low
Economics 21
consumption per unit transported), faces a system with a weak and rare vascularization;
with a weak and few hierarchical structures in which the circulation is weak (little
transport, low energy consumption, but high consumption per unit transported).
Think of two countries at different stages of development. If both systems were left free
they would certainly connect and the exchange of goods/ideas would intensify. The
vascularization of the first system would spread over the second and further
vascularization would be accentuated in both systems. The result: certainly the
hierarchical structures would amplify in both systems and even more so in the
diminished one. Growth would be in both systems, but at an increased rate in the most
primitive, they would try to become uniform; to create a single larger system that adapts
its configuration to local resources (both natural and to the aptitude potential of people).
Systems are constantly changing in configuration to exploit potential environmental
resources as efficiently as possible. The result would be an expansion of the global
system (consisting of the two smaller systems) into space over new territories and a
general enrichment. The center always expands and the periphery widens. Freedom
would lead to the exploitation of resources specific to each area (natural resources,
intellectual resources, skills, inclinations) and to transport them throughout the system.
Example: England and Spain or Portugal in the 19th century
But things never happened this way. The will to power (which divided the world in us
and them), led to bureaucratic legislation, which tried to over vascularize one state to
the detriment of another. More precisely, one system tries to suck the resources (flow)
of the other system, stopping the development of the weaker system; system that lacks
the energy (resources) needed for development. Through corruption (bribery) or war
(violence), the most developed system tried to capture the flow of the weakest and
integrate it into its flow.
I would give as an example here Romania (after the revolution) opposite the European
states. The absorption of the flow from one state by another can be done by special
commercial laws that lead to the selective permeability of borders to different goods;
accentuating the flow in certain areas and areas to the detriment of the other with fewer
resources. Raising selective artificial barriers; narrowing of flow channels; creating
different resistances for the longitudinal walls of the channels, all lead to attracting the
flow from one area (countries) to another.
I would also include here the actions of the Central Bank. In the 1929-1937 crisis suite,
the two U.S. Central Banks and France stored most of the gold, preventing it from
entering the market. Both underestimated their currency only as a reason for not
allowing the general flow. England overestimated its currency. They all tried to change
the flow by corrupting the information transmission material and the power of
movement (i.e. money). The result was the devastation of the economic circuit.
The second issue under discussion is the relationship between an evolved, hierarchical,
and state-shaped flow system and the population of an unorganized area in a state form.
The problem of colonialism.
The political structure is hierarchical (and as C.T. says) this facilitates the flow; that is,
facilitating the flow is the purpose of its formation; training that can also be called
spontaneous. The political structure at least in its initial formation is not rationally
22 Strategica 2020
thought out (as formation); it simply arises. After its elaboration, its change and
direction can be the result of rational decisions.
The difference between the higher and lower primitive forms of the state organization
is in the different number of hierarchical levels within the systems. A higher state system
comprises numerous hierarchical levels both vertically and horizontally that allow the
existence of an ample vascularized system; system that consists of many other
intermediate hierarchical systems. An inferior organization system has several (one or
two) hierarchical steps that lead to the existence of a very limited vascularization.
I consider the state the last stage of organization, before the global organization and the
last stage that has a rational system of government.
Populations unorganized into state forms and having primitive forms of organization
will be absorbed by larger systems. Increased vascularity, of an area adjacent to a
hierarchical state system, is inherent; although there is a diversion of the flow to the
central area. So in time, all areas will be organized by the state. A critical mass of
development must be reached (surface, flow) until the state organization is reached.
Individuals do not matter in the stages of evolution of flow systems. What matters is the
system as a whole. Hence the tragedy of individual destinies. The local system connected
to a larger system will evolve inexorably. Its evolution will exist; no matter how much
will be artificially altered and how much flow will be forcibly absorbed into the large
system. Over time, the local system evolves, grows, adapts continuously to reduce the
resistance of the external environment and to disperse them evenly in the system. Local
resources are attracted to the big circuit and develop it. Despite all bureaucratic
attempts to overstate certain areas and impoverish the periphery (colonialism, U.E.) the
periphery develops, sometimes abnormally, but develops, absorbs resources, and
retains a part that will gradually accumulate leading to the development of the local
system.
A small local system that escapes isolation and connects to larger systems, the global
system, will escape poverty, will evolve. The global system is made to evolve to include
as much surface area as possible, as much flow as possible. Even the bureaucratic
handicap will not be able to stop the general flow. The force of the high flow will break
down bureaucratic barriers, create crises, but destroy the forces that oppose the flow.
The condition is to connect a small system to a large stream.
Example. Spain of sec. XVIII. It destroyed its internal flow by eliminating Jews and Arabs
(money and goods flow); preservation of old ankylosed systems (feudal system);
elimination of all attempts to adapt the economic flow system to new changes
(fanaticism); aberrant attempts to absorb resources from other areas to supplement
internal shortcomings (colonialism, permanent wars). The result was social and
economic primitivism. However, the connection to the global system broke down the
barriers to adapting the system to streamline the flow, and thus Spain modernized by
inoculating a new flexible flow system.
In the discussion of protectionism (through the eyes of C.T.) an aspect to be achieved is

the kind of filters to be used between the membranes between states. Can any goods
Economics 23
potentially be filtered? Or should only certain categories of goods be excluded from

filters?
F. List states that agricultural goods and raw materials should not be included in any
filter. Because agricultural products are exchanged for agricultural products and what
is extra to one is given to the other and vice versa. The agricultural products used for
exchange are only those above what is needed and based on the exchange a larger
nutritional base is used for the population. Raw materials should not be subjected to
filters because they are used in industry and by their free passage finished products
would be cheaper.
F. List considers that filters should be placed only on industrial products so that the
industry in a state-run system can build its industry. List does not specify what type of
industry, leaving this to the suspicion of the reader. Continuing Manoilescu considers
that those industries for which a country has proven inclinations in time must be over
vascularized. Inclination due to the natural resources it has or to intellectual inclinations
that a certain population has. It is thus necessary to allow a period of non-interventionist
economic development of a nation, to observe in which industrial direction it develops
naturally, spontaneously. Manoilescu proposes formulas for calculating the productivity
of industrial fields in a country and proposes the injection of steroids only to those fields
that are in the first half of productivity.
I see an example of aberrant protectionism in the communist economy in Romania.

Trying to industrialize a country in all possible areas; to open enterprises in all known
industrial fields; to try to distribute industries evenly across the country, comes into
contradiction with previous protectionist theories and is at the opposite pole of the C.T
and the Austrian School. I consider that the errors of the developed Multilateral Society
are best highlighted by C.T.
A flow system forms an architecture so that local resources are exploited efficiently.
Concentrations of vascularization and flow occur in areas with resources. Here a
hierarchy of flow develops (i.e. the industrial branches appear) which develops in the
stages necessary for each raw material. That is, it starts from extraction, processing, and
stops at the finished product and distribution. In no case do flows and vascularization
occur for resources that do not exist. At most, there are the ends of the flow channels
(those regarding the distribution) that bring certain goods, materials from other areas.
The vascularity regarding the distribution starts from a concentrated level then
dissipates and thins as they conquer the space. Depending on the amount of resources
and demand, the system gradually becomes vascular.
Building flow systems for non-existent resources in the area means diminishing normal
vascularity and spreading it artificially and deformed. It's just that the flow system of a
state is not dead, it is alive, it is changing and trying to move towards its normal form.
So the system can only be held in artificial form by force. This means reducing the flows
in the system and using them in creating artificial flow barriers. But systems are
stronger than artificial barriers and those who build them. Which means that at some
point they will explode and flood the entire surface. It will take time for new channels to
be created and for a new vascularization to build spontaneously.
24 Strategica 2020
Communism in Romania tried to uniformly enrich the Romanian population by

spreading economic actions as evenly as possible. C. T. clearly states that uniformity
cannot exist. Hierarchy is a mandatory condition, as is the difference in wealth. The
system uses local resources. The artificial manipulation of the system in the desire to
bring it according to ideal models (for communism it was a system like a fishnet with
uniformly distributed knots, equal in size and with equal distances between them)
means only general impoverishment.
Creating an enterprise in an area considered poor compared to the average, in the desire
to increase the power of movement of the area, means only bringing flow from
elsewhere, lengthening the natural supply channels, creating artificial channels, etc. All
this only means a decrease in vascularity (channels and flow) in the system. Instead of
the system naturally expanding and pushing the edge, the periphery, the whole system
turns into a periphery. Areas with potential do not develop, and those without potential
maintain their flow artificially by absorbing flow from elsewhere.
Development starts from the centers to the edge and not from the periphery to the
center as communism tried to achieve economic and social development.
Conclusions
The communist system was a classic example of how wrong beliefs and ideas can create
disasters. A misunderstanding of the nature of social and economic development will
lead to disaster. An idea that had good intentions at the beginning: to standardize the
development, for everyone to raise their power of movement at the same time; it only
led to general impoverishment. The economic system develops without taking into
account unnatural ideas and develops without knowing the human notion of
compassion (which was probably the basis of social ideas).
Communism was the only attempt (in human history) to return to the architecture
(configuration) of previous flow systems; outdated systems at a certain stage of
evolution. Effectively, it was tried to raise the water upstream against the natural
tendency. An attempt was made to destroy the contemporary evolved system and build
an old model. But flow systems are evolving strongly in the direction of increasing flow.
The opposition is useless. The system can be manipulated and corrupted within certain
limits, but the system will break down artificial barriers and flood the economic system
with the risk of starting over with diffuse leaks and the rest. The transition to a primitive
configuration could be achieved and maintained only by force (prison, camp) and by
confiscating private property and maintaining all common property. This type of
organization is synonymous with the diffuse flow of C.T., i.e. the stage prior to the
formation of the first channels. The communists tried to achieve a diffuse flow as general
as possible over the entire surface and to prevent the formation of a hierarchical
architecture of the canals due to private property. Communism also tried to maintain a
rigid, inflexible, and immovable bureaucratic channel structure. Preventing the
evolution of a system is an illusion and doom to disaster. No matter how strong a
bureaucratic system is: the system will move. The system moves through the quantity
of consumer goods and capital that increases quantitatively and qualitatively; by
changing ideas and mentalities; by demography etc. How much the material basis
determines and conditions the superstructure of ideas is a discussion I cannot open.
Economics 25
They are probably in a relationship of mutual conditioning that cannot be broken down
and analyzed in pieces.
An important issue to discuss is the optimal way to move from communism back to a
society based on private property.
The proposal of the Austrian School to return the property in full to the old owners or
their heirs, I consider, was a mistake. It was the inverse attempt of the communists. That
is, a system (with a certain architecture) was forced to acquire a completely different
configuration artificially (skipping any stages of evolution). An attempt was made to
overlap an architecture, belonging to a certain historical moment, with force over
another real existing architecture. The result was a combination of flows belonging to
flow systems from different historical moments. With a hybrid, artificial, and damaging
result.
Ideally, it would have been a discreet and easy direction towards a capitalist system of
private property or non-intervention in any direction. Maintaining the type of
organization (communist flow system) and allowing it to evolve. Bureaucratic
decentralization, delegating power to enterprises (at the level of the basic organization
of workers), would have been a better alternative. Organizing each enterprise according
to the models they considered good would have been a viable alternative. The aim was
to destroy the centralization of power and the uniform diffusion of power in the system.
So that the flow resistances are distributed as evenly as possible. Maintaining the type
of land tenure arrangements and using shares for the old owners I consider to have been
an easy and efficient option (a small push to the system towards an efficient and easy
evolution).
I consider that a more efficient targeting would have been the use of distributed shares
only in the property of the workers who worked directly in that enterprise. Certainly, at
the individual level, there would have been unfair distributions. A perfectly uniform
distribution would have been impossible would have meant a return to communism, but
as I said the change in the system occurs individually. What matters is the system as a
whole. The system is changing to a more efficient flow and certainly, some will be
sacrificed in terms of well-being compared to others, but the system as a whole and each
one is more efficient, the well-being of all increases.
How the transition period was realized in Romania represents only the reversal (the
mirror image) of what the communists did; with the same result. That is, a few rich, the
majority impoverished, and a very thin middle class. Forcibly overlapping two flow
systems (two architectures) from different evolutionary moments have only one result:
the creation of a hybrid system with a lot of diffuse primitive flow, a system that will
struggle to evolve towards the formation of channels, reducing resistance (and their
uniform distribution).
Current theories of protectionism have no limits on state intervention in the economy.

Only the power of imagination is the limit of current interventionism and protectionism
(theoretically and practically). The state carries out actions on the economy at all levels
of social organization. Many of these actions have dubious motivations behind the so-
called lobby, in fact: influence peddling. Current protection policies have different names
(they cover their questionable motivations with scientifically prestigious names) and a
26 Strategica 2020
laborious theoretical and practical basis. Mathematics and various types of scientific
arguments try to support modern protectionism. The results are debatable at a practical
and theoretical level (from the perspective of C.T.). No matter how decentralized the
bureaucratic decision is so that decisions can be taken at a level appropriate to the
problem, the bureaucracy depends on too many uneconomic variables close to goodwill
and chance.
We consider that a slightly selective permeability at the level of state membranes to

develop certain economic characteristics (organic to a certain area) is sufficient.
Freedom is important for the development of a system. C. T. indicates the need for as
much freedom as possible at the level of individuals (like the Austrian School) so that
the system can adapt quickly to change. Freedom creates the capacity for change at any
hierarchical level for any type of change in the environment. The system evolves on its
own to higher flow. The properties of a system with a high degree of freedom are
emergent and cannot be reduced to the sum of its parts or its components. But we know
that the system tends to flow more intensely and to a larger area.
The system creates hierarchy and inequality. These are inherent. The more freedom the
system has and develops and grows, the greater the inequality. We must choose rapid
development and inequality or slow down development and reduce inequality.
The global economic flow system has numerous hierarchical intermediate stages. An
intermediate step of extreme importance is the state (as we have tried to prove). The
classification of the hierarchical steps of the global flow system depends more on human
thinking. They are neither absolute nor perennial.
At the state level, the compromise between development and the reduction of inequality
must be achieved. This must be done through protectionism. Protectionism has a lot to do
with art, that is, finding the right measure and the right actions. Not to hinder
development, but also not to lead to major inequalities and social movements. Experience
is just as important as a priori thinking (because experience has too many limits).
Through this article, we have shed light on the state and its possibilities for development
from a different angle. The state is important, its existence is indispensable; C. T. helps
to understand this concept and to develop it.
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28 Strategica 2020
STATISTICAL INSIGHTS ON CAPITAL MARKETS IN CENTRAL AND

EASTERN EUROPE – A COMPARATIVE APPROACH
Luminița NICOLESCU
Bucharest University of Economic Studies
6-8 Piața Romană, 010374 Bucharest, RO
luminicolescu@yahoo.com
Florentin Gabriel TUDORACHE

gabriel_tud@yahoo.com
Monica Teodora TUDORACHE

Otto Friedrich University
Kapuzinerstraße 16, D-96047, Bamberg, DE
monitudorache@yahoo.com
Adrian Tudor TUDORACHE

tudortudorache@yahoo.com
Abstract
Capital markets play an important role in the economies of the world as they support economic
development. The present paper conducts an analysis of the young financial markets of Central and
Eastern Europe with the focus on two selected markets: Romania and Hungary. In these countries,
the capital markets are studied from the perspective of two components: stock exchanges and mutual
funds market. The paper tries to identify the influence of several defined macroeconomic factors
(GDP, inflation, unemployment, and savings) and industry-related indicators (stock market return,
number of companies listed at the stock exchange, number of mutual funds, total net assets of mutual
funds) on the evolution of the two components of the capital markets (stock exchanges and mutual
funds). The methodology employed envisaged a regression analysis using data from the period 2003-
2019. The paper uses a comparative approach from two viewpoints: it compares stock exchanges
with mutual funds in each country and it compares the two financial markets, Romania and Hungary
with one another. The study concludes that macroeconomic factors influence more the evolution of
the stock exchanges than the evolution of mutual funds and that in Romania the impact of the
macroeconomic factors on capital markets was higher than in Hungary in the analyzed period.
Keywords
Capital markets; stock exchanges; mutual funds; macroeconomic factors; mezzo-economic factors;
Romania; Hungary.
Introduction
Financial markets represent an important part of any economy, including those from
Central and Eastern Europe and therefore have been studied extensively by different
researchers from different perspectives (Tvaronaviciene, 2019; Stoltz, 2020; Nicolescu
Economics 29
& Tudorache, 2016, 2018, 2020; Androniceanu, Gherghina, & Ciobănașu, 2019; Swiecka
et al., 2020). Capital markets as an essential component of financial markets constitute
an influencer of economic development in all economies. The analysis of the factors that
influence capital markets is therefore a topic of interest for the researchers (Cevik et al.,
2016; Sabău-Popa et al., 2014). Capital markets have different components, out of which
of interest for the present research are the stock exchanges and the mutual fund markets
and the way they are influenced by different macro-level factors and mezzo level factors.
Each of the two components of the capital markets can be characterized by different
indicators. For stock exchange markets, the most popular measure for its performance
is represented by the stock exchange indexes (Horobeț & Belașcu, 2015), which usually
are computed by looking at the most performant companies traded (Vychytilova, 2018).
For mutual funds, common measures of the market are the mutual funds' assets
(Lemeshko & Rejnus, 2015; Filip, 2018) and how they relate to the Gross Domestic
Product, namely, the mutual funds' assets as a percentage of GDP.
Macroeconomic factors are seen as influencers for capital markets (Albu, Lupu, & Călin,
2014; Tsaurai, 2018) and some of the factors analyzed are the Gross Domestic Product
(GDP), consumer price index, money supply, interest rates, exchange rates,
unemployment, exports as it is considered that there are linkages between
macroeconomic variables and stock prices (Horobeț & Dumitrescu, 2009; Celebi &
Honig, 2019, Nicolescu et al., 2020). Other influencers of capital markets, such as the
investment behavior, are identified by the literature (Ferreira et al., 2012; Filip, 2018;
Sindelar & Budinski, 2019) emphasizing the importance of knowledge when deciding on
complex decisional aspects (Vătămănescu et al., 2016, 2017). Mezzo factors (industry
level factors) are less present in the literature (Agarwal & Khan, 2019), while micro-
level factors are present to a limited extent, more than mezzo-level factors, but less than
macro-level factors. Examples are micro-level factors (corporate profits, news about
companies) or the internal factors (earnings per share, dividend book value) that
influence the development of the stock exchanges (Shah, 2018; Islam et al., 2017).
The present study considers two-factor categories: the macroeconomic factors and
mezzo factors or industry level factors. The research analyzes as macroeconomic
factors: GDP, inflation, unemployment and savings, and as mezzo level factors: stock
market return, number of companies listed at the stock exchange, number of mutual
funds, total net assets of mutual funds. Before looking at how the above mentioned
macroeconomic and mezzo-economic factors influence capital markets, it is of interest
to see how capital markets in the two countries evolved. The present paper is organized
as follows: the next section looks at the characteristics and the evolution of the capital
markets in the two countries from a comparative perspective; the third section presents
the methodology used for the empirical research; the fourth section presents the results
of the empirical research and the level of influence of the macroeconomic factors on the
two components of the capital markets and the last section includes the conclusions,
also presented through a comparative approach.
Capital markets in the two countries – similarities and differences
The capital markets in the two countries present both similarities and differences in terms
of characteristics and evolutions, as illustrated by the literature, the country, and the
financial reports of different institutions and the available statistics.
30 Strategica 2020
Romania is a large country in terms of the number of inhabitants (around 20 mils.) in

comparison to Hungary that has a population half-size (around 10 mils.), but in terms of
the level of economic development even from the beginning of 1990, the level of
economic development (measured through the GDP/capita) was higher in Hungary than
in Romania (in 1990 GDP/capita in Romania was 1680$ and in Hungary was 3349$).
The gap diminished over time but not entirely as in 2018 the Romanian GDP/capita of
12301$/capita represented 77% of Hungary’s GDP/capita of 15938$ (Global Economy,
2020). Such macro-level aspects influence the development of capital markets in these
countries, as it is acknowledged that historical circumstances, needs, and possibilities of
each country impact the evolution of financial markets (Bajus & Stasova, 2015).
The similarities between the capital markets in the two countries include aspects such
as:
- in both countries stock exchanges have been reopened after 1990 (Jaba et al., 2013):
The Budapest Stock Exchange in 1990 and the Bucharest Stock Exchange in 1995,
illustrating that both markets are young financial markets with limited experience.
- in both countries, the development of the capital markets and the stock exchanges have
been connected to the processes of mass privatization that took place at the beginning
of 1990 in many Central and Eastern European countries to retrocede the properties
that have been nationalized during the communist period (Bajus & Stasova, 2015; Radu,
2012).
- both countries are perceived as having small capital markets, rather underdeveloped
markets with a limited number of participants and transactions (Jaba et al., 2013), with
low liquidity (Boghean, 2014) and inefficient and little performant markets (Bajus &
Stasova, 2015; Bukowski, 2014).
- both countries have adopted and continue to adopt laws specific to financial and capital
markets that are concordant with the European Union legislation. For instance, laws that
protect minority shareholders (Boghean, 2014). In their early days, both markets have
been affected by the instability of the financial legislation and by the lack of transparency
regarding information about issuing companies. In the last years, the European
directives envisage a stricter regulation of the financial markets, and the transposition
of those in the national legislation is seen by some as being a factor that generates
instability (Radu, 2012) and even negative effects in some countries in Central and
Eastern Europe (Uhrin, 2019).
- in both countries the stock exchanges have been affected by the launch of the global
financial crisis in 2007, with consequences in stock market crashes in 2007-2008 as
stock market indexes diminished at half or more (Radu, 2012). In Romania, BET had in
2008 the value of 2901 as compared to 9825 in 2007, and in Hungary, BUX had the value
of 12241 in 2008 as compared to 26235 in 2007 (BSSE, 2018). Both capital markets
halved their degree of capitalization in 2008 as compared to 2007 and the year 2009
was the weakest year for all capital markets in the world, including the two studied ones
(Dabrowski, 2010).
- both markets are dominated by foreign banks (Fidrmuc et al., 2013) and the
consequences are that the robustness of the financial systems in these countries is
influenced by the sturdiness of the foreign banks that dominate them (Magas, 2010) on
the one hand, and, on the other hand, the faster transmission of the financial contagion
due to the strong financial interdependencies between countries.
- in both countries, there are Fund Management Associations (AAF in Romania, BAMOSZ
in Hungary), as professional organizations that have the role to promote the idea of
Economics 31
collective investments and to support the organizational, legislative, and professional

framework in which its members operate.
- both countries have banking economies that are based rather on bank loans with the
investors investing rather in bank deposits than in investment funds (Diaconașu &
Asăvoaiei, 2011; IMF, 2019, as it is well known that bank credits dominate domestic
financing in Central and Eastern Europe (Iorgova & Ong, 2008). During the economic
crisis period when the interest rates reached values close to zero (as an anti-crisis
measure), investors started to look for alternative saving methods and moved their
savings in investment funds (especially monetary funds) as they offered better returns
than the bank deposits (Diaconașu & Asăvoaiei, 2011).
- after the economic crisis, in both countries, monetary funds decreased in importance,
so that in Romania in 2018-2019 there was no monetary fund and in Hungary, 13
monetary funds were representing a third of the total number of monetary funds
existing in the country in 2015 (EFAMA, 2012-2019).
In terms of differences between the capital markets in the two countries, there can be
mentioned:
- the early experiences with mutual funds at the beginning of the 1990s were quite
different in the two countries. In Romania, the initial experiences with mutual funds
were connected to events that generated a strong negative image in the eyes of the
population of the country. There were two mutual fund crashes (SAFI in 1994 and FNI
in 2000), due to which many investors lost totally their investments. The consequences
were related to a high level of distrust of the population and potential investors in
mutual funds, as these were associated with fraud (Copil, 2013), aspects that have
affected the mutual funds market for a long time. In Hungary, the mutual fund market
developed from the very beginning with no unpleasant incidents and no massive image
losses. The mutual funds were administered from the very beginning by management
companies that were branches of foreign multinational financial companies (mainly
banks) and there was a positive image associated with them.
- in Hungary investments are dominated by foreign capital, while in Romania most
investment comes from national capital (Boghean, 2014). This illustrates a higher
dependency of Hungary on foreign capital and a higher degree of independence of the
capital market in Romania, which at the same time represents also a limitation of the
investment sources.
- another difference stands in the way how the financial supervision is organized. In
Hungary, the financial supervision of the capital markets is done by the National Bank
(Magyar Nemzeti Bank), while in Romania the financial supervision of the capital
markets is done by the Financial Supervisory Authority (ASF) that is an independent
body subordinated by the Romanian Parliament.
- the investors’ preferences at the stock exchange before the economic crisis were
different in the two countries: in Hungary traditionally investors opted for assets with
fixed earnings. In 2003 80-90% of the capital market assets in Hungary were bonds and
monetary assets, while in Romania the trading of shares was the majority, as bonds
started to be traded in Romania later (only in 2001) (EFAMA, 2012-2019).
- after 2015, it was accelerated the development of other fund categories (guaranteed
funds and equity funds) with more rapid development in Hungary (85 funds in 2015-
2019) as compared to Romania (three funds in 2015-2019). The assets of these funds
grew rapidly in the total net assets of mutual funds in Hungary (46% of total net assets
in 2019) as compared to Romania (1.5% of total net assets in 2019) (EFAMA, 2012-
2019).
32 Strategica 2020
The literature includes several studies that analyzed the financial and capital markets in
the region and the main themes of interest were: the efficiency and the performance of
capital markets
(Bajus & Stasova, 2015; Boghean, 2014; Bukowski, 2014; Vychytilova, 2018; Stoltz,
2020; Nicolescu et al., 2020); the contagion effect and the financial markets integration
(Delyuvaite, 2016; Fidrmuc et al, 2013; Horobeț & Belașcu, 2015; Feldkircher, 2015);
the level of financial knowledge perceived as being rather low (Brokesova et al., 2017;
Beckmann, 2013; Swiecka et al., 2020); the relationship of the capital markets with the
national economy and the influence of different factors on the capital market (Cevik et
al., 2016; Sabău-Popa et al., 2014; Nicolescu, 2020); the evolution of mutual funds (Bejus
& Stasova, 2015; Filip, 2017a, 2017b; Lemesko & Rejnus, 2015; Tudorache et al., 2015).
Research methodology
The research methodology was based on the construction of two regression models that
test the influence of specific macroeconomic and mezzo-economic factors on the
evolution of the stock exchanges and mutual funds as components of the capital markets.
The two components of the capital markets considered were measured through stock
exchange indexes (SEIndex: BET and BUX) and mutual funds assets as a % of GDP
(MFAs). Consequently, these two indicators represent the two dependent variables that
were considered as measures for the components of the capital markets.
The independent and explanatory variables considered were the macroeconomic

factors, as recognized by the literature, namely, Gross Domestic Product in billion $
(GDP), inflation in percentage (INFL), unemployment in percentage (UNEMPL), and
savings in billion $ (SAV), as well as the mezzo-level factors: stock market return
(SMRE), number of companies listed at the stock exchange (NoCSE), number of mutual
funds (NoMF), total net assets of mutual funds (TNA).
The two countries considered are Romania and Hungary, as young financial markets
from Central and Eastern Europe. The data was collected for the period 2003-2019
(according to the availability of data) for all considered indicators in both countries,
using as sources international statistics published by The Global Economy and by ICI.
There were tested two multiple linear regression equations for each country according
to the two different dependent variables considered and the same macrolevel
explanatory variables and adapted mezzo-level variables. The two regression equations
tested for each country are the following:
SEIndex i,t = β0 + β1 GDPi,t + β2 INFLi,t + β3 UNEMPLi,t + β4 SAVi,t + β5 SMREi,t + β6 NoCSE i,t

+ ɛit (1)
MFAs i,t = β0 + β1 GDPi,t + β2 INFLi,t + β3 UNEMPLi,t + β4 SAVi,t + β5 NoMFi,t + β6 TNA i,t + ɛit
(2)
Where, β0 is the intercept; β1, β2, β3, β4, β5, and β6 are the regression coefficients for the
GDP, the inflation, the unemployment, the savings, stock market return, the number of
Economics 33
companies listed at the stock exchange, number of mutual funds and total net assets, and
t and i subscripts represent the country and the year. ɛit is the error term.
The following section, comprising the results of the empirical research, also comments
on the validity of the regression equations.
Macroeconomic and mezzo economic influences on stock exchanges and mutual

funds markets – a comparative analysis
The results of the regression analyses illustrate the extent of influence of the considered
macroeconomic and mezzo-economic factors on the indicators that characterize both
the stock exchanges and the mutual fund markets. Tables 1 and 3 present the level of
influence of the macroeconomic factors (GDP, inflation, unemployment, and savings)
and mezzo-economic factors (stock market return, number of companies listed at the
stock exchange, number of mutual funds, total net assets of mutual funds) on the two
dependent variables considered (the stock exchange index, mutual funds assets as a %
of GDP) in the two countries. The existence of the influence was measured through the
analysis of the p-value for the F test and the coefficients of determination. Tables 2 and
4 present the regression coefficients values and the associated p-values, indicating for
each relationship if it is statistically significant or not and for the statistically significant
relations, indicating the direction and the extent of the influence.
The regression equations are valid for both dependent variables in Romania, as all p-
values for the F test (see Table 1) are lower than 0.05. The coefficients of determination
illustrate that each dependent variable is influenced to different extents by the macro
and mezzo economic explanatory variables considered. The variation of the mutual
funds' assets (as a percentage of GDP) is explained in the highest proportion (97.7%) by
the proposed model. At the same time, the stock market index is explained in a
proportion of 80.1% by the macro and mezzo variables considered.
Table 1. The validity of the regression model – Romania

Romania
BET index Mutual funds assets (% of GDP)
R Square 0.88107 0.986354
Adjusted R Square 0.801784 0.977256
Significance F 0.001005 7.08E-08
(p-value)
Source: authors’ calculations
The analysis of the regression coefficients for Romania illustrates that some regression
coefficients are statistically significant, while others are not. The evolution of the BET
index is influenced by the GDP and by the inflation with a 95% probability and by the
savings and the stock market returns with 90% probability. Accordingly, when the GDP
increases with one bill. $, the increase in the BET index is 72.20 points with a 95%
confidence level.
34 Strategica 2020
Table 2. Regression model’s coefficients – Romania
Romania
BET index Mutual funds assets (% of GDP)
Regression P-value Regression P-value
Coefficient Coefficient
Intercept 6530.387 0.413921 0.694536 0.63643
GDP (bill. $) 72.20789 0.036542* 1.04E-05 0.998681
Inflation -539.482 0.000293* -0.01623 0.526986
Unemployment 528.0145 0.441061 -0.05547 0.700117
Savings (bill. $) -265.721 0.063189** -0.00903 0.655903
Stock market return 25.39871 0.073813** - -
(%)
Number of companies -60.5488 0.234491 - -
listed at the stock
exchange
Total net assets of - - 0.000519 9.32E-06*
mutual funds (mill. $)
Number of mutual - - 0.003249 0.477666
funds
Note: * Confidence level 95%; ** Confidence level 90%
In Romania, when the inflation increases by 1%, the BET index decreases with 539
points with a 95% confidence level. Similarly, looking at the relationship between the
BET index and the stock market return, it can be observed a direct and positive
relationship. The indicator of mutual funds assets as a percentage of GDP is influenced
by the total net assets of mutual funds, an expected relationship. Macroeconomic
variables (such as GDP, inflation, unemployment, and savings) are rather influencers for
the indicators related to the stock exchange, as also found by other authors (Albu, Lupu,
& Călin, 2014: Horobeț & Dumitrescu, 2009). The mutual funds (measured as mutual
funds assets as a percentage of GDP) are less influenced by macroeconomic indicators
in Romania (Nicolescu, 2020), being influenced only by the total net assets.
In Hungary, the regression equation is valid for the two considered dependent variables,
as all p-values for the F test (see Table 3) are lower than 0.05.
Table 3. The validity of the regression model – Hungary

Hungary
BUX index Mutual funds assets (% of GDP)
R Square 0.806301 0.92955
Adjusted R Square 0.677168 0.882583
Significance F 0.007852 0.000104
(p-value)
Table 4. Regression model’s coefficients – Hungary

Hungary
BUX index Mutual funds assets (% of GDP)
Regression P-value Regression P-value
Coefficient Coefficient
Intercept 44126.21 0.180116 0.728037 0.813556
GDP (bill. $) -19.7242 0.933578 0.04624 0.371054
Inflation -1073.34 0.315312 -0.51075 0.093209**
Economics 35
Unemployment -2229.49 0.023199* 0.058418 0.755238

Savings (bill. $) 452.8497 0.534689 0.037587 0.864272
Stock market return (%) 36.72393 0.604176 - -
Number of companies -185.558 0.727412 - -
listed at the stock
exchange
Total net assets of mutual - - 0.000724 0.028773*
funds (mill. $)
Number of mutual funds - - -0.00816 0.48306
Note: * Confidence level 95%; ** Confidence level 90%
Analyzing the coefficients of determination for Hungary, it can be observed that mutual
funds are more influenced by the regression equation (88.2%) in comparison with the
stock exchange (67.7%).
The analysis of the regression coefficients (see Table 4) illustrates that the
macroeconomic factors influence to a low extent the stock market and the mutual funds
market in Hungary. According to the present research and the regression coefficients
that are statistically significant, the BUX index is only influenced by the unemployment
with a 95% confidence level, while the mutual funds' assets (as a % of the GDP) is
influenced only by inflation with a 90% confidence level and by the total net assets with
a 95% confidence level. The considered mezzo level factors (industry variables) except
for total net assets for the mutual fund market, do not have an impact on the
development of the two different components of the capital market in Hungary.
Conclusions
The paper illustrates that the level of development of stock markets and mutual funds is
different in the two countries, with Hungary being more developed for both
components. In this context, the influence of the macroeconomic factors on the
components of capital markets in the two countries presented different patterns, while
mezzo-level factors have similar influences. The main conclusions of the research are as
follows.
Firstly, macroeconomic factors do influence capital markets in Central and Eastern

Europe. From the 28 tested relationships in total in both countries, 8 were statistically
significant. The findings confirm other studies' results (Albu, Lupu, & Călin, 2014;
Horobeț & Dumitrescu, 2009; Celebi and Honig, 2019; Tsaurai, 2018; Nicolescu, 2020)
as GDP, inflation, unemployment, and savings were also found to be capital markets’
influencers.
Secondly, macroeconomic factors influence to a higher extent stock exchange markets

than mutual funds markets, in Romania, while in Hungary the impact of macroeconomic
variables seems similar for both stock exchange and mutual fund markets. The mezzo-
level factors considered impacted the capital markets only via the total net assets that
were an influencer of the mutual fund markets in both countries. There were five factors
in total (in both countries) that influenced stock market indicators, as compared to only
three factors in total that influenced mutual funds.
36 Strategica 2020
In Romania, there were more macro factors (GDP, inflation, and savings) as compared
to Hungary (unemployment) found to have a statistically significant influence on stock
exchange indexes. As far as the mutual funds are concerned, there were only mezzo-
level factors that showed statistically significant relationships for Romania (namely the
total net assets) and two factors, one macro-level factor (inflation) and one mezzo-level
factor (total net assets of mutual funds) for Hungary.
Thirdly, the overall impact of macro-factors is higher in Romania (larger number of

factors as influencers – three in total), as compared to Hungary (one factor in total),
while the impact of mezzo-factors is similar between the two countries.
Based on the results of the study, we can assume that the more developed the capital
market is, the lower is the influence of macroeconomic factors on its different
components. Similarly, stock exchanges seem to be more affected by macro-level
influencers, while mutual funds are less affected by macro-level influences and probably
more affected by industry level and micro-level influences. The results of the present
paper have both theoretical and practical implications. From a theoretical point of view,
the present research contributes to the literature in the field, with the study of the
influence of new macro and mezzo level factors on two components of the financial
markets (stock exchange and mutual funds). At the same time, new insights on the topic
of specific countries in Central and Eastern Europe are comprised. From a practical point
of view, the paper can have implications for both investors’ decisions (at an individual
level), as well as for managerial decisions (administrators of mutual funds) when
deciding where to invest and decide either to acquire shares at the stock exchange or
units at mutual funds. Future directions for the development of the present research can
include more of these types of factors in the analysis and to extend the number of
countries studied.
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40 Strategica 2020
THE BELT AND ROAD INITIATIVE AND THE ECONOMIC STAKES

IN THE GULF COOPERATION COUNCIL REGION
Flavius-Ieronim CABA-MARIA
6-8 Piata Romana, District 1, 010374, Bucharest, RO
mariaflavius19@stud.ase.ro
Radu-Cristian MUȘETESCU
6-8 Piata Romana, District 1, 010374, Bucharest, RO
radu.musetescu@rei.ase.ro
Abstract
The paper analyses the implications of Chinese presence in the Gulf Cooperation Council’ region in
connection with the Belt and Road Initiative. This initiative represents the core of Chinese foreign
policy under President Xi Jinping. Its strategic outcome has the potential to affect regional dynamics,
namely in the Gulf region, representing a turn in the Chinese-Middle East relations. The monarchies
of the Gulf (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) are
particularly engaged in the initiative, with a view to Chinese investments within the region and/or
bilateral projects as they are envisaging medium-term development plans. Their recent commercial
activities that translate into trade volumes between China and the six Gulf countries have surged,
giving China a leading trading role. In exchange, the Gulf leaders have to balance the relation with
China while dealing with other external powers. The study relies primarily on a descriptive approach
that deals with the description of the phenomenon of the post-globalized world and the importance
of China as the economic player in the Eurasian context, with a focus on regional dynamics in the
Gulf region. Also, the study uses the qualitative method to assess the primary sources revealing the
important economic impact of China’s presence in the Arab Gulf, as the economic focus of the Belt
and Road strategy is paramount. The following results are in focus: first, China’s bolstering its
presence in the Gulf region, and in general, in the Middle East. Second, China’s rise in the Middle East
is being noticed concretely into infrastructure projects that are meant to be realized in the next
decades in cooperation with the Gulf monarchies. Third, the Gulf monarchies’ necessities for
economic diversification pushed for approaching China, notably as the United States of America
gradually reduced its commitments in the Gulf region. Forth, it is important to analyze the latest
stages of globalization patterns and the current crafting of a new international context, expecting
more developments. However, the research notes its limit in an international context that is
constantly evolving. In sum, the analysis brings up a theme that was not evaluated as much from an
economic point of view, but rather from a political perspective (the trajectory of the Gulf-China
relations), while trying to shed light on the concrete economic potential of the Initiative.
Keywords
Belt and Road Initiative; Gulf Cooperation Council; China; post-globalization.
Introduction
The traditional Silk Road was the first economic corridor that established commercial
and trade connections between China and the contemporary Middle East, seen as an
eventual synergetic pathway to the Chinese marketplace. The essential idea behind
economic corridors is to enhance economic cooperation and connect markets across
regions.
Economics 41
China’s New Silk Road concept, launched in 2013 - currently known as Belt and Road
Initiative (BRI) aims to create pan-global connectivity. The concept touches upon the
idea of the former Silk Road and Eurasia as a large part of landmass across two
continents. The Belt (the Silk Road Economic Belt) stretches from Western China to
Europe via Central Asia. The Road (the 21st century Maritime Silk Road) links China to
Europe via the South China Sea, the Indian Ocean, and the Red Sea. Practically, the BRI
advances a two-way solution for connecting China with Eurasia, while crossing the
Middle East. The BRI capacitates the Middle East to serve as a strategic hub between
China and Eurasia, adjacent to the many profitable economic opportunities. James
Dorsey (2019) reminds us of how Sir Halford J. Mackinder mentioned the notion of
Eurasia (in a leading article published by the British Royal Geographic Society in 1904)
coinciding with the construction of the Trans-Siberian Railway. In sum, it was describing
Eurasia as “the continuous land of Euro-Asia” (Mackinder, p. 431).
Currently, the Chinese-funded transportation links connecting China to the Atlantic

coast of Europe coupled with the ports (seen as a string of pearls) stretching from the
South China Sea along the Indian Ocean and the Arabian Sea into the Mediterranean,
reconfiguring Eurasia. The plan presents both a geopolitical and economic dimension to
be considered. In the wake of the United States of America (US) slowing down the
globalization processes and the West showing financial fatigue, China can bring in new
ideas for connectivity, the most important being its BRI strategy. The five cooperation
priorities of the BRI represent its core: policy coordination, facilities connectivity,
unimpeded trade, financial integration, and people-to-people bonds (UNDP, 2020),
whereas the overall aim is enabling a sound business environment. It constitutes the
fundaments of President Xi administration’s foreign policy; the Chinese government is
allocating many resources to achieve as much as possible.
The stakes in the post-globalized world are the highest for the US and China, given their
economic power. For other players, such as those from Europe, Russia, and Japan, the
efforts focus on guaranteeing that they remain influential during the game. On the
grounds of the competition for global markets, the contenders of China are making
efforts to raise questions about the practices generated by the $1 trillion or more
initiative (Ehteshami, 2018) in the countries where activities of the plan are envisaged.
China’s financial and commercial power gives it a significant advantage in both

geopolitics and economics. However, caution should be exercised in a project to this
extent. A Financial Times study (Financial Times, 2018) concluded that 78 countries
targeted for the project development figure among the world’s riskiest economies
(developing countries at best), according to Moody ratings. The Chinese government
decided to exert caution as such, given worries about the fiscal impact (on the host
countries) of the grand infrastructure plans, noting that the Chinese builders and
engineering companies were much stronger than those in the host countries. It resulted
in a series of setbacks in Sri Lanka, the Maldives, and cancellation of some projects in
Malaysia and Myanmar and problems with the ongoing crisis in Venezuela and debt
relief. However, besides problems in other parts of the world and the troubled waters of
the Middle East, BRI can enable good opportunities for the extended region – the
lynchpin between Europe and Asia, connecting Africa. The study focuses on the broader
Middle East’s connection to the plan - mentioning the Cooperation Council for the Arab
States of the Gulf (GCC) that could be benefitting most from the BRI.
42 Strategica 2020
The Middle Eastern States find China as a potential provider of goods and services that
delivers altogether infrastructure plans and financial incentives that are different from
those stemming from development banks in the West. For these reasons there appeared
critical sentiments on behalf of the Western countries. The allegations refer to the lack
of transparency in unveiling the sources of funding this mega-structural plan and the
strategy in addressing debt (Brookings report, 2019).
Despite certain shadows of criticism, in the past two decades, China has cemented a
growing economic presence in the GCC, specifically for the Middle East. The study looks
into the Chinese approach in the region, using a descriptive method noting the broader
regional and international context while analyzing qualitatively the implications of the
stakes in point.
The Middle East’s importance in the broader BRI context
The Eurasian-centered world can be interpreted, according to Dorsey (2019) as a

recreation of a Great Game of Powers - a reenactment of the 21st century - in the context
of the post-globalization trend. Rosenberg (2005) argued that the idea of globalization
is outdated, so we entered a new arena of conflicting interests over commercial power,
after decades of globalization being perceived as the Holy Grail for connectivity. In this
recent arena of power struggles, China, the US, Russia, India, Japan, and Europe are
contending. In addition to these players, we have intertwined Middle Eastern rivals,
Saudi Arabia and Iran (as key players in the BRI plan) and Israel and Turkey, as the non-
Arab Middle Eastern States with regional influence. The Middle East lies at the center of
Belt and Road, thus the interest for in-depth analysis in the study. The competition of
powers is channeled regarding the future architecture of Eurasia’s energy landscape, oil
and gas market shares, and key positioning for transportation hubs. Similarly, the fight
for oil markets is different from what was experienced before, the fluctuations of 2020
being relevant in this sense.
In addition, China lies within the fringe of the Muslim States, which can be influenced by
what happens in the heart of Islam (the holy shrines of Islam are all located in the Middle
East). Altogether, whatever happens in the Middle East can have an impact in China, in
the mainland. The Middle East is also on the map of the projected sea power of China,
hence the strategic location of ports and critical infrastructure of the GCC in the BRI
context. The BRI can transform the Middle East’s and the extended region’s economy by
enabling strong networks across Asia, Europe, and Africa. The Middle East is pivotally
located in the halfway of the Eurasian landmass, which can connect both ways - Africa
and Asia. Since China announced the BRI in 2013, the Middle Eastern States - notably in
the Persian Gulf region (See Figure 1) and in Israel and Turkey - have regarded it as a
potential driver to enhance bilateral cooperation needed for economic flourishing.
Economics 43
Figure 1. Chinese Investment in the Persian Gulf

(author’s adaptation from www.aei.org)
The amplified economic ties between China and the Middle East are meant to be
mutually beneficial. For example, in terms of connectivity the China-Pakistan Economic
Corridor, as part of the BRI could shorten access to China, Pakistan, and the Middle
Eastern markets, given that the Gwadar Port (on the Arabian Sea in Pakistan) shares
geographical proximity with the Saudi, Qatari, Emirati, and Omani ports (Hussain,
2020). Moreover, economic interdependence is likely to attenuate political tensions,
ensure sustainable development, and result in economic partnerships across the
regions.
China’s global economic power has facilitated the extension of wide links all across Asia.
As such, the important countries in the Middle East for BRI strategy are Bahrain, Oman,
Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Palestine,
Syria, the United Arab Emirates (UAE), and Yemen (Pencea, 2017). All of the enumerated
states present improved connectivity features and a boost to the geopolitics of energy
(Shahab Uddin, 2019).
After the recession of 2008, the nations in the Middle East have reoriented themselves
to economic diversification and growth (Fardoust, 2016), which was unfortunately
hindered by political instability. The BRI could help the Middle East economies activate
that desiderate.
The cooperation with the Arab states started to become visible at the signature of the
Declaration of the China-Arab States Cooperation Forum (Yao, 2014). Energy cooperation
is at the heart of relationships between China and the Arab world (Yao, 2014), yet there
is much more potential for diversification based on BRI.
The initiative has the means to induce economic transformation and could be in the
process of re-thinking globalization, inducing trans-regional synergies that differ from
traditional globalized commerce (Namaki, 2017). Once a country goes strong
domestically, will eventually feel the urge to move outwards and China is doing so in a
planned way – through BRI.
44 Strategica 2020
The extended Middle East region presents beneficial features: the size of the region’s
population, which amounts currently to over 400 million people, mainly the young
population, demanding many employment opportunities. The market potential is there
and in a certain way also human resources. However, the region needs external help to
develop and that is where the Asian help could settle in. It is considered that the Asian
enterprises can ensure investments and development plans in the Middle East and the
wider Arab region (Ehteshami et al., 2017).
For the Middle East in general, the BRI could act as a safety net - the needed help for
investments, diversification of trade chains, which will prompt growth and fill the
employment gaps. For the oil-rich states mainly, but also to Israel and Turkey, the BRI
offers an impetus to economic diversification (see Figure 2). For instance, Israel, which
is considered already the most diversified economy of the Middle East, exports over 40
percent of its output to Asia (13 percent to China) and draws around 50 percent of its
imports from Asia (12 percent from China) (Evron, 2018). Also, BRI can connect better
the Middle East planning with the projects already enabled on the African continent
(helping the targets of the Export-Import Bank of China and linking it with railway
systems created in central Africa) (Fazari & Teng, 2019).
Figure 2. MENA’s growing importance in BRI

Thus, China aims not only for its commercial expansion and energy security in the
Middle East, but it can consolidate also the Chinese currency in detriment of the US
Dollar (ESCAP, 2017; Kamel, 2018).
However, there are cultural and social differences between China and the Greater
Middle East, but the engagement of China in developing a sustainable relationship with
the region prevails - especially with Saudi Arabia and Iran, noting their prominence at
the regional level, avoiding rivalries (not only with Saudi Arabia-Iran but also between
Israel- Arab world).
BRI’s specificity in the Gulf region
The GCC countries rank first in the globalized economies of the Arab world (Coates
Ulrichsen, 2016). They are most active in the international commercial circuit and their
Economics 45
financial wealth (capitalized in their sovereign wealth funds) has empowered them on
Western and other Asian markets (Bazoobandi, 2013).
China-GCC relations have adjusted in line with the five BRI cooperation priorities. In the
initial list of BRI economic corridors announced in 2015, the Arabian Peninsula was
overlooked. Since then, Chinese and Gulf leaders have emphasized the BRI as an
important element for bilateral relations, more projects being comprised under the BRI
umbrella. The Gulf monarchies have their reasons to accelerate the processes related to
BRI (the need for economic diversification, looking into commerce with Asia, decline in
the oil price, to name a few). China is the image of the expansion and driver of the global
economy (Schwarzer, 2017) nowadays. Hence, all the economic stakes between China
and the GCC have risen recently and the interests become mutual (See Figure 3). The
developmental aims of the GCC states match with China’s BRI objectives (Fulton, 2019a).
Figure 3. Chinese investment in the GCC

The plans for developing GCC beyond oil-centered economies have given birth to a set
of national visions with different timelines, recognizing the need for future generations’
development. The smaller Gulf States ranging from the UAE, Qatar, and Kuwait have
engaged mostly with Western markets thus far; while Saudi Arabia - representing Gulf’s
largest economy has been using its oil wealth investing domestically, concomitantly
with investing in Asia and the West. For instance, Saudi Aramco owns two refineries in
China and is looking for more potential investments in China’s energy sectors. Saudi
Arabia has comprised its bilateral plans with China in the Saudi Vision 2030 (medium-
term development plan for the country). Thus, all the GCC countries connect with China
beyond the energy level, though China is not intending to replace the US’s s security role
in the region. We note that a country alone cannot meet the Chinese demand for oil and
gas, together with the fact that China does not wish to depend on one country for
fulfilling this demand. Hence, China developed other structural plans beyond the oil and
gas sector under the BRI plan (Elkins et al, 2006). It signed Memorandums of
Understanding (MoU) and investment plans to consolidate a strategic partnership with
the oil-rich monarchies of the Gulf. Chinese leaders attached to the Persian Gulf and
Arabian Peninsula strategic importance, a fact made obvious through such plans that go
beyond development goals and underlining intra-regional connectivity (Fulton, 2019b).
In this sense, we notice the establishment of Chinese-built industrial parks throughout
46 Strategica 2020
GCC cities, including regional ports, true transportation hubs in the maritime route
connecting South Asia and East Africa (Fulton, 2019b). One notable example of such
industrial complexes is Kuwait’s North Economic Zone, also known as Silk City. Kuwait
was the first Gulf State to develop diplomatic relations with China. However, in tone with
different political developments in Kuwait, the Silk city is yet to be fully harmonized with
the initial promises (King Faisal Center, 2020). Recently, the Covid-19 pandemic slowed
down further the pace of the project. Also, Kuwait plays a limited role at the regional
level, cooperation focusing mainly on economic matters.
One could observe the strategic outcome expected from the BRI also from the interest
to engage with Oman. Among the Gulf States, Oman is not in the cards for its oil resources
- which are rather modest in the GCC bloc. However, Oman has a strategic location in the
region (Fazari & Teng, 2019) - easy access to the Arabian Sea, enabling geo-connectivity
targets.
All in all, the BRI could provide quality infrastructure and the network for industrial
cooperation, for which political dialogue is also needed. The necessity is more stringent
currently as the crude oil price is in decline. The BRI provides important opportunities
to GCC in terms of economic diversification and better connectivity, integrating global
value (ESCAP, 2017). Figures speak for themselves. Between 2005 and 2016, Chinese
investment in the Middle East totaled over $136.2 billion (Kamel, 2018). Trade between
China and the GCC states have increased from below $10 billion in 2000 to $114 billion
in 2016 (Fulton, 2019a). When counting the Foreign Direct Investments (FDI), China is
prominent in Kuwait (www.santandertrade.com), in the UAE (second after the US), and
Oman – in the oil sector (the third, after the US and UK). China accounts for an overall
3.4% in the GCC cumulative FDI (IMF, 2017 calculations).
Including in the most recent global crisis (whose effects are yet to be assessed)
generated by the COVID-19 pandemic, the GCC States were interested to obtain answers
via China that could enable them to re-engage economic activity swiftly (Al Monitor,
2020). Beijing seized an opportunity to revamp public diplomacy between China and the
Middle East during the health emergency (Al Monitor, 2020). This could represent an
occasion to promote other Chinese public diplomacy goals, such as BRI and an indication
of the willingness of Beijing to mark its print in the region.
Results and discussions
The paper studies the potential of MENA as a lynchpin on the BRI’s global map, with a
focus on the development of Chinese- Gulf States relations. The scope of this paper is to
consider the entanglement of powers in the post-globalization and the importance of
China as the economic player in Eurasia, with a focus on regional dynamics in the Gulf
region. Methodologically, it uses a descriptive approach. In addition, the study uses the
qualitative method, selecting and assessing primary sources that are revealing the
important economic impact of China’s presence in the GCC, as the economic focus of the
strategy BRI is paramount, but not singular. Through the analytic approach, one could
notice that China has achieved more than an economic or energetic goal alone. It
provides the grounds to ascertain that China is bolstering its presence in the Gulf region,
and in general, in the Middle East, based on the appreciation that China went beyond
Economics 47
energy interests in the region. Thus, China is becoming a stakeholder in many

development plans, notably in the GCC area, where wealth is more abundant.
The study aims to underline some milestones and better explain the implications of the
Chinese presence in the Middle East - namely the GCC region - on the grounds of BRI
(using primary data, such as statistics and graphs for the volume of trade and
investments). From the outset, China has heavily invested in the energy sector - crucial
to its demands, both in traditional and renewable energy. Estimations report that by
2030, China could fill 70% of its energy needs from the Middle East (currently at 60%)
(Hussain, 2020). Under these circumstances, the aforementioned China-Pakistan
corridor works as a connector for trans-regional connectivity at a comparatively lower
cost and reduced timeframe (Hussain, 2016), because of the challenges in navigation,
especially in the South China Sea. Hence, the construction of this BRI corridor would
shorten the distance between China and the Middle Eastern countries and ensure oil
supply at a reduced price. As a result, China engages even with partners that have more
modest oil resources, such as Oman, but in exchange, it provides easy access to the
Arabian Sea.
In fact, China plans to focus on three areas of cooperation with the Arab countries (Fazari
& Teng, 2019). First, comes the energy sector - a key driver for the industry of China, as
the Gulf oil puts in motion Chinese manufacturing. The second area is infrastructure
construction and trade and investment facilities. The third area is in the fields of
sophisticated industries, such as nuclear energy, space satellite, and renewable energy.
Moreover, if a free trade zone with China is implemented in the GCC (Qian & Fulton,
2017), China combines Shanghai Cooperation Organization goals and free trade
ambitions, underlining that geo-economic interests are at stake in the BRI (Dorsey,
2019). This indication supports the idea that the plan goes beyond economics. China-
GCC economic relations are consistent and increasingly diversified, revolving around
trade, but increasingly significant when it comes to investment and finance (Fulton,
2019). Second, China’s rise in the Middle East is being noticed concretely into
infrastructure projects that are meant to be realized in the next decades in cooperation
with the Gulf monarchies, attached to their diversification and development plans - via
MoUs that attach nuances that pertain to a strategic partnership with the Gulf region.
However, it is not all clear how it works, like anything else in the Middle East, the
political stakes are complicating projects - one should note the example of the industrial
complex in Kuwait that started promisingly (Silk City), but it was hindered somehow
due to political complications. This does not mean it will not be achieved at all, may be
postponed, as China is a relentless partner. Third, the Gulf monarchies’ necessities for
economic diversification pushed for approaching China, notably as the US gradually
reduced its commitments in the Gulf region. However, China will not be a substitute for
the US role in the region. In all cases, the MoUs signed with the GCC States comprise
diverse projects that go beyond energy for goods exchanges, based on mutual interests.
The paper assessed the (post) globalization trends and the new struggle of powers in
the 21st century. One could expect further developments, as the region is a hotspot for
tensions. The GCC leaders have to juggle carefully between external influences, while
China has to be prepared to meet the unexpected - volatility being the footprint of the
region. Saudi Arabia, Kuwait, and Qatar are also the core members of the Organization
of the Petroleum Exporting Countries (OPEC). Thus, upgrading relations with this
specific part of the Middle East will boost China’s influence in the international energy
system and enable following its patterns for ensuring energy security. In a fluctuating
48 Strategica 2020
oil market where OPEC is setting arrangements, the Chinese markets still embrace Arab
partners, while Saudi Arabia as the main vector in OPEC is making efforts to obtain a
prime position in China. Saudi Arabia understands China traditionally (and Asian
markets, in general) as its main consumer of oil (Kozahnov, 2020). The relations do
revolve around oil and the economics of energy, but with a deeper meaning than it seems
at first sight.
Moreover, the research notes its limit in an international context that is constantly
evolving. One could note the manner coronavirus (COVID-19) pandemic put the world
on stand-by and its effect is not yet evaluated. Nonetheless, China managed to seize a
diplomatic opportunity exactly in the Middle East, in the view of reaping economic
benefits such as enhancement of BRI projects later. It worked its ways to increase
receptiveness and public influence. China allocates more for humanitarian aid and relief
in the Middle East (Zambelis, 2015) for gaining soft power, with the most recent proofs
during the COVID-19 crisis. Beyond global problems and the troubled waters of the
Middle East, BRI can enable good opportunities for the extended region lying between
Europe and Asia, connecting Africa. There has been an intensification of efforts from
behalf of the Chinese part, while the Middle Eastern partners have become more
receptive to the Chinese presence. The influential positioning of the Middle East attaches
it an added value in the broader framework of the BRI is considered the backbone of the
platform from where to move towards Europe and Africa. The GCC is quintessential for
this broader concept, noting the seaports, representing the most globalized economy of
the region, and the prospects for investments in the medium-term. For the stated
reasons, the paper keeps in the loop a subject in correlation with the advancements of
BRI in MENA and will eventually need future evaluation regarding the achievements of
the Chinese foreign policy on this matter, according to developments on the ground.
However, the study serves as a starting point for the assessments of economic planning
and diplomatic accomplishments of China and the contemporary trends in the Middle
East.
Conclusions
Initially, China started its engagement with the Middle East based upon energy thirst
driven by its growing industry and economy. The paper acknowledges that ultimately
the boost of commercial activity with the GCC (which has the financial wealth in the
Middle East) developed the relational framework with the Arab world. The enhanced
ties can effectively protect China’s political and economic interests in the Middle East,
obtaining diplomatic influence and energy security (plus an ace in the hands when
discussion with OPEC members). The year 2020 is marked by growing uncertainty, the
global markets suffering losses during the Covid-19 pandemic, and the oil levels
fluctuating drastically with budgetary impacts for the oil-rich states. However, the
administration in Beijing appears to be in control of all main pillars of economic policy
(financial institutions, large corporations), BRI continuing to advance. The pandemic
occurred as a possibility to revamp public diplomacy of China in the Middle East,
including the goals of include potentiating the attractiveness of BRI.
BRI carries major strategic economic, energetic, and geopolitical calculations, and
connecting the dots between the world regions could be rendered more efficiently via
interconnectivity, generating new drivers for globalized trade. This is where the
Economics 49
importance of the Middle East lies- the link between Europe and Asia. The advantages
are two-folded. As such, the paper investigates a growing trend- the tendency for Middle
Eastern countries to look east for economic purposes. In the same way for China, the
Middle East represents an energy powerhouse, which can be delivered to expansive
China. Correspondingly energy needs require security, as well. Beyond an enormous
financial capital meant to boost economic development, the Initiative carries relational
benefits. Those could help generate the stability needed in a much-troubled region like
the Middle East, having possible implications for security and multilateral diplomacy.
On the other hand, while engaging with the Middle East, China exposes itself to power
games in the region, the US being its most powerful contender. Somehow it could play
in China’s favor, some Middle Eastern States perceiving China as an alternative to the US
(Alterman, 2019). The Gulf monarchies are deeply engaged with the American security
plans for the region, but noting the dwindling involvement of the US in the area, they are
seeking other external partners, hereby the relation with China that displays not only
economic but also strategic features. China is not aiming to destabilize any order, given
its aversion to risk, but its particular interest in the GCC region might stir some
controversies soon. The local intricacies would have a say on the achievement or
imbalance of BRI. Overall, China maintains a balancing act in Eurasia and will probably
continue to do so, as it kept tensions at bay with other players, such as the Russian
Federation and European Union, and also within West Asia.
The study approaches chronologically the expansion of the Chinese relations with the
Middle East- China’s need for oil has increased exponentially over the last two decades,
driving it to strengthen its ties to the Middle East. In the meantime, China is not sparing
any efforts to increase commitment with the GCC. With further involvement in the
Middle East, China could come across more vulnerabilities, leaving room for questions
regarding its future approach and the ultimate outcomes of the BRI plan.
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Economics 53
THE REGIONAL IMPORTANCE OF EFFICIENT ROMANIAN

NATURAL GAS STRATEGIC PLANNING.
STUDY CASE – THREE SEAS INITIATIVE
Miruna Constantina ȚUȚUIANU
National University of Political Studies and Public Administration
30 A Expozitiei Blvd., District 1, 012104 Bucharest, RO
tutuianumiruna@yahoo.com
Abstract
This study provides a critical analysis regarding the Romanian national strategic planning, focusing
on its implementation within the energy field (strictly concerning the natural gas). Thus, considering
the high development potential of the Black Sea Romanian natural gas resources, the vulnerabilities
arising from the governance level should be efficiently tackled in the future. Based on the national
strategic planning theory, the research design will briefly analyze the main characteristics of
inefficient public planning framework, while insisting on the current effects. The energy national
strategic planning is even more vital in Romania, where the state partially owns the primary natural
gas producer and distributor (Romgaz - 70%) and the only natural gas infrastructure developer and
transporter (Transgaz - 58,5%). Thus, implementing risk-reducing strategies becomes critical.
Furthermore, the paper supports immediate action for Romanian natural gas sector development,
2020 being considered as the last opportunity. In the last section, the Romanian strategic planning
will be defined as essential for a secure regional energy environment. The main research question
aims to tackle how Romania can improve its national strategic planning, starting with assuming past
lessons and moving towards a coherent framework and immediate policy implementation. The
methodology will focus on qualitative instruments, briefly analyzing within a study case the regional
impacts within the Three Seas Initiative context. The results will emphasize that Romanian
institutions should consider business experience for efficient strategic planning, being concerned
about how to deal with new competitors, deploying assets, and restructuring its planning framework,
while changing its strategic perspective. All the process would help the Romanian energy sector to
design their future actions for obtaining better results within a new European green policy and a
highly competitive market for energy developing projects.
Keywords
Black Sea; natural gas resources; national strategic planning; Romanian energy sector; Three Seas
Initiatives.
Introduction
In a highly changeable and globalized world, it is more and more challenging to separate
the national matters from the external ones. Regarding the energy dimension, no
country can strategically plan its energy resources without taking into consideration
outcoming implications. The current context is affected by substantial technological,
economic, and political changes, more effects being visible following the current global
economic crisis.
During the last decades, Romania has enjoyed an excellent energy opportunity in the
offshore natural gas field discoveries. The first gas fields discovered in Midia block
(Doina in 1995 and Ana in 2008) reach 10 bmc (billion cubic meters), while significant
findings from Neptun Deep Perimeter (approximated to 42-84 bcm in 2012), and
54 Strategica 2020
Trident perimeter (estimated at 30 bcm in 2015) (Investment Reports, 2019) overpass

100 bcm together. Romania has been facing a great chance to be an active part of the
European energy security effort. However, efficient national strategic planning is
mandatory. Thus, how has been Romania tackling strategic energy planning, and how
can it improve its regional status?
Business experience: important lesson for efficient national strategic planning
Starting from business experience, Paul Bracken emphasized how the American military
sector can be improved by implementing basic concepts of strategic planning. He
analyses three types of existing strategic planning (the simple and the standard one),
adding a more complex framework composed of core, environmental and hedging
strategies (Bracken, 1990, p. 2). His central assumption is that states should learn from
business experience how to efficiently plan their national resources, being aware of
current and prospective problems, and foreseeing opportunities.
Within the simple type, for defining its strategy, the interests are statically linked with
their environment. As a critic, Bracken emphasizes that simple strategic planning does
not distinguish between operations (methodically responding to short term changes)
and strategy (sophisticated analytical approach for reacting, preventing, or determining
long term changes).
The standard strategic planning is evolving from the simple one, including the
construction of alternative environments (Bracken, 1990, p. 10). It implies secondary
action plans that can be accessed within a changeable environment. Though, the critic is
that alternative environments are not fully included within the strategic planning, or
they are not objectively defined. Misunderstandings can appear when national actors
confuse alternative strategies with the principal one (there is only one strategy that can
be followed at a time) or when they ignore the long-term effects of short-term actions.
As an improvement from the previous types of strategic planning, Bracken proposes an

advanced model of strategic planning composed of core environments, alternative
environments, and possible exogenous contingencies (Bracken, 1990, p. 12). Thus, each
environment has defining features, representing the core elements. For example, in the
case of the Romanian public sector, a high level of bureaucracy can be considered a core
characteristic, which can influence communication efficiency between public energy
actors and foreign investors. From this point, Bracken distinguishes among core,
environmental and hedging strategies, all of them being complementary. The first type
is defined starting from the policy nucleus, which is static and common to all existing or
alternative environments. Usually, national policies focus on changes rather than
explaining why a particular situation remains the same. However, the process of
national strategic planning should start from the question: What are the unchanging
features of future Romanian energy security? What will remain stable even in the long
term?
Starting from a static core, Bracken insists that efficient strategic planning can favorably
shape a specific environment through an environmental-shaping strategy (Bracken,
1990, p. 14). This concept is focused more on foreseeing opportunities and creating
supportive contexts. Even so, external contingencies can arise anytime, imposing
Economics 55
difficulties. For handling them, creating hedging strategies (Bracken, 1990, p. 15) is an
instrument of combatting possible future crises and increasing crisis management
capabilities (allocating the needed resources). They also have a significant purpose in
finding a balance between conflictual policies over time. The planning success comes
from being prepared for combating uncertainty. Furthermore, most importantly, it
should provide very realistically, what decision-makers can do for implementing
effective policies.
The foremost critics regarding Bracken's theory express that, within continuous change
and uncertainty context, it still provides an imperfect framework to cope with it. It is
challenging for national public institutions to act as easily and quickly as companies,
from bureaucratic, legislative, and other prerogatives. Though, it is essential to
emphasize that national strategic planning complex framework could create adequate
national policies.
Integrating energy security into national strategic planning
How is energy security defined in the Romanian literature? Cristian Băhnăreanu

analyzes it as part of economic security, considering that achieving it "depends on the
capacity of the state to both aggregate resources internally and to gain or to maintain its
access to external economic resources" (Băhnăreanu, 2008, p. 13). Thus, prices and
diversity of energy supply sources are both critical and necessary. Moreover, correlating
his vision with energy market globalization, states should exceed the national goal of
achieving energy independence and focus more on developing sustainable energy
interdependence. At this level, intermediary states could play a key role in managing the
producer-intermediary-consumer relation, with substantial implications for
consolidating regional energy security. Here comes the most significant opportunity for
the Romanian energy sector: becoming a regional supplier (see BRUA projects) and an
intermediary state (within European energy projects).
Continuing in the same note, Vasile Iuga addresses, through policy papers, to the
Romanian political actors. As a reaction to ongoing Romanian political debate, Iuga aims
to explain the differences between energy security and energy independence,
emphasizing that the latest has a strong autarchic valence and can contribute only partly
to achieving energy security (Iuga, 2014, p. 4). To reshape its energy policy, Romania
should act both at the national level by supporting cooperation between the public and
private sector; and on the regional level, by continuing its interconnecting projects.
Massive investments in energy transmission and exploitation infrastructure, as well as
a more active presence within European energy policies, is vital.
Main issues within Romanian national strategic planning
Even if Paul Bracken's theory was released in the '90, in the Romanian case, public
strategic planning has not yet overcome the standard type, a clear distinction between
short and long-time vulnerabilities lacking. There is an ongoing practice to ignore
changeable environments and not define hedging strategies. Mostly, changes within
national policy arise only after the environmental ones are more than obvious,
decreasing adapting instruments’ efficiency.
56 Strategica 2020
Legislative unpredictability in national energy sector
As an example, Romanian Energy Strategy 2016-2030 mainly focuses on core strategies

(mandatory step for policy standardization). When planning from a static perspective,
it determines national policymakers to remain focused on results and ignore possible
environmental changes, losing great opportunities. As stated within the strategy (Figure
1), 2016 considers onshore and offshore natural gas production a priority, essential for
a competitive gas market (Ministry of Energy, 2016, p. 1).
Figure 1 – Elements defining the Energy Strategy of Romania for 2016-2030, with an outlook to 2050
Source: Romanian Ministry of Energy, Romanian Energy Strategy 2016-2030, with an outlook to 2050
(2016), p. 1.
Two years later, the Emergency Ordinance no. 114/2018 switched focus towards short-
term financial benefits coming from natural gas exploitation and wholly ignored that a
more and more competing international market may arise in the future. Its main action
was to establish a centralized gas market (The Government of Romania, 2018), from a
liberalized one (see Article 43). Centralizing the energy market for the next three years)
strongly affected its natural mechanisms. Based on the debate about whether resources
should be capitalized immediately or maintained for the future, the Romanian
Government decided to limit natural gas exports, strongly affecting foreign investors’
confidence regarding their supposed investment recovering. As stated within the
theoretical section, the concept of energy security has been wrongly implemented
within national policies, both owning monetized natural resources and being highly
interconnected with neighbors representing mandatory pillars.
Economics 57
Defining vulnerable consumers also revealed a case of legislative unpredictability. The

regulations from 2018 expressed above did not state the exact criteria of how the
Government can support its vulnerable consumers. During State Emergency (March 16
– May 14, 2020), adverse effects came, the 4th Military Ordinance (March 29, 2020)
capping all energy prices (Romania Insider, 2020). Thus, the Romanian Parliament
aimed to defer utility bills for individuals and legal entities whose incomes have been
declining in the past three months. Alternatively, all energy consumers were able to
benefit indiscriminately, imposing real financial deficits for energy companies. As a
spontaneous correction, a clear definition of vulnerable consumers was required within
the Law on Utilities Postponement in April 2020, stating that until May 1, 2020 (in time
of international pandemic), the Romanian Government must finalize the process.
Thus, Romanian policymakers have a long-going intervening practice without

completely taking into consideration medium and long-term consequences. The risk is
that, while intervening, some policies can have severe long-term effects. The Offshore
Law no. 256/2018 has emphasized that, once a series of normative acts were adopted
in 2018, it is still challenging to correct their effects (two years later, in the summer of
2020, national institutions are still in the process of reviewing it).
Delayed Actions
Within the last year, Romanian energy institutions recognized that the Energy Strategy
is not adequate to the current context, working on updating it under the name Energy
Strategy of Romania 2019-2030, with an outlook to 2050. However, it is still in process
because of new needed national studies, which clearly emphasizes organizational
adjusting incapacity to a changeable environment. Moreover, it also shows that
Romanian national actors have an insufficient capacity to learn their lessons to increase
future efficiency.
Institutional capacity deficit
After more than a decade since natural gas offshore discoveries, Romanian policymakers
were not able to offer both legislative stability and a win-win situation for foreign
investors. Assuring mutual economic benefits is highly essential for final investment
decisions since every company is interested in a stable and sustainable profit. For
example, since 2012 (Neptun Deep field finding), Romanian policymakers have
negatively affected their collaboration with Exxon Mobile, the principal foreign investor,
which last year announced that it would sell its concession rights (50%).
Current effects of inefficient national strategic planning
As an effect of 2018 legislative restrictions, one year later, the internal market was
already affected, importing gas becoming cheaper than producing it. The natural gas
imports increased (with around 6% only in the first semester), later market
liberalization not bringing advantages to domestic consumers.
The Government failed to understand that foreign investors were waiting for improved
national legislation. Inadequate conceptualization has been jeopardizing the whole
national planning. Thus, in July 2019, ExxonMobil gave up on its investment plan from
58 Strategica 2020
Neptun Deep offshore perimeter (estimated in 2018 of being able to reach 6.3 bcm
annual production), representing more than half of Romania’s current gas production
(11 bcm per year) (Reuters, 2020). Considering that Exxon Mobile was the primary
investor owning both financial resources and know-how, its departure will delay
offshore exploitation.
Currently, Romgaz should be part of the new managing Neptun Deep consortium.
Participation acquisition is significant for continuing offshore implementation. In 2019,
Romgaz repeatedly expressed its interest in buying a 15-20% minority stake from the
50% Neptun Deep concession rights that Exxon Mobile owns. Considering that Exxon
Mobile invested 750 mil USD until the current date, 15%-20% would represent 112-150
mil USD. Additionally, another 3 billion USD should be invested in this project by 2025,
from which Romgaz should contribute around 450-600 million USD. Taking everything
into consideration, Romgaz should spend at least 600 million USD until 2025 only for
Neptun Deep perimeter, while its 2020 budget allocates only 1 million USD for both
Black Sea offshore partnerships and electricity production/storage (Romgaz, 2020). It
is important to emphasize that its budget was defined in March 2020, not taking into
consideration the impact of the international crisis.
Nevertheless, Romgaz has other simultaneous projects, focusing on developing Mintia

gas powerplant and increasing its national storage, injection, and natural gas extraction
capacity. Thus, it is clear that Romgaz does not have resources to be a central
stakeholder in the Neptun Deep perimeter. Considering that the Russian company
Lukoil is directly interested in this project, the stake also becomes geopolitical.
Another vital energy company aiming to invest in Midia Black Sea offshore is Black Sea
Oil & Gas (65% share), which previously announced that gas production would start in
mid-2021. In February 2020, it warned that the Offshore Law should have been changed
until that time; otherwise, legal action against the Romanian state would be opened
(Romania Insider, 2020). Most recently, in March 2020, within the new international
context, it already announced that its investment would be adapted to new economic
changes, the 1st Romanian offshore gas project after 1989 suffering delays.
OMV, another critical investor (owning 50% concession right in Neptun Deep
Perimeter), is also reducing its total global investments in 2020 with 200 million euros.
Regarding Romania, unclear and unfavorable offshore investment legislation
determined it postpone its exploiting project until further progressive legislative
changes (Global Business Club, 2019).
As briefly demonstrated, not having a clear energy strategy was very harmful to
Romania, creating political disputes, increasing national fiscality, and bureaucracy. The
opportunity of massive Black Sea investments was missed, which could have been a real
plan for economic recovery during the current international crisis.
Unlocking the potential of the Black Sea natural gas – 2020, the last opportunity
Why is it a vital moment to change the strategic planning approach, defined as the last
existing opportunity for Romania?
Economics 59
1) According to the experience, Romania has difficulties in defining and following a

coherent policy path for achieving its strategic goals. Almost a decade has passed since
discovering the most considerable offshore natural gas resources and no real benefits
were monetized in the national economy.
2) It was declared into the national discourse that achieving better energy security is
directly linked to exploiting Black Sea resources. Energy is representing Romania's long-
term prosperity (Ministry of Energy, 2016, p. 4). Using natural resources would provide
significant progress for achieving regional energy security (influencing Romania’s
regional status), opportunities for re-industrialization, and a more sustainable and
decarbonized economy (exploited natural gas could replace the current amounts of
carbon).
3) Romania should do anything possible to regain investors’ trust, which was

continuously jeopardized in the last years. The recent legislation regarding offshore gas
resources has determined several large energy companies (OMV, Exxon Mobile, Black
Sea Oil & Gas) to rethink their willingness to invest. It is imperative to emphasize that
Romanian companies do not own either necessary know-how or financial resources to
replace foreign investors.
4) Starting in 2021, the European Investment Bank will financially support only projects
focused on renewable energy, following European green policy. Considering that natural
gas energy is not regarded as sustainable, how will Romania manage to continue its
developing projects after 2020 in the eventuality of further delays? Romania received a
large loan (150 million euro) for developing BRUA phases on its territory. At the
moment, the project is not yet finalized (new expected deadline in December 2020),
even if the first due deadline was in 2019. Also, regarding other European financial
mechanisms (such as Transition Fund and Projects of Common Interest), the European
competition for accessing them is highly increasing.
5) The natural gas international market has continuously transformed: more and more
natural gas fields are discovered (especially in Africa and South America), and fewer
funding sources are available (during the global crisis, all international actors will
rethink their investment projects). The LNG trade is gaining more and more
international influence, which can determine future lower demands for natural gas
exports.
Three Seas Initiative – emphasizing regional implications of inefficient national

strategic planning
Can the Black Sea region be considered one of the principal vulnerabilities of the
Three Seas Initiative?
Since its initiation in 2016, Three Seas Initiative has gained more attention on the
European level, connecting subjects of high interest for all 12 member states: transport
and energy, with substantial implications in other sectors (especially economy).
Considering the complicated Black Sea geopolitical context, its future developments are
critical for successful results. Thus, the Black Sea region can be viewed as a geopolitical
60 Strategica 2020
vulnerability of the entire regional cooperation framework, imposing severe

implications. The main sustaining arguments are:
1) The geopolitical context is sensitive: The investment projects are indirectly affected
by Ukrainian conflict proximity and its insecure borders. Even if the Crimean annexation
is mainly unrecognized, the Russian Federation influences de facto more than 50% of
Ukrainian offshore resources, increasing Ukrainian dependency on its gas. As a replica,
Kyiv is focusing on developing several large offshores with different Western companies
(see Dolphin field), but the implementation phase takes time. From the Romanian side,
the Black Sea natural gas map has a substantial impact on national investment projects
(especially offshore ones). For example, the largest Ukrainian gas field – Skifska - which
detains more than 250 bcm, is situated in the area close to the Romanian Neptun Deep
offshore perimeter (Cohen, 2019). With a de facto controlled Crimea, the Russian
Federation might inquire new prerogative within the Black Sea area, profoundly affect
all existing exploiting activities. Moreover, borders insecurity can determine foreign
investors to postpone their operations, with effects on the entire regional energy
security.
2) The lack of resources at the regional level: Some members have the lowest incomes
and European funds absorption capacities from the whole initiative (Romania and
Bulgaria), determining less available national funds for implementing interconnecting
projects. The decision to create the Investment Fund is welcomed, but, as it can be
witnessed, during the international crisis, the implementation timeline can be affected.
3) The uncertain energy security status: Ukrainian company Naftogaz and Russian
Gazprom renewed their agreement on using the Ukrainian transport network to
continue exporting Russian gas to Western countries only one day before expiring. Both
Ukraine and European countries are heavily dependent on Russian exports (Naftogaz
Group, 2019). Moreover, interconnecting projects between the Republic of Moldova and
Romania (pipeline Ungheni-Iași) have not been finished in time, adding more influence
for the Russian energy companies, which have already secured their future transactions.
4) Nevertheless, the high dependence on Russian gas of Hungary and Bulgaria (100%)
emphasizes the need to provide alternative energy sources. If the Black Sea Romanian
natural gas is not exploited and distributed, both countries will continue to import
Russian gas massively. Both countries have high importance for natural gas transit,
which makes them vital for successful regional development. Considering that the
Russian Federation is not willing to sacrifice its national interest for regional
cooperation (see the Ukrainian crisis), alternative energy sources should be secured.
The regional role of Romania for energy projects
Romania assumed an active role within the Three Seas Initiative in 2018 during its
presidency, supporting a series of integrated projects. As a strategic goal, Romania can
play one of the central roles in achieving regional objectives of the Three Seas Initiative,
starting from its potential role in providing regional energy supply and becoming,
through interconnection projects and strategic investments, a regional hub.
Economics 61
First of all, the BRUA pipeline project aims to improve the Romanian National
Transmission System, integrating it within the Bulgaria-Romania-Hungary-Austria
corridor (phases 1 and 2). Theoretically, phase 3 should increase transit capacity in the
eventuality of a heavily exploited Black Sea natural gas. Considering the current context,
phase 3 remains uncertain, being highly dependent on Romanian offshore and onshore
exploitations prospects (Three Seas Initiative Summit, 2018, p. 14). The project would
assure that the exploited Romanian gas is distributed at the regional level, transforming
Romania into a connection point for Caspian gas coming from Bulgaria towards the
Central European market (Hungary and Austria).
BRUA project has been submitted to the Three Seas Initiative board by Romania,
promoting a permanent two-way flow between Romania-Bulgaria and Romania-
Hungary. According to the official plan, the Romanian gas transmission capacities would
reach 1.75 bcm annually to Hungary and 1.5 to Bulgaria (in the first phase) and 4.4 bcm
to Hungary, and 1.5 to Bulgaria (in the second phase) (Three Seas Initiative Summit,
2018, p. 16). Though, considering that initial deadlines for both stages have been
consequently delayed (the first phase should be finalized at the end of 2020 and the
second one most probably in 2022), additional pressure appears for Romanian
transmission system development and raises questions regarding Transgaz’s efficiency.
It is important to emphasize that, compared to other competing gas transmission
projects from the region, BRUA transmission capacities are modest. However, they are
mandatory for enforcing regional interconnectivity and building new infrastructures
between four member states.
Romania is also a partner country in the Romanian-Hungarian-Slovak gas transmission

corridor, supporting the same bidirectional capacity of 4.4 bcm annually between
Hungary and Romania from the BRUA project. The gas transmission corridor further
links Hungary to the Slovak Republic with an annual gas transmission up to 5.2 bcm
(Three Seas Initiative Summit, 2018, p. 22). Both projects are mandatory for establishing
the European Union priority corridor, especially the Priority Corridor North-South Gas
Interconnections in Central, Eastern, and South-Eastern Europe. Their success depends
on how Romania will develop its national energy system (including exploiting existing
natural gas resources and exploring new ones) while interconnecting itself with
neighbors.
The natural gas transmission interconnection Ungheni-Chisinau is another strategic

project where Romania is a key actor. The expected deadline for completing the second
stage has been completed in July 2020, postponed from December 2019 (Necsutu,
2020). The new pipeline connects the Republic of Moldova to the Romanian
infrastructure, offering Chisinau the possibility to receive gas from Europe, the Caspian
Sea, the North Sea, or other locations (Greece or Norway), opposite to the Russian gas
which was previously highly dependent. Though not completing the pipeline
construction in time imposed many difficulties for the Republic of Moldova, which
before the end of 2019 did not intend to prolong its importing contract with Gazprom,
but in December 2019 was forced to do it. During the current international crisis,
Romania needs to prioritize its public investments and secure its interconnection
projects, which have a significant national and regional impact.
62 Strategica 2020
Actions for a better national strategic planning
Following the main business principles, Romanian national energy actors are already
facing external threats similar to companies: foreign competition (discoveries of other
natural gas fields in Europe and world-widely), high government regulation (centralized
energy market), and unstable economic context (current economic crisis arising from
COVID-19 pandemic). The decisional process requires too much time, a change of
strategic planning perspective being crucial.
Nationally, Romania must assure unilateral support from all political institutions
regarding the natural gas sector to prevent future legislative changes. Currently, it was
decided that the new Offshore Law will be adopted only within the Parliament, but a
concrete action fails to appear. Improving general corporate governance is necessary for
state-owned companies, lowering implementation and balancing it with other
prerogatives. As an example, the Government should already strategically plan how it
will use the royalties coming from the Black Sea offshore. Complementary, an elaborate
liberalization plan should integrate the measures for supporting vulnerable consumers
and combating energetic poorness.
Implementing an efficient and coherent green plan for Romania following the European
energy policy (National Plan for Energy and Climate Change 2021-2030) should be
complemented by promoting Romanian projects for decarbonization. The new
European Fund for Transition (around 40 billion euros) will raise regional competitivity
between Poland, Germany, Romania, and other countries with a high percentage of coal-
based energy. Besides continuing the liberalization process for natural gas and
electricity markets (according to the established timetable), increasing renewable
energy should be a long-term goal. Romania should see the opportunity of balancing its
energy mix towards a greener future while using available European funds. As an
international inspiration, Romania could implement virtual power plants, combining
more renewable energy sources (wind, solar, and hydro) to influence each other in
different weather conditions positively.
Regionally, within the Three Seas Initiative, a lower political focus is towards the Black
Sea region. Romania should continue to promote consistent European involvement,
especially in challenging times. As an example, Ukraine recently signed the Energy
Community Accession protocol, adjusting its energy market to the European
requirements, while it is relying exclusively on Russian supplies and continuously
witnessing increased energy prices from Gazprom by 50% (compared to Bulgaria).
Moreover, Romania should focus on completing regional infrastructure development
projects (such as BRUA) and combatting future delays from inefficient management by
improving its legislative and procedural framework. Any delay can affect future
productivity in front of competing pipelines. Turk Stream is already proposing a triple
flow comparing to BRUA, aiming to fuel Bulgaria, Serbia, and Hungary by overpassing
Romania.
Conclusions
Starting from a resource allocation perspective in 2018, Romanian institutions are

currently into the transition towards a long-term planning strategy. The Romanian
Economics 63
national strategic planning should not spontaneously tackle arising difficulties, and
implement hedging strategies, calibrating all public efforts.
Thus, finalizing free-market transition for natural gas and electricity is mandatory for
assuring transparency while regaining investors' trust and offering suitable prices to
domestic consumers. The Romanian Government should ensure that part of national
resources will be traded nationally, not by imposing restrictions, but by efficient
national development. Its planning should involve a strategy on how offshore revenues
should be spent, respected by all future governments to provide coherence and low
financial waste.
On the regional level, the implementation of regional projects (such as ones within the
Three Seas Initiatives projects) should continue to improve energy security and
solidarity between member states. For further research, there comes the question: How
will European countries react? Will they still support regional cooperation or will take a
more nationalist position? There is an additional argument for Romania to enforce its
energy security, in a region where the U.S.A. can quickly become absent, the Russian
Federation remains committed to its geopolitical goals, and the European Union -
currently bewildered in the context of BREXIT and increasing nationalism - needs to
remain united.
Moreover, developing commercial ties are vital nationally and regionally, promoting
consistent partnership between policymakers and private companies (efficiently linking
legislative framework with market prerogatives). Romanian policymakers should take
into consideration critical opinions from the business environment, foreign companies,
and industrial actors to provide win-win solutions (efficiently linking legislative
framework with market prerogatives).
This paper does not ignore the fact that it is challenging to foresee all alternative
possibilities. However, a sophisticated approach to strategic planning can determine
efficient future national strategic planning, providing national and regional benefits.
Moreover, the theoretical framework is deriving from a business perspective, which
means that it might not be entirely applicable to the public sector. Still, it is emphasizing
some central elements of how national strategic planning can be improved in Romania.
These central concepts can represent a starting point for shaping efficient strategic
planning, not restrictively to the energy sector.
Acknowledgments
This paper was financially supported by the Human Capital Operational
Program 2014-2020, co-financed by the European Social Fund, under the
project POCU/380/6/13/124708 no. 37141/23.05.2019, with the title
“Researcher-Entrepreneur on Labor Market in the Fields of Intelligent
Specialization (CERT-ANTREP),” coordinated by the National University of
Political Studies and Public Administration.
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Economics 65
STRATEGIC CULTURAL VALENCES OF CORRUPTION BEHAVIOR IN

ROMANIA. A EUROPEAN APPROACH
Ioan PETRIȘOR
West University of Timișoara
16 J. H. Pestalozzi St., 300115 Timișoara, RO
ioan.petrisor@e-uvt.ro
Dana NEDEA
16 J. H. Pestalozzi St., 300115 Timișoara, RO
dana.nedea94@e-uvt.ro
Abstract
The present research is based on Romanian cultural anthropology and cultural European
management in an attempt to investigate the strategic behaviors of corrupt business organizations.
We use both statistical and network analysis with the objective being the detection of possible
corruption strategies and corruption behaviors in the process of public procurement. Based on
cultural parameters and network measurements, and by using strategic intelligence, which can
provide us signals about possible small or grand corruption, we detect circular strategies and hyper-
cluster strategies of small and respective grand presumptive corruption at the level of quarterly
networks (macro-networks), as well as specific strategic behaviors of the bid issuers and bid winners
involved in the public procurement process in Romania (meso- and micro-networks). The overall aim
of this paper is to explore the relationship between culture and corruption and to establish the
cultural context of Romania concerning corruption. Then, by further network analysis, we detect the
signals of corruption strategies and behaviors in the public procurement process. The limitations of
our study are given by the use of perception indices for statistical measurements and the use of Big
Data for the network analysis, as well as by the use of one-year data. Future research should imply
the use of regional data for Romania to detect more specific corruption behaviors, as well as the use
of public procurement data for individual sectors, to detect specific behaviors.
Keywords
Corruption; corruption strategies; public procurement; cultural dimensions; network analysis;
Romania.
Introduction
As corruption has become one of the business issues at the national and international
levels, with the corrupt practices growing and wide-spreading, the strategic diagnosis
of corruption behaviors becomes highly important for businesses.
This paper aims to explore the relationship between cultural dimensions and business
corruption strategies among European Union countries, to establish the context of
corruption and culture in Romania. This analysis is then expanded in the process of
public procurement. By using network analysis, we intend to detect possible corruption
behavior signals in the process of public procurement.
The relationship between culture and corruption is tested using Pearson correlation and
multilinear regression, the variables being GLOBE cultural values and practices, and the
66 Strategica 2020
Corruption Perception Index (CPI). For the network analysis a large quantity of public
data, which includes the contracts signed during 2019, is used. The data includes the
public institution which opens the bid (bid issuer) and the big winner as the private
business. The data is then analyzed using Gephi Software and both network and nodes
level measures are calculated.
As in our study, the relationship between culture and business corruption strategies is
tested through statistical measurements and network analysis, the premise of our study
is that by using different measurements of corruption and corruption behaviors and
perceptions, an in-depth diagnosis of specific business corruption behaviors in the
process of public procurement can be conducted. With this, the study objective becomes
the detection of corruption signals in public procurement networks in Romania, during
the year of 2019.
The results provide an in-depth understanding of the influence of cultural dimensions

on corruption as well as empirical support for a strategic diagnosis of business
corruption in the context of the public procurement process, with practical implications
for international and national policymakers as well as for business organizations.
Literature review
The theoretical background of this research relies on corruption definitions and

perceptions, cultural dimensions, and public procurement networks. Corruption can be
considered the misuse of public power for personal gain (Rose – Ackerman, 2013).
Corruption is often defined as the use of public power for a personal gain, including both
a demand side, as being the public official, and a supply side, as being the business
organization or the private individual (Rose – Ackerman, 2013). Cultural dimensions
are a set of values and beliefs about what is desirable or not in a community, and a set
of practices (formal or informal) to support these values (Javidan & House, 2001).
There is an agreement among literature review in considering the distinctive societal

cultures as influencing various social phenomena (Hofstede, 1984; House, Javidan,
Hanges, & Dorfman, 2002), as well as organizational studies, indicate a strong
relationship between culture and personal behaviors (Rokeach, 1972; Hofstede, 2001).
Cultural dimensions are influencing the individual’s perception of some ethical
situations (Scott, Saviour, & James, 1993); thus, national cultural dimensions may
influence corruption practices and strategies.
Previous studies correlate national culture as an influencing factor that has some
potential on explaining corruption (Husted, 1999; Park, 2003) as well as on
investigating the relationship between cultural dimensions and corruption (Bontis, Bart,
& Seleim, 2009). The studies in the area of culture are using Hofstede’s cultural dataset
on explaining different social phenomena. These studies assume that cultural values and
practices are stable and generally applicable to any present-day situations (Husted,
1999; Davis & Ruhe, 2003; Myers & Tan, 2002). Bontis et al. (2009) investigate the
relationship between culture and corruption using the GLOBE framework, providing
empirical support in building a general theory of the culture perspective on corruption
perception.
Economics 67
While measuring cultural dimensions the classification system introduced by Hofstede

is proven to be valuable in understanding national culture, the present study uses the
GLOBE framework on cultural dimensions (House, Hanges, Javidan, Dorfman and Gupta,
2004), as this framework focuses on both cultural practices and cultural values of
nations, so is considered a more in-depth analysis of national culture. The GLOBE
framework encompasses 9 dimensions, as being uncertainty avoidance, future
orientation, power distance, institutional collectivism, human orientation, performance
orientation, in-group collectivism, gender egalitarianism, and assertiveness.
According to House et al. (2002), beliefs are people’s perceptions of how things are done
in their countries and they become the reported practices. The same authors define
values as people’s aspirations about the way things should be done, these being the
preferred practices. GLOBE cultural dimensions’ measures for both, practices and
values.
Uncertainty avoidance is the cultural dimension that describes how individuals in

society respond to uncertain situations, being the extent to which society relies on
norms and specific procedures to cover aspects of their life (House et al., 2002). Future
orientation shows the degree to which a society encourages and rewards future-
orientated behaviors (House et al., 2002). Power distance is the degree to which a society
and its members react to the existence of authority and higher status in society.
Institutional collectivism refers to the level in which individuals are encouraged to be
part of the groups within organizations and societies (House et al., 2002). Human
orientation indicates aspects as friendly, tolerant, harmonic, and sensitive societies
(House et al., 2002). Performance orientation shows the degree to which a community
encourages high standards, innovation, and overall performance (House et al., 2002).
Individual collectivism refers to the overall gathering in small groups such as families
and close friends in favor of large groups. Gender egalitarianism refers to those societies
that pursue the minimization between females and males’ roles in any aspect of life
(House et al., 2004). Assertiveness indicates the extent to which a society encourages
individuals to be assertive, measuring the degree to which societies are competitive
versus modest and tender (Javidan & House, 2001).
As for the effect of these cultural dimensions and corruption, scholars argue that in high
uncertainty avoidance cultures, a high bureaucracy level is present, and with this
corruption may rise (Getz & Volkema, 2001). In cultures with a low score on future
orientation, people are more focused on immediate decisions, corrupt practices being
more likely to appear in these countries (Ashkanasy, Gupta, & Mayfield, 2004). Getz and
Volkema (2001) imply that public officials may tend to believe that their social status
brings personal privileges, therefore, corruption may be higher in societies with high
scores on power distance. Nations with high scores on institutional collectivism
encourage group interests over the individual’s interests and desires, scholars evidence
considering these nations as being less corrupt (House et al., 2002). Societies with a low
score on human orientation are considered to be less corrupt, given the aspect that,
human-oriented societies rely on personal relations and overall caring and compassion
(Bontis et al., 2009). High-performance-oriented nations value those individuals and
groups that achieve more results (Javidan, 2004), hence, higher scores on this dimension
are supposed to promote lower levels of corruption (Bontis et al., 2009). In societies
with high scores on individual collectivism, it is common to favor a family member or a
close friend, therefore corruption may be encouraged to protect family or group
68 Strategica 2020
interests (Bontis et al., 2009). A few studies show that women tend to be less involved
in bribery activities and corruption levels tend to decrease in countries were more
women are involved in high political activities (Swamy, Knack, Lee, & Azfar, 2001;
Dollar, Fisman, & Gatti, 2001), hence, countries with lower scores on gender
egalitarianism could have a lower level of corruption. Societies with higher scores on
assertiveness prefer a direct style of communication, they tend to value dominant
behavior, characteristics which will encourage individuals to be against corrupt
practices (Bontis et al., 2009).
Corruption is rarely singular, where it exists as a problem, it tends to capture large parts
of the state administration (Søreide, 2002). When it comes to public procurement,
Søreide (2002) argues on the need for further analysis of the involvement of the
providers of goods and services in the propagation of corruption in public procurement
contracts. The author's argument is also based on the already established hypothesis
that, when a country has a higher level of corruption, its public procurement procedures
may contribute to the corruption phenomenon (Søreide, 2002).
Previous research in the area of public-private partnerships and the public procurement
process investigate various forms of state capture and business-government
relationships using network analysis (Siemiatycki, 2011), state-business corruption
relationships (Revees – Latour & Morselli, 2017) and also the use of network analysis in
the cartels of public bids analysis (Gabardo & Lopes, 2014).
The present study relies on both statistical and network analysis measurements to
achieve the study objective. In the analysis of the public procurement mechanism, we
use public data. This data encompasses the signed contracts between businesses and
public institutions in the process of public tenders. The nodes of the networks are
issuers of public procurement tenders and winners of those tenders, the links between
these nodes being the public procurement contracts. The networks are analyzed for the
year 2019 and separated for each quarter.
The quarterly networks (macro-networks) are then further analyzed by detecting the
strongest connected networks and by using deep analysis and community detection
algorithms we extract these nodes in new networks (meso and micro-networks). These
new networks encompass the strongest communities in the quarterly networks,
providing us with an extensive view and knowledge over the study phenomena, by the
use of strategic intelligence. For this, we first eliminate the weakly connected
components from each macro network, resulting in a meso-network. Then, by further
deep analysis of the meso-network, we extract the micro-networks, which are the
networks formed from the highest connected communities in the meso-networks.
Network analysis uses graph theory to construct networks, one important advantage of
the usage of network analysis being given by the topological properties, which are
universal (Barabási & Bonabeau, 2003). Networks analysis encompasses various
measurements, both for the network overall and the nodes of the network. The
measurements used in this study are connected components, average degree, average
weighted degree, modularity, average path length, and network diameter.
Economics 69
Connected components indicator measures the total number of sub-groups in the

network, the value of this measurement screening the number of isolated groups in a
network whose nodes are only connected to other nodes in the same group, hence, a
high number of a connected component leads to a more dispersed network (Bastian,
Heyman, & Jacomy, 2009).
Modularity extracts the community structure of large networks, measuring the strength
of the division of a specific network into communities or clusters (Blondel, Guillaume,
Lambiote, & Lefebvre, 2008). A high modularity class is an indicator of dense
connections between nodes within communities and sparse connections between nodes
in different communities, while a low modularity class means sparse connections
between nodes within communities and dense connections between nodes in different
communities. In other words, the higher the modularity class, the stronger the relations
inside communities. This indicator has values between [0,1] (Albert & Barabási, 2002).
Average path-length measures the average number of steps needed for all the nodes in
the network to reach each other’s (Albert & Barabási, 2002). As higher the average path,
as disperse the network is. Degree counts the number of the nodes that an actor is
connected to, being the sum of the ties number in the network. The average degree
measures the average of the degrees, in other words, it calculates the average
connections of a node. Network diameter calculates the shortest distance between the
furthermost nodes (Albert & Barabási, 2002).
For the statistical analysis of the GLOBE dimensions, both values and practices were
tested as the independent variable and the Corruption Perception Index (Transparency
International, 2019) as the dependent variable, to test the relationship between cultural
dimensions and corruption with a multiple linear regression and Pearson correlation.
The EU analysis offers a better understanding of the regional context of the corruption
presumptive behaviors.
GLOBE framework encompasses 9 dimensions, for societal values and practices. While
the GLOBE framework uses a large amount of data and for most of the countries, at the
EU level the dimensions are calculated in 17 countries. The list of countries can be seen
in APPENDIX 1. For Germany, the GLOBE framework measures separately East Germany
and West Germany. In this research, we calculate the average measurements between
East and West Germany, and we use these values for Germany. Given the existence of
GLOBE dimensions for the 17 countries, the CPI measurements for 2019 are then added
to the model. The values for Romania in the GLOBE framework can be consulted in
APPENDIX 2.
Research findings
The GLOBE practices and values were tested alongside the CPI to detect the culture
effect on corruption perception at the EU level. Table 1 presents the results in terms of
culture and corruption correlations.
70 Strategica 2020
Table 1. Correlation between Culture values and practices and CPI
Culture values CPI Culture practices CPI
Uncertainty Avoidance Values -
0,804** Uncertainty Avoidance Practices 0,918**
Future Orientation Values -
0,464** Future Orientation Practices 0,897**
Power Distance Values -0,184 Power Distance Practices -0,464
Institutional Collectivism Values - Institutional Collectivism
0,424** Practices 0,753*
Human Orientation Values 0,304 Human Orientation Practices 0,341*
Performance Orientation Values Performance Orientation
0,197 Practices 0,678**
In-group Collectivism Values -
-0,097 In-group Collectivism Practices 0,615**
Gender Egalitarianism Values 0,266** Gender Egalitarianism Practices -0,310
Assertiveness Values -0,375 Assertiveness Practices -0,299
R2 0,998 R2 0,997
Adjusted R 0,870 Adjusted R 0,870
Notes: *p<0.05; **p<0.01
Based on the results in Table 1, statistical tests reveal a negative and significant
correlation between uncertainty avoidance values (p=0.005), future orientation values
(p=0.001), institutional collectivism values (p=0.004), power distance practices
(p=0.004), in-group collectivism practices (p=0.002) and corruption. This means that a
high score on these values leads to a lower level of CPI (high corruption).
As for the uncertainty avoidance practices (p=0,001), future orientation practices

(p=0.002), institutional collectivism practices (p=0.03), human orientation practices
(p=0.012), performance orientation practices (p=0.006), gender egalitarianism values
the tests reveal a positive and significant relationship between the parameters which
indicates that a high score on these cultural dimensions can be associated with a high
score of CPI (low corruption).
Regarding human orientation values (p=0.251) and performance orientation values (p=-
0.443) the results reveal a positive and non-significant correlation with the CPI, an
indication that possible changes in these cultural dimensions do not affect the
corruption index. The results on testing power distance values (p=0.570), gender
egalitarianism practices (p=0.697), assertiveness values (p=0.396), and assertiveness
practices (p=0.462) in correlation to the corruption index are negative and non-
significant, these dimensions, as well, having no tested effect on corruption levels. The
correlation results are summarized in Table 2.
Economics 71
Table 2. Correlations results summary

Culture values and CPI correlation Culture practices and CPI correlation
Uncertainty
Avoidance negative, significant Uncertainty Avoidance positive, significant
Future Orientation
negative, significant Future Orientation positive, significant
Power Distance negative, non-
significant Power Distance negative, significant
Institutional Institutional
Collectivism negative, significant Collectivism positive, significant
Human Orientation positive, non-
significant Human Orientation positive, significant
Performance positive, non- Performance
Orientation significant Orientation positive, significant
In-group Collectivism negative, non-
significant In-group Collectivism negative, significant
Gender negative, non-
Egalitarianism positive, significant Gender Egalitarianism significant
Assertiveness negative, non- negative, non-
significant Assertiveness significant
In concern to Romania, in the GLOBE framework scores can be found significant

differences between cultural values and practices, as emphasized in Fig. 1. An important
difference regards the power distance dimension, were on values the score is high and
on practices is low. This indicates that, in Romania, people tend to practice social class
differentiation, but at the same time they have societal values that would indicate the
opposite. Regarding the rest of the dimensions, the values score is higher than the
practice score.
Figure 1. Cultural values vs. cultural practices in Romania (GLOBE framework data)
As for the correlation between power distance practices and the CPI, there is a negative
and significant correlation, which indicates that the higher the power distance practices,
the lower the CPI (higher corruption). These results offer a context diagnosis in terms
of cultural dimensions and corruption in the EU and Romania reported at EU results.
The second part of the research includes network analysis and public procurement
contract data. For each network, the calculated parameters are modularity and average
72 Strategica 2020
path length for the detection of dense and sparse networks; and connected components,
network diameter, and average degree are calculated as support and control
measurements. The measurements for the macro-networks are presented in Table 3.
Table 3. Macro - Networks measurements

Average Connected
Network Average
Modularity Path components
Diameter Degree
Length (weakly)
2019 network 0,651 5,691 408 20 4,127
2019Q1 macro-
0,773 5,691 583 20 2,304
network
2019Q2 macro-
0,771 7,092 608 28 2,615
network
2019Q3 macro-
0,770 6,767 602 19 2,782
network
2019Q4 macro-
0,730 6,352 582 18 2,992
network
From the perspective of strategic diagnosis, the strategies detected within these
networks are circular strategies of small presumptive corruption on the outside of
macro-networks, and hyper-cluster strategies of grand presumptive corruption inside
macro-networks. This diagnosis is based on (1) the cultural context of Romania which,
following the correlation tests, promotes corruption and (2) the presumption in which,
in high corrupt countries the public procurement process tends also to be corrupt. The
macro-networks generated are attached in the Appendix 3.
Then, each quarterly network in deep analyzed and strong communities are extracted
for an extensive view and analysis of the public procurement networks. This analysis
has the purpose of detecting those hyper-cluster strategies as well as to perform a deep
analysis of the actors (bid issuers and bid winners) behavior. The meso-networks and
micro-networks are included in Appendix 4. For the first three quarters of 2019, we
detected one micro-network for each macro-network, and for the fourth quarter, we
detect two micro-networks. The measurements for the meso and micro-networks are
presented in Table 4.
Table 4. Meso- and Micro - Networks measurements

Average Connected
Network Average
Modularity Path components
Diameter Degree
Length (weakly)
2019Q1 meso-network 0,717 6,638 2 21 2,983
2019Q2 meso-network 0,734 7,006 4 23 3,209
2019Q3 meso-network 0,738 6,716 1 19 3,367
2019Q4 meso-network 0,702 6,300 1 17 3,546
2019Q1 micro-network 0,414 4,232 1 12 5,187
2019Q2 micro-network 0,550 4,440 1 12 5,788
2019Q3 micro-network 0,532 4,555 1 13 6,104
2019Q4 micro-network (1) 0,515 4,544 1 14 6,031
2019Q4 micro-network (2) 0,836 6,139 1 17 2,433
The results are emphasized in the following strategic matrix (Figure 2) in which we use
the modularity and average path length networks measurements to classify the
Economics 73
networks, as well as to attempt a strategic diagnosis of the behaviors followed by the

actors (issuers and bid winners) involved in public procurement contracts, based on
network measurements.
The intervals in the matrix are determined by the above measurements (Table 3 and
Table 4) and are classified as low, medium, and high. This matrix allows us to conduct a
preliminary diagnosis of actors’ behavior in the process of public procurement by
detecting how dense or sparse the network is (determined by the modularity) and the
average number of steps needed for all the nodes in the network to reach each other’s
(determined by the average path length).
Higher modularity determines a denser network and a higher value of average path
length determines the need for more steps for an actor to reach another actor, usually
being a sign of complex networks.
2019Q2 meso-network
- -
2019Q2 macro-network
>7
AVERAGE PATH LENGTH
2019Q1 meso-network
2019Q3 meso-network
2019Q4 meso-network
7
2019Q4 micro-network
- 2019 network
(2)
5
2019Q3 micro-network - -
(1)
0
0 0,6 0,7 >0,7

MODULARITY CLASS
Figure 2. Diagnosis matrix of presumptive corruption strategies
Following the construction of the strategic diagnosis matrix, we can notice a certain
behavior of the bid issuers and bid winners. The first category of networks is the ones
with low modularity class and low average path length (the micro-networks in Q1, Q2,
Q3, and Q4(1)), being sparse networks. In terms of strategic behavior diagnosis, we can
see a need of the actors to reach fast for another actor in the network and to keep the
network connections within communities rather than inside communities, this being a
very weak signal of corruption behavior, as the contracts connections are sparse and bid
issuers and bid winners connections are weak.
The second category of networks is the ones in the area of high modularity class and
medium average path length (macro-networks: Q1, Q3, Q4; meso-networks: Q1, Q3, Q4;
74 Strategica 2020
micro-network Q4(2)). These networks have a high density and a node needs more steps
to reach another node in the network. In terms of strategic behavior diagnosis, the actors
in these networks have dense connections within their communities, this being a sign of
multiple contacts between the same bid issuers and businesses over the period
analyzed, being a signal of presumptive corruption behavior.
The third category of networks is the ones with high modularity class and high average
path length (Q2 meso-network and Q2 macro-network). The characteristics of these
networks show dense networks, but with the actors needing more than 7 steps to reach
another node in the network. As for the strategic behavior diagnosis, these networks are
formed of actors with high connections within their community, and while reaching
another actor needs more steps in the network, the high modularity is still a sign of
multiple contracts (connections) between the same bid issuers and businesses.
Conclusions
The present study uses statistical analysis and network analysis measurements to detect
possible signals of corruption strategic behaviors in the process of public procurement.
We rely on the cultural context and on the premise that in high corrupt countries the
public procurement contracts also tend to be corrupt.
The first part of the research offers an in-depth analysis of the correlation between
cultural practices and values in EU countries. Following this analysis, we can observe
the context of corruption and culture and we discover that high scores on certain values
(uncertainty avoidance, future orientation, institutional collectivism) and practices
(power distance, in-group collectivism) lead to higher corruption (among the analyzed
EU countries).
Then, in the second part, we analyze the case of public procurement in Romania using
network analysis and a strategic diagnosis matrix. We detect three categories of
networks. In the first category (micro-networks in Q1, Q2, Q3, Q4(1)) we detect weak
signals of corruption. Then, on the second one (macro-networks in Q1, Q3, Q4; meso-
networks in Q1, Q3, Q4; micro-network Q4(2)), we detect signals of presumptive
corruption behavior between bid issuers and bid winners. In the third category of
networks (meso-network Q2 and macro-network Q2) we detect also a weak signal of
corruption behavior.
Further research regarding different business sectors and regional data for Romania is
needed to determine more specific networks. Regarding the present research, the
missing areas in the matrix are explained by the use of data for only one year. Future
research should also use more data to overcome research limitations. The
distinctiveness of this research consists in involving both statistical and network
measurements in the process of strategic diagnosis.
Economics 75
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APPENDIX 1. Countries list used for culture and corruption correlation
Country Culture Values Culture Practices CPI value

Austria ✓ ✓ 77
Czech Republic ✓ ✓ 56
Denmark ✓ ✓ 87
Finland ✓ ✓ 86
France ✓ ✓ 69
Germany ✓ ✓ 80
Greece ✓ ✓ 48
Hungary ✓ ✓ 44
Ireland ✓ ✓ 74
Italy ✓ ✓ 53
Netherlands ✓ ✓ 82
Poland ✓ ✓ 58
Portugal ✓ ✓ 62
Romania ✓ ✓ 44
Slovenia ✓ ✓ 60
Spain ✓ ✓ 62
Sweden ✓ ✓ 84
Economics 77
APPENDIX 2. Romania’s cultural values and practices resulted in the GLOBE framework
Cultural values Cultural practices
Uncertainty Avoidance 5,39 3,66
Future Orientation 5,56 3,33
Power Distance 2,78 5,63
Institutional Collectivism 4,98 3,75
Humane Orientation 5,30 4,09
Performance Orientation 4,93 3,51
In-group Collectivism 6,12 5,43
Gender Egalitarianism 4,63 3,88
Assertiveness 4,53 4,14
APPENDIX 3. Macro-networks
2019Q1 macro-network 2019Q2 macro-network
2019Q3 macro-network 2019Q4 macro-network

78 Strategica 2020
2019 yearly macro-network
APPENDIX 4. Meso and micro-networks
meso-network Q1 micro-network Q1
Economics 79
micro-network Q4 (1)
meso-network Q4
80 Strategica 2020
micro-network Q4 (2)
Economics 81
THE HISTORICAL BANAT AND ITS GEOSTRATEGIC EUROPEANITY

AT THE INTERFERENCE BETWEEN THE OCCIDENT, THE ORIENT,
AND THE BALKANS
Andreea-Eva SOMKEREKI
16 J.H. Pestalozzi St., 300115 Timișoara, RO
andreea.somkereki92@e-uvt.ro
Ioan PETRIȘOR
16 J.H. Pestalozzi St., 300115 Timișoara, RO
ioan.petrisor@e-uvt.ro
Abstract
The paper investigates, based on a thinking scheme developed by us, the influence of
geostrategies/geopolitics on the development of regional and local institutional structures that are
generating performance. The performance in the form of Europeanity, of the territory, is under the
interference of predominantly civilizing currents, such as Ottoman Orientalization, European
Westernization, Balkanization of South European influence, and Central European Europeanness. The
historical Banat is the region under study, from 1716-1918. In this period, the region is characterized by
continuous economic development and high-performance institutional structures, as well as a regional
culture oriented towards progress. This paper is part of broader research that identifies the teachings,
through conceptualization, with which we can critically evaluate the geostrategies applied to historic
Banat that has contributed to the process of alignment to Europeanism and that can inspire current
institutional behaviors or ones in perspective. Within the studied interval, we delimited four regional
administrative periods abundant in local, regional, and even European level premieres as a level of
performance. The study focuses on the analysis of data and information contained in over 500 original
historical documents from regional, national, and international archives, as well as a historical reference,
works. The methodology of scientific research combines multiple research methodologies by being
concentrated on geostrategic approach, historical and geographical investigation as well as on cultural
anthropology. Applied, the methodology contributes to the multiplication of the unique knowledge about
the Europeanness of the geostrategies afferent to the researched region. The general hypothesis of the
research is confirmed and according to it the imperial geostrategies, in which the historical Banat was
included, left their mark on the regional institutional structures, obtaining administrative performances
in the sense of Europeanness. Geostrategies implementation stimulated the amplification of European
features in the region in the administrative field. Each administrative change added layers and depths to
the institutional structures with the same objective, that of aligning the region to Europeanness. Nuances
of the hypothesis, reflect periods of adapting centrally developed geostrategies to the local specificity
ensuring a certain level of autonomy. In other periods diversification of the institutional structures, based
on the changes of the geomedium factors was characteristic. Some geostrategies took into account
already existing functional local administrative elements, while others transformed totally the local
institutional structures.
Keywords
Geostrategy; Institutional structures; Institutional behavior, Europeanness; Cultural interference;
Performance; Regional administration;
82 Strategica 2020
Introduction
The whole work is conceived and realized by taking into account the sequentiality
between geostrategies/geopolitics (imperial, royal, autonomous) institutional
structures (imperial, royal, or autonomous) and performances in terms of the degree of
Europeanness. Researched in the historical Banat region (Online Etymology Dictionary,
2020) between 1716-1918, Europeanness, as an expression of performance is
attributed to space under the interference of predominantly civilizing currents
(Bereczki, 1900, p.2). The currents identified are Orientalization of Ottoman influence,
European Occidentalization, Balkanization of South-European influence, and Central-
European Europeanization. Historical Banat included portions of the current territory
of Romania, Serbia, and Hungary, being positioned at the interference of the civilizing
currents. The study focuses on the analysis of data and information contained in
historical documents in regional, national, and international archives. The portfolio of
documents used in the research includes over 500 archive documents and historical
reference works, several of them belonging to the interval researched. Our attention was
directed to data and information that describe geostrategic approaches and regional
administrative processes of planning, decision making, and control. These processes and
functions are represented in research analyzes, carried out for different periods of
geopolitical affiliation of the historical Banat region.
The methodology of scientific research is focused on the geostrategic approach,

historical and geographical investigation, and cultural anthropology. Multidisciplinary
derive due to the connection of the fields of historical research with the managerial,
geographical, anthropological ones, to multiply unique knowledge about the
Europeanness of the geostrategies related to the historical Banat from the researched
period.
Advancing in the research, we discovered the region's possible source of attractive

features in terms of military defense functions. These were due to the inter-imperial
geoposition (due to similarities we adopted the word from Theodorescu, 2018, p. 145)
along history; the region was positioned in the immediate proximity of the Ottoman
Empire, the Habsburg Empire, and the Kingdom of Hungary. The isolation from external
environmental factors of geographical treatment is Kaplan's (2012) ambition. This
research has taken into account the influences of the region's geomedium describing
factors, mainly on institutional administrative structures.
From a territorial point of view, the geometry of the region had small variations over
time, due to a clear natural geographical delimitation (Kaplan, 2012). Under the
Habsburg administration, the territory of the region was more restricted, compared to
the Vilayet of Timișoara, administrative organization form of the Ottoman Empire.
Important changes are made in the consistency of the administrative-territorial
organization and the emergence of administrative structures. Important in anti-
Ottoman defense, the border corridor placed at the eastern end of the Hungarian
Kingdom was slided to the south of Banat. From 1768, until its dissolution in 1872, the
Banat Military Border was an administrative entity directly subordinated to the
Viennese court through the Aulic War Council.
Economics 83
During the early 18th and early 20th centuries, historic Banat (1716-1918) was
administered by the Habsburg Empire, the Kingdom of Hungary, and the Austro-
Hungarian Empire, offering the possibility of delimiting four regional administrative
periods. These were delimited by depending on geopolitical affiliation.
The first period (1716-1778) is marked by the administrative transition from the
Ottoman to the Habsburg Empire. In the second period (1778-1848) the Hungarian
royal administration took the place of the Habsburg imperial one, followed (1849-1860)
by the third administrative period in which the region was ruled autonomously. The last
administrative period (1860-1918) although royal at first, soon became imperial
(Austro-Hungarian).
Regarding the definition of the strategy, and adapted, to the geostrategy, we establish
that for the Banat region, it depended on central (imperial, royal) geostrategies.
Geostrategy becoming the implementation of the administrative models for regional
development, centrally developed, to align the region to Europeanness. The success of
geostrategies depended both on the vision and rigor of the responsible institutions in
the administrative implementation processes, as well as on the personal qualities of
their leaders (Somkereki & Petrișor, 2019). Military specialists, such as Clausewitz
(2008, p.20), share the same view. As an example, in the case of the region in the period
1716-1778, this responsibility fell to the institution of the Provincial Administration of
Banat, headed by the governor. In the case of the city of Timisoara, the attitude, vision,
and performance of governor Mercy determined the direction of local development. The
orientation towards progress, development, and the objective of increasing the living
standards of the inhabitants, is also confirmed by Mercy's (Griselini, 1984, p.128)
statements. Progress and development are perceived as a result of effectiveness (not
only to meet needs) and efficiency (but also to create well-being and luxury)
determining the performance of officials and the region.
We consider that another perspective for defining geostrategies is through the organic
characteristics of its development. Looking at geostrategy as an intuitively or non-
deliberate regional development plan that must be constantly adapted to local
conditions. We find in this form, the successful example of the Austro-Hungarian
geostrategies implemented between 1860-1918, that initiated institutional
reconfiguration due to the increase of regional insecurity, an initially unforeseen
structural process. Even the name of the region has its origins in the administrative
language. The etymology of the word "ban" (Online Etymology Dictionary, 2020)
indicates two sources of origin, one meaning of order, command, other is from the field
of leadership, meaning a leading position in the Slavonic administrations (Croatian
military chief).
At the level of state entities, the superior performance is obtained by organizing the
administrative processes, thus resulting in the institutional structures. The
characteristics of institutional structures ensure the superiority between multiple state
entities, almost regardless of the resources they have. The existence of an institutional
structure can mean the difference between stagnation and progress, as it meant in the
case of Asia compared to imperial Europe. Existing in the most developed European
states and empires, ensuring them priority over other forms of organization or
disorganization, the institutions were the pillars of the development of ancient Greece,
the Roman Empire, and the Byzantine Empire (Luttwak, 2011, pp.3-5).
84 Strategica 2020
To create a more balanced perspective on the administrative periods, different in terms

of scope, political context, and influences of the geomedium, we outlined a thinking
scheme or scheme of analysis. This highlights the influence of geostrategies, institutional
structures, desirable behaviors, and performance in terms of their Europeanness. The
order and direction of influence differ from one administrative period to another.
The Europeanness of the institutions consists in their orientation towards values such
as rationalization of resource consumption, rigor, consistency, progress, the public
character of management processes, ethnic and confessional tolerance, ensuring a
regulated legal framework of economic exchange, concern for raising the living
standards of the population, efficient use of common resources, flattened hierarchies,
interinstitutional communication.
The first administrative period
The Habsburg administration and the transition from the Ottoman to its in 1716
represent the first period of administration analyzed and lasted until 1778. Banat had
the status of the province of the Archdiocese of Austria, which was a reference
administrative institution of the Roman Empire of the German Nation. It has developed
leveling geostrategies in the spirit of Europeanness, of the regions in which it has been
divided. With the idea of efficient reconfiguration of territories (DWDS, 2020), the
Crown and the Imperial Chamber of Vienna, central institutional entities of the
Archdiocese, developed a model of regional administration (RNATCD, 1/1718, pp.1-6).
It was meant to ensure administrative unity and institutional concordance at the
imperial level, regulating elements of structure and administrative institutions similar
to those of Central Europe. The model, described in detail (RNATCD, 2/1718, pp.1-11)
was implemented, without adaptation to local specificities, in all regions of the Habsburg
Empire, including in historic Banat, under the desideratum of alignment to
administrative Europeanness as performance.
The implementation of the Habsburg institutions contributes to the formation of the

institutional administrative vocabulary (Șăineanu, n.d., p.29), since 1718 (RNATCD,
1/1718), by appearing in the same form (administration), had led to sustainable regional
institutional innovations, due to their already confirmed functionality. The new
institutions of the region start and support the process of regional Europeanization,
present important perspectives of regional development, and differ radically from the
Islamic ones.
Implemented by dispositions, instructions, and regulations issued by the Aulic Chamber

and the Aulic War Council, through the Provincial Administration (RNATCD, 1/1724,
pp.1-2). At the regional level, the institutional administrative processes were assigned
to the military and civilian governor, respectively to district administrators at the
district level. Even if the central administration's approach to the implementation of
imperial geostrategies was a rigid one, precisely for reasons of maintaining
multiethnicity as a mark of Europeanness, at the level of villages and cities it allowed the
differentiation of leading institutions according to ethnic considerations. Thus, in the
Romanian and Serbian villages, the principalities were installed and the settlers' villages
were led by a county. To achieve uniform leveling and to compensate for ethnic
differences, at this level, personalized institutional structures have been created, having
Economics 85
a control function, to form institutional behaviors that support the advance towards
Europeanness.
Regionally the process of structural reframing started in 1718 by establishing and

regulating the institution of Magistracy, as the first local administrative institution of
Timisoara. This institution was meant to implement the Habsburg imperial geostrategy
through education and discipline. This administrative structure was institutionally
subordinated to the Provincial Administration. In the aspects related to the regional
imperial geostrategy, it will be sent provisions and instructions for implementation, by
the Imperial Commission directly.
To have the possibility of comparison to Oriental influences, we described Ottoman

administration in Banat in which the perception of progress is quantitative regarding
both territorial expansion and the increase of state wealth. Institutional behavior is
focused on setting up institutional structures of a fiscal nature to monitor and collect
taxes, as the main operational tools for ensuring Ottoman performance. This can be
explained by the first measure taken by the Ottoman administration (Theodorescu,
2018, p.143), after the installation of its administration in the Banat region. The fiscal
census, from the middle of the 16th century, carried out by the Ottoman tax institution
(Vicze, 2006, pp.98-99), resulted in the registration of all possible sources of income as
well as the transfer of private property to the personal property of Pasha (Vicze, 2006,
p.103).
On the other hand, the Habsburg administration ensured a stable economic

environment in which trade in goods was constant and regulated trade (RNATCD,
6/1718, pp.1-2) starting from the first instructions given in the process of
administrative transition. At the local level, the imperial geostrategy aimed at
developing multiple competencies (RNATCD, 2/1718, pp.1-11) by diversifying its
attributions. Thereby becoming an institution in a permanent process of development,
valuable progress of European inspiration. The institution of Magistracy was competent
in the field of land administration, the commercial one, with competences in solving
judicial cases, population monitoring, and correction of behaviors incompatible with
those governed by the European spirit.
Occidental discipline became constant from the first administrative period. Not all
cohabitation behaviors have formed by themselves. There were indeed institutionalized
processes of social discipline, which significantly contributed to the formation of civic
spirit, using the taxation of fines on citizens who were not involved in community
emergencies. The historical event (RNATCD, 1/1773, pp.1-2) is part of a disposition of
the Provincial Administration of Banat given to the German Magistrate. These actions
ensure efficiency in the implementation of social and cultural policies, encourage
cohabitation and contribute to the formation of cross-cultural character through
community empathy, civic spirit, leaving aside the differences between social classes,
characteristics of societies in which hierarchical structures are flattened. The continuity
of the formation of the civic spirit derives from the existence in 1738 of the document
with similar content, of sanctions in case of non-exercise in time, of the right to elect the
Magistrate (RNATCD, 1/1738, pp.1-2).
Institutionally disciplined, enabling power to inhabitants through the Habsburg

institution of Magistracy signified local institutional innovation, contrary to those within
86 Strategica 2020
the Vilayet Timișoara (Vicze, 2006, pp.98-99) administered by highly hierarchical and
rigid structures, with strict rules on power distribution. These steps marked the
beginning of what we can call today regional imperial proto-institutionalism (delegating
the power to citizens), the concepts related to leadership and decision-making power
from the hierarchically higher to the lower level, have slipped into the public sphere.
They thus became a collective function (sustainable Magistrates with long-lived activity
from 1718 until the present, in the form of the City Hall), determining the moment of
appearance and use, de jure and de facto, of the concept of “public space” in the Banat
region, an administrative innovation of absolute novelty. The de facto appearance of the
public space represents the interference with the Occident, and by the fact that public
space was formed by the imperial administration of Central European inspiration adds
the Central European character of the public space and implicitly to the administrative
institutions of Timișoara.
The performances in terms of Europeanness of the imperial model of regional

administration materialized through the successful implementation of public projects
and generated local and European premieres, as proof of alignment with European
cities. Successful public projects have come from the field of sanitation (construction of
three hospitals in 30 years, similar, but built long before, like those in Budapest or
Vienna (RNATCD, 1/1728, pp.1-44), public drinking water supply services, river public
transport, public street lighting services (in 1760, Timișoara became the best lit city of
the empire), etc.
The second administrative period
Due to external pressures, between the Habsburgs and the Kingdom of Hungary, there
is a structural rupture marked by the operationalization of institutions in the paradigm
of royal structures from 1778 to 1848. The Banat region became a subordinate province
of the Hungarian Diet, the institution of the supreme royal rule of the Kingdom. Judging
from the prism of the thinking model of the analysis, the influence, which describes the
royal administrative intention, is between royal institutional structures that desire to
form institutional behaviors in accordance with the policies of Hungarianization and
institutional subordination. This explains the establishment of the Incorporation
Commission, a support institution that investigated the situation (RNATCD, 1778) of the
regions, cities, and their citizens' wealth, as a first step in the incorporation process. Due
to the incompatibility of the royal institutional structures with those existing in the
region, the local inter-institutional links with Vienna (RNATCD, 7/1780, pp. 1-8) were
maintained. At the level of the city of Timișoara, these connections determined the local
Europeanness, due to the attribution of the status of a Royally free city, thus benefiting
almost autonomy in the institutional structures. Institutional relations of subordination
were changing, judicial institutions were becoming autonomous (has the right to choose
its own judges and jurors) opportunities for trade development were emerging and
royal tax obligations were being eliminated. Timisoara aligns itself to Europeanism (by
reducing the social category of noble rank), from a position of equality with the big cities
of the Kingdom of Hungary. At the royal level, regarding the Banat region, we observe
changes in the elements of sequentially eliminatory behavior, imposition, and
subordination of institutional structures and institutional destructuring. In detail, the
royal administration did not recognize the privileged status of the city and imposed the
Economics 87
implementation and subordination of institutional structures. In response, local military

institutions developed cooperative relations with the Aulic Council of War in Vienna.
The third administrative period
The regional autonomy marks the third period in the administration, delimited with the
establishment of the administrative entity called Voivodeship of Serbia and Banat of
Timișoara, with its capital in Timișoara city. Subordinated to the Austrian Empire, the
entity becomes an imperial province administered by a governor, benefiting from its
own civil and military leadership. At the level of the city of Timișoara, there was a city
council, the institution of the mayor's office being subordinated to the State
Administration. The return of institutional structures under Austrian influence meant
institutional reconfiguration and realignment to the Austrian imperial geostrategies, a
continuation of the Habsburg ones. Thus, the reintroduction of the geostrategy element
in the administration processes, but in a different form. If in the first administrative
period the imperial geostrategy implemented at the level of the region, was a model
taken over, in this administrative period, the structures of the institutions created parts
of their own regional geostrategy. Thus, we highlight the imprinting of the imperial
geostrategies of Habsburg inspiration in the memory of the Banat administrative
institutions.
Judging in terms of sequentiality, due to the benefits of regional autonomy and the
European multicultural context, there was a temptation to empower both geostrategies
and institutional support structures. The sequentiality, thus characteristic, is
constituted between geostrategy with a tendency of autonomy, that requires own
institutional structures that ensure Euroregional performance. Thus, in 1850, the
Chamber of Commerce and Industry of Serbian Vojvodina and historical Banat was
established. Due to the right to collect customs and store goods, benefits of free city
status, the commercial institution facilitated alignment with the European commercial
spirit, by constantly shaping trade relations. The cooperation of the administrative
institutions with the existing confessional organizations in the city, on the development
of the European cross-cultural character in the region, stands out in 1848. Religious
services were held and prayers were said after 4 rites including Roman-Catholic,
Evangelical, Greek Unified (Orthodox), and Mosaic rites (Preyer, 1995, p.213) for
military and administrative freedom. Multiconfessionalism in the middle of the 19th
century, Timișoara city, was represented by the harmonious cohabitation of Catholics,
Greek Catholics, Greek Orientals, Protestants, and Jews. Most having
representation/churches/synagogues/parishes even in the town (Preyer, 1995, p.239).
Moreover, in 1852, Jews became lawful citizens by oath and in the middle of the 19th
century, almost 10% of marriages were of mixed confessions between rites like
Christians, Jews, and even Muslims (Preyer, 1995, p. 234). The acquisition of shared
values in the intercultural context, through the institution of the confessionally mixed
family, marks the beginning of transculturality in the Banat region.
At the level of the local institutional structures of Timișoara, the benefits of the status of
capital of the province, of the free royal city, and the establishment of the governor's
residence in the city, determined the modeling of the institutional behavior
(magistrate/city hall), the performances in the sense of Europeanity began to appear.
Timisoara aligned with the Europeanness of Central European cities through multiple
88 Strategica 2020
local premieres. We mention cultural premieres of the famous European shows, the
construction of the Vienna-Timișoara and Sibiu telegraph line, the development of
public gas street lighting services as well as the Timișoara-Baziaș railway line
maintaining the regional connection with the Balkans.
The fourth administrative period
In the fourth administrative period, Banat, as an incorporated province, was ruled by

the institutional structures of the future Hungarian part of the Double Austro-Hungarian
Monarchy, through the Diet of Buda. The royal administrative organization returns due
to the full integration of the region into the Hungarian political and administrative
structure. Compared to the rigid administrative system from the middle of the 18th
century, there is a tendency of the Hungarian administration, with the establishment of
the double monarchy, to adapt the structures to the local specifics, attributing to them a
higher degree of regional autonomy. The new regulations aim at a continuous and ample
process of institutional structural diversification due to the dissolution in 1872, of the
administrative entity Military Border of Banat, by the monarchical central institutions.
The external influence of geostrategic nature determined that the issue of regional
security be transferred to institutional structures belonging to the legal field.
Diversification is highlighted by amplifying the establishment of institutions, some with
extended competence at the level of areas or the whole region. Thus, numerous and
various legal institutions were established since 1871, before the dismantling of the
military border. The first such institution was the Royal Court in Timișoara year 1871,
the Royal Court in 1881 having regional authority, followed by the Royal Notary
Chamber, also with regional competence, and in 1900, the Royal Prosecutor's Office.
At the local level, the attribution of the rank of a municipality to the city of Timișoara
transforms the administrative institution of city administration into one of municipal
rank. The development of novel institutional structures provided the institutional
framework for economic development, the proliferation of industrial enterprises
(RNATCD, 17/1899), and the increase of living standards by ensuring higher working
and learning conditions (RNATCD, 14/1884, 5/1890, 9/1893), rail transport (RNATCD,
22/1895), diversification of educational institutions (RNARCD, 7/1891), the emergence
of social institutions protecting vulnerable groups (RNATCD, 28/1878), professional
organizations and associations (RNATCD, 7-15/ 1887), etc.. In fact, in general, the
framework for the formation of a rich and active society in the European spirit of well-
being.
The success of the alignment to the Europeanness of the region and especially of the city
of Timișoara was also due to the formation of the cultural tradition, in which the mayor's
office was affirmed at the local, regional and European levels by premieres. These
include the introduction of electric street lighting for the first time in Europe (RNATCD,
8/1884), the first horse-drawn tram in Southeast Europe (RNATCD, 20/1896), the
opening of the first public library in the Austrian Empire, etc.
If initially aimed to change behaviors through Hungarianization processes, transformed

into geostrategies, the focus has been switched to security, institutional diversification,
and autonomy and to align with the European spirit and performance.
Economics 89
Conclusions
Although the governing administrative structures in the Banat region have changed, the
oscillation between the Austrian and Hungarian-inspired administrative structures
remained constant between 1716 and 1918. Characteristic to the whole period is the
fact that successfully implemented institutional structures ensured autonomy, even if
its level was reduced, openness to the local existing functional elements. Thus, it can be
seen that the Habsburg institutions were more open to the preservation of specific local
elements while the Hungarian administration changed completely institutional
structures. Non-alignment forced the Hungarian-inspired institutional dismantling,
which on the next incorporation of Banat under his leadership (Austro-Hungarian one)
succumbed to regional cultural pressures (strong due to the autonomous administrative
episode), adapting institutional structures, such as defense, to local characteristics.
As a comprehensive example, following the reconstruction of the citadel of Timisoara by

the Habsburg administration, elements of the defense system specific to the Ottoman-
inspired eastern village were taken over and even improved. The water towers, used in
the geostrategies for the defense of the plains, steppe territories (Luttwak, 2011, p.21)
have been streamlined through relocation processes, necessary to obtain better
visibility (Vicze, 2006, pp.98-99). The use of elements or even similar defense strategies,
depending on the properties of the relief, are aspects also identified by Lutwack (2011,
p.21), existing during the Byzantine Empire, draw our attention to a new interfering link,
namely between the East and the Balkans.
Regional administration passed on the spirit of multicultural cohabitation and

cooperation, the core of what we call today transculturality. Transculturality, as a value
shared at the regional level, is represented symbolically by water towers existing even
today. The period of regional autonomy between 1849 and 1860, at the level of the city
of Timișoara was completed with the status of city-residence of the provincial governor
and the status of a royal free city. Taken together, the benefits of this state have played
an important role in supporting large-scale urban development. In other words, the
success of the Banat region is due to the combination of autonomous, Habsburg-inspired
geostrategies and Austro-Hungarian-inspired institutional diversification strategies
adapted to the European spirit of the region.
Thus, the general hypothesis was confirmed, by proving that the geostrategies in which
the historical Banat was included, left their mark on the regional institutional structures,
to obtain administrative performance in the sense of Europeanness.
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Economics 91
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92 Strategica 2020
CHINA’S URBAN DEVELOPMENT.

A REGRESSION ANALYSIS BEFORE AND AFTER 1990
Adriana GRIGORESCU
30A Expoziției Blvd., District 1, 010324 Bucharest, RO
Correspondent Member of the Romanian Scientists Academy
54 Spl. Independentei, 50085 Bucharest, RO
adriana.grigorescu@snspa.ro
Amalia-Elena ION
30A Expoziției Blvd., District 1, 010324 Bucharest, RO
amalia.ion@live.com
Abstract
China represents one of the 21st-century forerunners in terms of economic power and technological
advances, and, with its ample development programs, has achieved the status of a modern, high-tech
country with great perspectives. The population growth and the movement of the latter towards
urbanized centers has been both a cause and consequence of China’s status today. The urban
development in China started after the fallout during the Mao era, with the Great Leap Forward and
the Cultural Revolution movements that destabilized the country both economically and politically.
After the country has been devastated internally and externally, by the late 1970s, China had a
stronger and growing economy. Today, China has, according to the OECD Urban Policy Reviews:
China (2015), no less than 15 megacities, each with more than 10 million inhabitants. Compared to
the mean OECD urbanization trend of 2015, China exhibits a greater growth rate of almost 1,5% in
large metropolitan areas, in contrast to the less than 1% growth experienced within the OECD area.
Based on these facts, the present research has attributed a series of variables as causes and
consequences of Chinese urban development, and, with the application of the regression analysis, has
offered a generalized review on the impact of FDI, GDP, population growth, and other factors, on
urbanization in China. The paper also identifies the shifts produced in the decades before 1990 and
after 1990, under the form of a historical analysis of the overall impact of different economic and
social factors on the urban development in China. The variables have been divided into causes,
consequences, and both causes and consequences of urban development. The analysis was, as a result,
interpreted from the three different perspectives, showcasing the importance of each major element
of impact on urbanization as a fundamental force in the economic growth of modern China.
Keywords
Urban development; China; Regression analysis; Historical analysis; Migration.
Introduction
A civilization that has thrived for more than 5000 years, from its ancient historical
heritage and culture to the contrasting modern lifestyle, China is both a country and an
economy worth observing, and, to some extent, learning from. The potential for social
and technological expansion stems from the capacity of a population to learn to outgrow
its limitations. With the biggest expanding workforce, and a ruling communist party, this
country managed in a few decades to compete as a major force on the international
markets. Although China cannot take pride from its country image in the Western world,
Economics 93
there are many accomplishments this country accumulated; starting with impressive
building technologies, robotics, and engineering, to the ever-growing innovation
programs, China continuously works on bettering the structural and organizational
framework within, showing the world that when it comes to R&D, this country really
qualifies for first prize.
From an economic perspective to China is attributed the fastest growing economy of the
world. Joseph Schumpeter (1991) nicely puts it that the fiscal history of a country tells
more about its people, its culture, and its social structures than anything else. In essence,
it is quite marvelous how intricate the economic system is, and how we, as a pawn in it,
struggle to understand it, prevision it, and model it. Using different econometric
instruments for correlations and prediction, the academic sector has enriched the
knowledge regarding the implications of different economic factors on the development
of a country.
The urban development programs in China are of colossal magnitude, determining the
need for identifying all the forces directing this trend. What triggered the movement
towards the urban settlements and how those have influenced the status that China
occupies today in the global economy? To answer this research question, information
has been gathered from the World Bank databases, and, using Stata, was analyzed
through the multifactorial regression analysis. The variables have been compiled in
categories, depending on their significance, as follows – economic, population, labor, and
development and consumption-related. Moreover, the variables were conditioned by
their context of either being causes, consequences, or both causes and consequences of
urban development in China.
At the same time, the impact of those variables on urban development has been assessed
before and after 1990, to better understand, also from a historical point of view, how the
transformation took place, and how the influences between the factors have altered. The
results showcase how, before 1990, foreign direct investments have aided the urban
development in China, while after 1990, the expenditure of the Chinese government in
Research & Development has produced some of the greatest achievements in the
modern history of the country. Among the consequences of urban development in China,
the population and labor-related indicators can be reminded.
It is quite formidable how the economic mechanisms work, how connected everything
is, and, at the same time, it is fascinating to read in the numbers how a country can grow
and develop to become one of the principal forces in the world’s economy.
Literature review
According to the probabilistic study of Gerland et al. (2014) on the UN world population
projection data, there is an 80% chance that the world population will continuously
grow until reaching between 9.6 and 12.3 billion by 2100. The highest population
growth will be registered on the African continent, even though Asia will remain until
mid-century the most populous continent. In the past decades, our world has
experienced the largest wave of urban growth in history, with more than half of the
world’s population living in urban areas. This trend is currently undergoing an
94 Strategica 2020
expansion process, as the UN announced in 2018, and the global urban population is
expected to increase from 55% in 2018 to 68% by 2050 (United Nations, 2018).
To acquire a historical perspective on urbanization, only 30% of the world population

used to live in urban areas in the 1950s, compared to 55% in 2018 (United Nations,
2018). Moreover, the most urbanized regions of the world include the American
continent with around 81% of its population living in cities and towns, Europe with 74%
urbanized population, and Oceania with 68% urban population. Nevertheless, Asia is
home to 54% of the world’s urban population. Currently, there are two trends pushing
urbanization growth, namely global population growth and the upward shift in the
urban population.
China, one of the oldest civilizations of the world, has a written history of 5000 years
and boasts rich cultural relics and historical sites. To the Chinese culture are attributed
several significant inventions, including the compass, papermaking, gunpowder, and
printing. Among the most visited and historically wealthy sites in China are The Great
Chinese Wall, the Grand Canal, and Karez irrigation system, which represent some of the
great ancient engineering projects, built millennia ago, symbols of the rich Chinese
culture and history. Although ancient history portraits China as a colossus of innovation
and technology, there have been gloomy decades in the more recent history of China,
where slavery, feudalism, or socialism have marked deep into its people and culture.
China is today (2020) the home of more than 1.4 billion people, representing 18.4% of
the total world population (United Nations, 2019).
Since the mid-20th century, urbanization trends have been irreversible, the world
population migrating towards urban centers, mainly in search for better living
conditions, as economic development levels tend to be directly correlated with those of
urbanization (Chen et al., 2013). Moreover, there are two different perspectives of
urbanization depending on the economic development of a country, where developed
countries are synchronized in terms of urbanization and economic development, and
while the developing countries experience over- or under-urbanization. China is the
kind of example that borrows from both categories (Chen et al., 2013), depending on the
region under examination. The political and social reforms have had their impact on
urbanization in China, determining the situation today, where different regions of the
country are thriving both economically and socially, and others fall behind. From the
perspective of the Potential Support Ratio of China, this country registered around 7.8
people aged 15-64 per one person aged 65 or more, but the number is projected to
decline to 1.8 by the end of the century, placing a tremendous burden on the young
generation of working Chinese citizens. Nevertheless, 2020 has marked an important
milestone in the history of Chinese urbanization, with more than 60% of the Chinese
population living in urban areas. China is also one of the most important economies at a
global level, and its development implies colossal urban construction programs. But
what triggered this movement towards urban settlements and how did the latter
influence the overall economic status of China?
Ultimately, the urbanization phenomenon has been associated with the following
determinants: the high-class of the Chinese society is directly linked to the process of
over-urbanization, while the low-class population lives in under-urbanized areas (Chen
et al., 2013). Between 1960 and 2010, urbanization in China was determined by the
rural-urban migration (Zhang & Song, 2003). Among the consequences of the Chinese
Economics 95
urbanization process, urban air pollution has a central position, as urbanization is

directly correlated with the increases in the fine particles (PM2.5) concentration in the
city air (Han et al., 2014). Nevertheless, studies (Aunan, & Wang, 2014) show that the
Chinese policymakers have been keen to solve, at least in part, this problem, as the
trends showcase a consistent drop in urban household fuel consumption between 2000
and 2010, with estimated annual health benefits from the transition of energy
consumption of around 30 billion USD.
Such a tremendous urbanization growth has exposed different types of problems,

including economic, social, environmental, and, given the limited land resources, has put
a toll on the policymakers and academics in China (Chen, Jia, & Lau, 2008). The Chinese
government considered the threats exposed above, and instituted movements that
pertain to a more balanced economy, with the introduction of sustainable urban
development projects that gave birth to the idea of eco- and/or low-carbon cities (Liu et
al., 2014). According to Yin et al. (2014), 40% of the Chinese cities are eco-efficient.
Nevertheless, they have identified a direct correlation between GDP, eco-efficiency, and
environmental pollutant emission. Therefore, it is not clear if eco-efficient cities are also
sustainable, but it can be underlined that the amount of economic return of a certain
urban region influences the environmental impact of that area, such that a high
economic return will imply a low environmental impact of the respective city (Hahn et
al., 2010). Liu et al. (2015) measured the functionality of urban development in China,
which, ultimately divided the urban regions into four categories, depending on the
amount of FDI and GDP allocated to the development of the urban area. Consequently,
an urban area that comprises of more than one city will tend to incorporate, into one
polycentric urban development center/region (PUR), all the surrounding cities. There
are three phases of such convergence, namely the fusion phase, where the urban regions
are formed of a large collection of separated industrialized centers that developed
separately but, eventually, fused, the incorporation phase, where towns and small urban
centers are being integrated, with the consequence of eliminating rural administrations,
and agriculture population counts, and the centrifugal phase, where the cities and towns
from a PUR become integrated into their economic specialization (Cai et al., 2012).
Given the potential of urbanization, but considering also the consequences it

determines, the United Nations have actively worked towards identifying a sustainable
strategy to adapt to the demographic realities of the 21 st century, especially focusing on
the Asian and African continents, where the urbanization phenomenon is growing
exponentially. Urban areas will absorb eventually all the growth in the world’s
population, and the international migration, as a transformative force, will manage to
bring out of poverty millions of people, and it will contribute to the sustainable
development of the countries (United Nations, 2019).
Methodology
Research Question
The present research was conducted with the scope of determining the factors
influencing the urbanization phenomenon in China. The regression analysis has been
performed across 37 variables, classified as causes, consequences, and both causes and
consequences, as follows: economic factors (FDI, GDP, trade, gross national expenditure,
96 Strategica 2020
household final consumption expenditure, health expenditure, adjusted net national

income, adjusted net national income per capita, manufacturing-value added, industry-
value added, exports of goods and services, R&D expenditure), population-related
factors (total population, population in urban agglomerations of more than 1 million,
population in largest city, life expectancy at birth for females, life expectancy at birth for
males, urban population, urban population percentage of total, urban population
growth, population density, rural population, population growth), labor factors (gross
enrolment ratio primary and secondary school, employment in agriculture,
unemployment, labor force), and development and consumption-related factors
(electric power consumption, physicians per 1000 people, CO 2 emissions, mobile
cellular subscriptions, CO2 emissions from transport, internet users, people with access
to basic water sources, people with access to basic sanitation facilities, fossil fuel energy
consumption).
The database has been procured from the World Bank website, and the regression has
been performed with the Stata software for econometric analysis. The data comprised
of indicators’ performance between 1960 and 2019. Not all variables contained 60
observations (the maximum number of observations), as depicted in Table 1 – Data
Summary. Due to the lack of information, when the consequences were analyzed, not all
the variables remained relevant (see Findings – Consequences). The research had
performed a differentiated, historic analysis from 1960 to 1990, and from 1990 to 2019,
because the mean of the Year variable registered 1989.5 as value, dividing the data into
two equal parts, and with the scope of furthering the research with a comparison to
European countries before and after the communist regime succumbed.
Research hypotheses on determinants of urban development
The factors influencing urban development are to be perceived from two different
perspectives; one perspective would be that of push factors, and the other of pull factors.
Examples of such types of factors can be objectively identified, as follows: lack of
employment opportunities in rural areas, overpopulation of rural areas, or poor crop
yield are considered push factors, while pull factors could be natural population growth
and even higher standards of living. Typically, a pull factor will initiate the internal
migration of the population (DeWind, & Holdaway, 2008), and the push factors will
sustain that decision. Moreover, the causes and consequences of any urban population
growth are part of the circular process, where the cause of the phenomenon transforms
also into a consequence of the latter. Generally, foreign direct investments and gross
domestic product growth are factors that can be attributed to the causes of urbanization,
such that one could underline that a developed economy will be prone to internal
migration and urbanization phenomena. While economic conditions improve, the
country will attract more FDI, the GDP experiences growth, trade develops, export
increases, as well as national expenditure in infrastructure, education, health, sanitation,
life expectancy, living conditions, etc.
Given the above-mentioned characteristics of urbanization determinants, the research

identifies a series of hypotheses to be tested. The hypotheses have been constructed,
just like the findings, by referring to each category of variables (see Research Question),
namely economic variables (12), population variables (11), labor variables (4), and
development and consumption variables (9), and the Year variable, as follows:
Economics 97
Hypotheses on causes of urbanization Hypotheses on the consequences of

urbanization
H1. The economic variables have a direct H4. Urbanization in China determines
influence on the urbanization process in changes to the values of the economic
China. factors, representing a mean of both
H2. The population and labor-related economic and population growth.
variables are directly correlated to the H5. The growth of the urban population
urban development process in China. in China influences the population and
H3. As the development and labor-related indicators, such as total
consumption related variables unemployment, life expectancy, rural
determine better living standards in population levels, etc.
China, there is a visible correlation with H6. The living standards in China are
the process of urbanization. influenced by the population growth of
urban settlements.
Research method
The research method used for the analysis of the causes and consequences of urban
development in China is the regression analysis. The latter represents a statistical
process that estimates the relationship between different variables such as the effect of
GDP and FDI on urban population growth if any. The analysis will show the degree of
connection between the dependent variable and the independent variables. By
interpreting the correlation coefficient, the strength of a linear association between the
variables tested in the regression is measured. The coefficient of determination, R-
squared, will give an insight on how well the data fit a statistical model, namely the
regression line perfectly fits the data (R squared is 1), the regression line does not fit the
data (R squared is 0), or is somewhere in between. Moreover, the p-value will indicate
whether the null hypothesis can be accepted or not.
Table 1. Data summary

Variable Obs Mean Std. Dev. Min Max
year 60 1989.5 17.46425 1960 2019

fdi 38 93607.73 97259.93 430 290928.4
totpop 59 1082.618 230.8336 660.33 1392.73
tradepercent 59 26.98802 17.9488 4.98269 64.76945
popurb1mil 59 150.5792 99.36774 52.67878 388.3984
poplrgcity 59 11.24489 6.322257 5.4706 25.58214

gdp 59 2151.567 3610.377 46.68518 13608.15
emplagricp~t 33 44.41985 11.20569 25.363 60
co2em 55 2.543848 1.923847 .5741621 7.557211
mobcelsu~100 32 34.38935 38.8075 .0000635 115.5258
lifeexpect~m 59 68.75754 8.666717 45.112 79.051

lifeexpect~e 59 65.81124 8.532598 41.898 74.549
househldex~d 59 846.7041 1371.118 30.12836 5263.179
co2emtransp 44 6.505517 1.204858 4.696472 8.598695
healthexpe~t 23 4.32423 .4111975 3.544976 5.151193
98 Strategica 2020
netuserspe~t 25 19.05545 20.3763 .0001687 54.3
randdexpen~t 22 1.404874 .5278274 .56513 2.14512
nni 49 2009.435 2908.028 83.03674 10512.22
nnipercap 49 1512.696 2101.586 101.4728 7547.925
totunemplp~t 29 4.420724 .2284785 3.8 4.9
rurpop 59 726.9079 95.13526 550.0021 836.4789

watersrcpe~t 18 86.98938 4.06956 80.39258 92.84614
expgoodsserv 59 488095.8 804743.5 1913.227 2655609
sanitfacil~t 18 70.61833 9.219354 56.2896 84.76079
fuelenerco~p 44 76.12424 8.490578 59.94989 88.41866
totlabour 30 7.42e+08 4.52e+07 6.42e+08 7.85e+08

popdensit 58 116.0796 24.0873 70.33579 148.3488
manuf 59 759171.5 1184817 13217.92 4002753
industr 59 932820.3 1520125 14594.96 5532093
urbpopgrowth 59 3.530804 1.111994 1.210543 5.493641
urbpop 59 355.7101 221.6443 108.0854 823.8276
urbpopperc~t 59 30.31212 13.60464 16.203 59.152
elepwrcons~p 44 1081.572 1084.663 151.9893 3927.044
gnexpend 59 2104.557 3538.185 47.27435 13255.61
schoolenrol 36 .9020942 .0873002 .77764 1.01431
physici~1000 48 1.263856 .2820901 .85 1.9798

popgrowthp~e 59 1.278737 .7873878 -1.015528 2.787332
Findings
Causes of urban development in China before 1990
Table 2. The Economic Impact on Urban Development

. reg urbpopgrowth fdi gdp tradepercent gnexpend manuf industr expgoodsserv if year<=1990
Source SS df MS Number of obs = 9

F( 7, 1) = 40.97
Model .738258408 7 .105465487 Prob > F = 0.1197
Residual .002574184 1 .002574184 R-squared = 0.9965
Adj R-squared = 0.9722
Total .740832591 8 .092604074 Root MSE = .05074
urbpopgrowth Coef. Std. Err. t P>|t| [95% Conf. Interval]
fdi .000449 .0000793 5.66 0.111 -.0005585 .0014566

gdp -.1214364 .0324376 -3.74 0.166 -.5335953 .2907226
tradepercent .0356227 .0690687 0.52 0.697 -.8419788 .9132242
gnexpend .061881 .0325557 1.90 0.308 -.3517787 .4755408
manuf .0004159 .000077 5.40 0.117 -.0005627 .0013946
industr -.0002978 .000057 -5.22 0.120 -.0010225 .0004269
expgoodsserv .0000783 .0000447 1.75 0.330 -.0004902 .0006468
_cons 8.169066 1.718613 4.75 0.132 -13.66799 30.00612
Economics 99
The variables FDI, GDP, gross national expenditure, manufacturing value-added,

industry value-added, and exports of goods and services are expressed in USD at
absolute values. The trade is expressed in percentages of GDP, and the dependent
variable urban population growth is also expressed in percentages. According to the
results listed in Table 2, it can be stated that there is a positive relationship between the
urban population growth and all the independent variables, except for GDP, and
industry value-added. As a consequence, an increase in the GDP, or industry value-added
will trigger a negative effect on the urban population growth. The coefficient of
determination is 0.99, which shows perfect linearity between the variables. The
alternative hypothesis that economic growth is correlated to urban development was
not accepted, registering a P-value higher than 0.05. Therefore, H1 is not confirmed: any
increase in the foreign direct investments, gross net expenditures, manufacturing value-
added, trade, and the exports of goods and services will not have a positive and direct
impact on the urbanization in China. The results are consistent also with the lack of data
before 1990.
Table 3. The Population Effect on Urban Development
. reg urbpopgrowth totpop popurb1mil poplrgcity rurpop urbpoppercent if year<=1990

F( 5, 25) = 3.65
Model 26.024564 5 5.20491279 Prob > F = 0.0128
Residual 35.6221904 25 1.42488761 R-squared = 0.4222
Total 61.6467543 30 2.05489181 Root MSE = 1.1937
totpop -.5749077 .3090452 -1.86 0.075 -1.211398 .0615827

popurb1mil .2598877 .4465382 0.58 0.566 -.6597749 1.17955
poplrgcity 6.964826 3.069986 2.27 0.032 .642071 13.28758
rurpop .7073982 .3594377 1.97 0.060 -.0328776 1.447674
urbpoppercent 5.12203 2.21915 2.31 0.030 .5516054 9.692456
_cons -152.6593 67.35441 -2.27 0.032 -291.3783 -13.94031
When assessing the results of the second test, the correlation between the population
variables and the urbanization in China is direct and negative. Consequently, the urban
population growth drops as the percentage of the total population rises. The p-value is
lower than 0.05, which means we can accept H2, according to which the population
indicators have an influence on the urban development in China before 1990. There are
p-values for particular indicators such as total population, the population in urban cities
bigger than 1 million people, and rural populations that are higher than 0.05, which
means that, considered separately, they do not register the same influence on the urban
development. R-squared is 0.422, which shows weak linearity. The H2 of the study
stating that the population indicators are directly correlated to the urban development
in China before 1990 can be accepted.
100 Strategica 2020
Causes of urban development in China after 1990
Table 4. The Overall Development and Consumption influence on Urban Development
. reg urbpopgrowth watersrcpercent sanitfacilpercent fuelenerconsump elepwrconsump if year>=1990

F( 4, 10) = 23.61
Model 2.46554645 4 .616386612 Prob > F = 0.0000
Total 2.7266106 14 .1947579 Root MSE = .16157
watersrcpercent .6749309 1.15388 0.58 0.572 -1.896073 3.245935

sanitfacilpercent -.289958 .5564332 -0.52 0.614 -1.529768 .9498525
fuelenerconsump -.0297765 .0985963 -0.30 0.769 -.2494627 .1899096
elepwrconsump -.0004657 .0007103 -0.66 0.527 -.0020482 .0011169
_cons -31.08698 56.07881 -0.55 0.592 -156.0384 93.86439
The indicators tested for exerting influence on the urban population growth were people
using at least basic drinking water services (% of the population with access), people
using at least basic sanitation services (% of the population with access), fossil fuel
energy consumption (% of total), and electric power consumption (kWh per capita). The
results of the regression analysis can be interpreted as follows: a 1% increase of the
population with access to basic drinking water sources determines an urban population
growth of 67%; at the same time, a 1% increase in the population with basic sanitation
services determines an urban population drop of 28%. Moreover, if fossil fuel
consumption would increase by 1%, the urban population growth would decrease by
2.9%. The H3 of the study is accepted, confirming that the indicators of development
and consumption determine superior living standards, and exert a direct influence on
the overall urban population growth, with a 95% confidence-level, although the
correlation between the independent variables and the dependent variable is generally
negative.
Table 5. The Overall Development and Consumption influence on Urban Development
. reg urbpopgrowth netuserspercent co2emtransp co2em mobcelsubs100 physiciansper1000 if year>=1990

F( 5, 14) = 26.37
Model 3.67157303 5 .734314605 Prob > F = 0.0000
Total 4.06135503 19 .213755528 Root MSE = .16686
netuserspercent -.0286195 .0193368 -1.48 0.161 -.0700928 .0128538

co2emtransp -.0548803 .0724375 -0.76 0.461 -.2102432 .1004827
co2em -.2043299 .2042108 -1.00 0.334 -.6423185 .2336586
mobcelsubs100 .0150378 .0199368 0.75 0.463 -.0277223 .0577979
physiciansper1000 .150004 .374152 0.40 0.695 -.6524723 .9524803
_cons 4.715142 1.142979 4.13 0.001 2.263696 7.166589
Economics 101
After 1990, the development and consumption indicators had an impact on urban
development, according to the registered p-value of 0, accepting H3. The R-squared was
0.904, thereby underlining the almost perfect linearity of the data. A negative effect on
the urban population growth has had Internet users (per 100 people), the CO2 emissions
from transport, and the CO2 emissions in general. The highest influence is triggered by
the CO2 emission; thus, a 1% increase in the CO2 emissions determines a 20% drop in
the urban population growth. H3 can be accepted, the development and consumption
variables are overall positively correlated to the urban development, as depicted in
Table 5.
Table 6. The Economic Impact on Urban Development

. reg urbpopgrowth househldexpend healthexpendpercent randdexpendpercent nni nnipercap industr manuf expg
> oodsserv if year>=1990

F( 8, 13) = 29.35
Model 5.06206704 8 .63275838 Prob > F = 0.0000
Total 5.34236785 21 .254398469 Root MSE = .14684
househldexpend .0004669 .0007376 0.63 0.538 -.0011266 .0020604

healthexpendpercent -.2647664 .2408942 -1.10 0.292 -.7851866 .2556539
randdexpendpercent .4505339 .3183262 1.42 0.180 -.2371681 1.138236
nni .0006184 .0024923 0.25 0.808 -.0047658 .0060026
nnipercap -.0013711 .0032911 -0.42 0.684 -.0084812 .0057389
industr -5.61e-08 9.81e-07 -0.06 0.955 -2.18e-06 2.06e-06
manuf 3.61e-07 4.83e-07 0.75 0.468 -6.82e-07 1.40e-06
expgoodsserv -7.13e-07 5.44e-07 -1.31 0.213 -1.89e-06 4.63e-07
_cons 4.968708 .9567178 5.19 0.000 2.901845 7.035571
Even after the urban population growth entered a slow-paced growth period after 1990
(see Table 6), the economic impact was still relevant to urban development. R-squared
is 0.947, which shows almost perfect linearity; thereby the data fit the statistical model.
The health expenditure (% of GDP), the net national income per capita, the industry
value-added, and the exports of goods and services have a negative impact on the urban
population growth. The influence of R&D expenditure (% of GDP) on urbanization in
China is relevant. A 1% increase in the R&D expenditure determines a 45% increase in
urban population growth. As the household final consumption expenditure increases by
USD 1, the urban population growth increases by 0.046%. After 1990, H1 can be
accepted, underlining a positive and direct influence of economic indicators on the
urban population growth.
102 Strategica 2020
Table 7. The Population Effect on Urban Development
. reg urbpopgrowth rurpop lifeexpectfem lifeexpectmale popgrowthpercentage if year>=1990

F( 4, 24) = 104.06
Model 9.59903553 4 2.39975888 Prob > F = 0.0000
Total 10.1525199 28 .362589997 Root MSE = .15186
rurpop .0090175 .0018463 4.88 0.000 .0052071 .012828

lifeexpectfem .0074633 .0825596 0.09 0.929 -.1629314 .1778581
lifeexpectmale .302985 .0982042 3.09 0.005 .1003015 .5056684
popgrowthpercentage 1.660312 .5681008 2.92 0.007 .4878101 2.832815
_cons -26.55876 10.85126 -2.45 0.022 -48.95465 -4.162865
After 1990, the population indicators have shown a stronger influence on urban
development. R-squared resulted in a value of 0.945, demonstrating an almost perfect
statistical model. All the independent variables have a positive influence on the
dependent variable. As the population growth percentage increases, so does the urban
population. Moreover, increases in the life expectancy of both males and females will
trigger increases in the urban population. Therefore, after 1990, H2 is accepted, showing
a generally negative but direct influence of population indicators on the urban
development in China.
Table 8. The Labor Effect on Urban Development
. reg urbpopgrowth totlabour totunemplpercent emplagricpercent if year>=1990

F( 3, 24) = 248.89
Model 9.38588197 3 3.12862732 Prob > F = 0.0000
Total 9.68756888 27 .358798847 Root MSE = .11212
totlabour 1.37e-09 1.28e-09 1.07 0.296 -1.27e-09 4.01e-09

totunemplpercent -.100226 .1054842 -0.95 0.352 -.3179348 .1174828
emplagricpercent .0624139 .0050169 12.44 0.000 .0520594 .0727683
_cons .3479394 1.426607 0.24 0.809 -2.596433 3.292312
Within the group of variables related to the labor effect, the measured indicators – total
labor, and employment in agriculture (%), have showcased a positive correlation to
urbanization in China. Alternatively, total unemployment (%) has presented a negative
correlation to urban development. R-squared is 0.968, which means that the data is
linear, while P-value is 0; therefore, H2 is accepted, the independent variables have a
direct and positive effect on the urbanization process in China.
Economics 103
Consequences of Urban Development in China after 1990
Among the consequences of urbanization in China were considered the following

variables: FDI, GDP, rural population, employment in agriculture, NNI, household
expenditures, health expenditures, total unemployment rate, CO2 emissions, the
number of Internet users, and mobile cellular subscriptions. The findings on the
consequences of urban development in China, after 1990, have demonstrated that a
growing urban population is correlated to the majority of economic, population, and
development and consumption indicators. The growing population in urban regions of
China has a positive effect on foreign direct investments, GDP, and the net national
income. Moreover, the growing overall population in China has determined increases in
rural settlements, but with negative, direct effects on the employment rates in
agriculture. The internal migration towards metropolitan areas in China determined
increases to the household and health expenditures but rejected the existence of
correlations between the total unemployment rate and the urban population growth.
Ultimately, the number of mobile cellular subscriptions and Internet users generally
grew due to the larger urban population. Therefore, the urbanization process influences
positively the economic, population-related variables and the living standards in China,
determining for the acceptance of H4, H5, and H6.
Conclusions
When undergoing urbanization, the internal migration of a country’s population

represents one important variable (DeWind, Holdaway, 2008). As demonstrated by the
regression analysis, urban development in China is influenced by several different
indicators such as economic, social, and consumption variables. The foreign direct
investments, trade, exports of goods and services, and even gross national expenditures
have influenced the urban population growth after 1990, accepting H1. China presents,
as any other developed country would, a negative correlation between population
growth and GDP (Samuelson, Nordhaus, 1998). The economic indicators prove to be
represented also as consequences of the urbanization process in China, accepting H4.
A country’s development is always central to the representation of human capital

(Samuelson, Nordhaus, 1998). Considering the labor indicator’s influence and
consequences on urban development as a result of the regression analysis, H2 was
accepted, stating that there is a direct correlation between the population and labor-
related variables and the growth of the urban population of China. At the same time, the
urbanization process in China was consistent with positive influences on the labor and
population indicators, showcasing that those variables can be interpreted as both causes
and consequences of urbanization, accepting also H5.
From the regression results before 1990, urban population growth was caused by FDI,
manufacturing, population density, people with access to basic sanitation facilities, and
fossil fuel energy consumption. After 1990, urban population growth was determined
by R&D expenditure, household final consumption, people with access to basic water
sources, and CO2 emissions, accepting H3. As Eisenstein (2013) mentioned, an economy
aligned to the expectations and technological advancements of the 21st century must
produce less CO2 emissions. Apparently, with the data from the World Bank, China
seems to have adhered to this principle. A growing urban population in China was not
104 Strategica 2020
positively correlated to CO2 emissions. Nevertheless, the rest of the development and
consumption indicators were relevant to the category of consequences of urban
development in China, accepting H6.
In its totality, urbanization is a process much more complex than any research paper
could demonstrate. China experiences today an urban development movement without
precedent, with vast implications on both social and economic indicators (Fook, & Gang,
2010). As a consequence, the findings of this paper must represent the first step in the
process of identifying the true nature of urbanization in China, ultimately transforming
the knowledge into a journey towards sustainability and alternative urban development
(Maheshwari, Singh, & Thoradeniya, 2016). To arrive at such heights, the basic principles
are those that adhere to sustainable and progressive public policies, fostering ethical,
productive/efficient, ecological and economical directives (Wheeler, Wheeler, & Beatley,
2014), terraforming the metropolitan regions of the world and transforming the latter
into a much more efficient and better place of existence.
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106 Strategica 2020
THE IMPACT OF ENVIRONMENTAL PROTECTION EXPENDITURE ON

ENVIRONMENTAL PROTECTION IN ROMANIA. EMPIRICAL ANALYSIS
Raluca Mihaela DRĂCEA

The Bucharest University of Economic Studies
6 Piata Romana, District 1, Bucharest, RO
raluca.dracea@eam.ase.ro
Laura CIOBANU
The Bucharest University of Economic Studies
laura.ciobanu@eam.ase.ro
Anca Alina BUZIERNESCU

University of Craiova
A.I. Cuza, no 13, Craiova, RO
ancabuziernescu@yahoo.com
Abstract
The specialists in environmental problems have searched for tens of years to find the right methods
for durable management of the natural resources that could assure the environment protection and,
at the same time, stimulate the income generation. The majority of the world’s governments
integrated this objective in their national politics, as it has become increasingly important in the
current conditions of climate change and environmental risks. In this context, the present study
analyses the influence of the environmental expenses upon environment protection in Romania. The
paper aims to identify the factors that contribute to improving environmental protection in Romania.
Unlike in the existing studies, in this article, we use the ecological footprint of Romania as an
indicator measuring the environment degradation and which implies expenses and investments
meant for restoring and maintaining. The analysis covers the period between 2009-2018 and takes
into account both the direct effect of environmental expenditures on pollution reduction and also the
indirect effect of these expenses on the GDP level per capita, in the context of Kuznets' hypothesis
(1960). The data used for this analysis (available at EUROSTAT for the period 2009-2018) was
processed with the EViews software. The analysis was done based on a dynamic model used to
approach both the direct effect and also the indirect effect of the governmental expenses upon the
environment protection. The results that have been obtained confirm the fact that the economic
growth is an important factor for improving the environmental protection, but in the countries with
a low GDP per capita, such as Romania, the governmental expenses for the environment protection
can be associated with the deterioration of the economic performances. At the same time, the results
obtained by this study show that an increase of the environmental governmental expenses with 1%
within GDP (by maintaining constant the rest of the explanatory variables) can lead to a reduction
of the ecological footprint per capita with 0.01%. This fact would be the equivalent of growth for
economic prosperity correlated with a reduction of the carbon footprint, determined by the modern
sustainable techniques and practices and the prioritization of energy efficiency.
Keywords
Ecological footprint; environmental expenditure; environmental protection; environmental
investments; economic growth.
Economics 107
Introduction
In the last decades, the quest for sustainable development has generated an increased
interest in the study of the relationship between economic growth and the environment.
This relation has been studied extensively since the 1990s, documenting inverted U-
shaped relations between per capita income and indicators of environmental
degradation (Andrée & al, 2019). However, despite the important influence that public
environmental expenditure may have on pollution, this relationship has not been
studied extensively in the literature.
Unlike the existing studies, in this study, we'll use the ecological footprint of Romania,
as an indicator measuring the environment degradation and which implies expenses
and investments meant for restoring and maintaining. The ecological footprint
represents an inventory instrument for natural resources, a concept that has been
developed at the begging of the years 1990 by Bill Rees.
The size of the ecological footprint reflects the possibility of the ecosystems from our
country to produce useful biological materials and to absorb the produced residue
(especially CO2) (Barrett et al., 2018). Now, it is one of the most used methods for
monitoring the progress of a country towards a sustainable future.
Literature review
There are several reasons why pollution can be influenced by the level and composition
of government expenditure. Lopez et al. (2011) identify four mechanisms by which the
level and composition of fiscal spending may affect the overall level of pollution, namely
the scale, composition, technique, and income effects. The first one is generated by
economic growth that in some (most) cases can lead to higher environmental pressures
and to the apparition/increase of/in specific problems which the government is
required to address; this leads to an increase of the specific public spending.
The second effect measures the change in environmental degradation due to changes in
the range of goods produced and can be positive or negative depending on the pattern
of trade-induced specialization, leading to the general conclusion that human activities
caused by the accumulation of human capital rather than physical capital are more
harmful to the environment.
The technique effect - that measures the change in aggregate pollution resulted from
switching to more environmentally sustainable production techniques, is specific and
can be better observed in wealthier countries that are generally more willing and able
to protect their resources mainly in two ways: by establishing higher environmental
standards and by investing a lot more in sustainable technologies. The fourth effect
accompanies income growth that makes it possible for people to care more about the
environment and put more pressure on the government to increase its specific
expenditure (Zhang & al, 2017).
These effects are directly related to the way the state responds to different
phenomena’s, response that can be best evaluated by analyzing the government
expenditure. The effect of government spending on the environment may be
108 Strategica 2020
distinguished between direct and indirect effects. López and Galinato (2007) proposed
a taxonomy of government expenditures that makes a clear distinction between
expenditures in public goods that, in their opinion, are generally more helpful because
they tend to alleviate the negative effects of market failures, and government
expenditures in private goods (that include input subsidies, farm programs, subsidies to
the production of fossil fuel or energy consumption) which can lead to a worsening of
the effects of market failures. Higher government expenditure will increase income
equality and thus determine a higher demand for environmental quality. For the quality
environment demand to rise, it needs to be treated (importance and allocation of
expenditure) as any other public good, independently of the government size (Frederik
& Lundstrom, 2001).
The existing literature regarding determinants of pollution is still dominated by

analyses that mainly focus on the effects of per capita income and trade policies in search
of the so-called environmental Kuznets curve (Grossman & Krueger, 1995; Lopez &
Palacios, 2010). Thus, in most studies, the key explanatory variable remains the per
capita income, totally disregarding the effect of the public since government spending,
energy taxes, and environmental regulations are not uniquely determined by per capita
income, these estimates are potentially affected by omitted variable biases. Even if these
studies use country fixed effects, the problem remains a problem that has been
acknowledged in the literature. Unlike these studies, in this paper, we'll use the
ecological footprint of Romania, as an indicator measuring the environment degradation
and which implies expenses and investments meant for restoring and maintaining.
Methodology
Starting from the aim taken into consideration, we'll use a dynamic model through
which we'll approach both the direct and the indirect effect of the environmental
governmental expenses (as a percentage from GDP) upon the environment protection.
The basic model is presented in the relation (1), mentioning the fact that all the variables
are expressed in logarithms.
EF𝑡=c(1) +c(2)GDP𝑡 + c(3)GEEt + c(4)EIT𝑡 + c(5)VAP𝑡 + 𝜀𝑡 (1)
where:
EF – the ecological footprint expressed in tons of emissions per capita;
GDP – the gross domestic product per capita (Euro);
GEE – the governmental expenses for the environment protection (share of GDP);
EIT – the energy intensity (kg of energy resources which is the equivalent of the
petroleum at 1000 Euro);
VAP – the added value of the production (share of GDP).
The direct effect is the result for the usual formulation of the ecological footprint
(relation 1), and the indirect effect (Narayan & Narayan, 2010) is the expression of the
incomes (GDP) depending on the governmental expenses for the environment
protection and on other factors (in this situation we have chosen the environment
protection investments), and thus we get the relation (2):
GDP𝑡=c(1) +c(2)GEEt + c(3)𝐼NV𝑡 + 𝜀𝑡 (2)

Economics 109
where:
INV – investments for environmental protection.
In both models, the sample has a relatively small size. For the estimation of the two
equations (1) and (2), a standard approach is required which supposes the use of the
models with fixed and random effects. Hallkos (2012) says that, when we refer to the
analysis of the correlations, in the case of the pollutants, there will appear some
characteristics which are specific forever country and which include the differences of
climate, geographical position, fossil fuel, all these being possibly correlated with the
emissions.
On the other side, there could also exist some specific characteristics for the country,
which have not been observed and that could be correlated with the GDP and the other
explanatory variables and for this reason, it is preferred to estimate the fixed effects. The
data series 2009-2018 which are available at EUROSTAT have been used for this
analysis, these data being logarithms.
Results
The basic model takes into consideration the ecological footprint (AE) as an indicator
measuring the environment degradation and implying expenses and investments meant
for restoring and maintaining. The ecological footprint is a complex notion measuring
the activities exercised upon the biosphere during a year, taking into consideration the
technology that has been used and the administration of the resources from that year
(Borucke & al 2013). According to Borucke's specifications, the ecological footprint is an
aggregation of six ecological components referring to the cropland, grazing, fishing,
forests, carbon dioxide, and the infrastructure footprints.
The descriptive characteristics of the variables, including the investment variable from
the equation (2), are presented in table 1.
Table 1. Descriptive data for the variables

Descriptive
Statistics
N Minimum Maximum Mean
AE 10 .76343 .80618 .7807294
GDP 10 3.79169 3.94151 3.8504950
GEE 10 -0.09421 0.00000 -0.121188
EIT 10 1.94082 2.13379 2.0468059
VAP 10 .92840 1.13450 1.0026499
INV 10 -.43719 .03383 -.2209070
Valid N (listwise) 10
(own processed data based on the EUROSTAT data and transformed in logarithms)
Figure 1 indicates the existence of a connection between the governmental expenses for
the environment protection (share of GDP) and the gas emissions equivalent to CO2
(kt/capita).
110 Strategica 2020
Figure 1. The dynamics of the governmental expenses for the environment protection and
gas emissions (logarithmic data)
(belongs to the authors)
The ADF test (Unit root tests result) presented in table 2 was applied, taking into
consideration the integration characteristics of the variables.
Table 2. Unit Root Test Results

Variables ADF -Fisher Chi-square Im, Pesaran and Shin W- PP - Fisher
stat Chi-square
Statistic Prob Statistic Prob Statistic
AE 7.77076 0.9933 1.10015 0.8644 28.0269
GDP 0.05449 1.0000 7.44166 1.0000 0.01123
GEE 52.5895 0.0001 -3.59254 0.0002 45.2607
EIT 1.69726 1.0000 3.35307 0.9996 0.05824
VAP 48.1124 0.0004 -3.19779 0.0007 41.9557
INV 4.34374 0.9999 2.03882 0.9793 13.3053
(data processed by the authors)
The probabilities for the Fisher test are calculated using an asymptotic Chi. The
distribution is unsure but all the other tests suppose asymptotic normality.
In table 3 there is presented a GDP estimation per capita, by using different estimation
methods, taking into consideration the variables which are specific for the equation (2).
Table 3. Econometric results concerning the impact of the governmental expenses for the
environment protection on the GDP per capita
TSLS
Model / Fixed Random
OLS (Two-Stage Least
Estimations Effects Effects
Squares)
GEE (log) -0.144436 -0.144436 -0.144436 -0.144436
INV (log) -0.241280 -0.241280 -0.241280 -0.241280
R-squared 0.550307 0.550307 0.550307 0.550307
Adjusted R-squared 0.548800 0.548800 0.548800 0.548800
F statistic 181.7250
Economics 111
We remark that, no matter what model we use, the estimations for the variables are
identical and they produce effects which are significant from the statistical point of view,
on the environmental governmental expenses (share of GDP), the significance level
being of 1%.
The obtained estimations indicate the fact that an increased environment governmental
expenses (share of GDP) with 1%, by constantly maintaining the rest of the explanatory
variables, can lead to a reduction of the GDP per capita with 0.44%.
We'll do the same to identify the impact of the environmental governmental expenses
on the ecological footprint, taking into consideration the variables which are specific for
the equation (1).
Table 4. Econometric results concerning the impact of the governmental expenses on the
ecological footprint per capita
TSLS
Squares)
GDP /capita (log) 0.733470 0.733470 0.733470 0.733470
GEE (log) -0.014599 -0.014599 -0.014599 -0.014599
EIT (log) 0.761455 0.761455 0.761455 0.761455
VAP (log) -0.075567 -0.075567 -0.075567 -0.075567
R-squared 0.923857 0.923857 0.923857 0.923857
Adjusted R-squared 0.923241 0.923241 0.923241 0.923241
F statistic 150.1473
Like in the previous case, we remark that, no matter what model we use, the estimations
of the variables are identical and the produce negative effects, which are significant from
the statistical point of view, on the environment governmental expenses (share of GDP,
%), the significance level being of 1%. The obtained estimations indicate the fact that an
increase in the GDP for the value of the environment governmental expenses with 1%,
by constantly maintaining the rest of the explanatory variables, can lead to a reduction
of the ecological footprint per capita with 0.01%.
We are practically speaking of two effects, more exactly: the indirect effect and the direct
effect, approximatively equal as an influence which can be synthesized in Table 5.
Table 5. Impact of the governmental expenses on the environment

TSLS
Squares)
Direct effect -0.014599 -0.014599 -0.014599 -0.014599
Indirect effect -0.144436 -0.144436 -0.144436 -0.144436
Total effect -0.0290426 -0.144436 -0.144436 -0.144436
Signal changing point 7320 Euro/capita, corresponding to the year 2014
The model of the total effect is amplified by the form of the indirect effect. This aspect is
explained by the impact of the pollutants on people's health but also by the technological
capacities used to reduce the atmospheric levels, and, as a consequence, by the
environmental degradation associated with them. The evolution of the total effect of the
governmental expenses on the environment is given in figure 2.
112 Strategica 2020
-3.80
-3.85
-3.90
-3.95
elasticity
-4.00
-4.05
-4.10
-4.15
-4.20
-4.25
-.30 -.28 -.26 -.24 -.22 -.20 -.18 -.16 -.14 -.12 -.10 -.08 -.06 -.04 -.02 .00
gee
Figure 2. The effect of the governmental expenses on the environment
(data processed by the authors)
Conclusions
The specialists in environmental problems have looked tens of years to find methods for
a durable administration of the natural resources that could assure the environment
protection and stimulating at the same time the generation of incomes. The majority of
the world's governments integrated this objective into their national politics, this
objective becoming more and more important in the current conditions of climate
change and environmental risks.
The majority of the governments in the case of the less developed countries, such as
Romania, does not allocate sufficient funds for the durable administration of the
environment protection (the allocation of the governmental expenses for environment
protection was a percentage of about 0.8% share of GDP, according to National Institute
of Statistic data). However, in Romania, we register a positive aspect, in the sense that,
we have the smallest ecological footprint from the states of the European Union, the
biggest part coming from the carbon emissions (1.4 hgc compared with the world
average of 2.8 hgc and the European average of 2.1 hgc, at the level of the year 2018).
This aspect is rather connected to the collapse of the Romanian industry than to the
government thinking concerning the environment protection in Romania. At the same
time, the results obtained by this study show that an increase of the environmental
governmental expenses with 1% within GDP (by maintaining constant the rest of the
explanatory variables), can lead to a reduction of the ecological footprint per capita with
0.01%. This fact would be the equivalent of growth for economic prosperity, at the same
time with a reduction of the carbon footprint, determined by the modern sustainable
techniques and practices and the prioritization of energy efficiency.
The aim which has been pursued through this study was of analyzing the environmental
governmental expenses depending on the significant impact that they have on the
environment and which should be integrated into the budgeting process corresponding
to the environment. To measure the impact of the government expenses on the
environment from Romania, there have been taken into consideration two equations in
light of the relations between the variables.
Economics 113
The analysis that has been done revealed the fact that both the direct and the indirect
effect of the environment governmental expenses are important, the indirect one
increasing the total effect.
The estimation of the direct effect of the governmental expenses on the environment
pollution was completed by the estimation of the indirect effect and the results confirm
the theoretical and empirical evolutions concerning the existence of s connection
between GDP level and pollution, as well as between the size of the government and the
economic performance. The model of the total effect was amplified by the form of the
indirect effect. This aspect is explained by the impact of the pollutants on the people's
health but also by the technological capacities of reducing the atmospheric levels, and,
as a consequence by the environmental degradation associated with them.
This study confirms the fact that economic growth is an important factor to improve
environmental protection, but in countries with a low GDP level per capita, such as
Romania, the governmental expenses for environmental protection can be associated
with the deterioration of the economic performance. The same aspects are not specific
for the countries with a big income per capita, which contributes, both to obtain
economic performances and also to improve the environment quality.
Taking into consideration that at the world's level in the last 50 years, the ecological
footprint (reflecting the measure for the consumption of natural resources) has
increased by about 190% (Barrett & al, 2018), we appreciate that to assure the
durability of the Romanian economic system, there is necessary a series of major
changes both in the production activities and also in the consumption activities.
The proposed analysis also presents some limitations, especially connected to

information availability. The results that have been obtained should be carefully
interpreted because the effects on the environment should be seen through 6 objectives:
biodiversity, mitigation and adapting climate changes, water and waste management,
and the fight against pollution.
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Economics 115
CONSEQUENCES OF THE GROWTH OF THE POWER OF LARGE

COMPANIES AROUND THE WORLD: EFFECTS ON EMPLOYMENT
AND SMALL COMPANIES
Paulo FELDMANN
University of São Paulo - USP
Cidade Universitaria, São Paulo, BR
feldmann@usp.br
Abstract
One of the important reasons to explain the growth of world unemployment is related to the great
power of large companies that dominate many industries around the world. The objective of this
paper is to show how this process works and what are the consequences. In recent years, and even
before COVID-19, there was an incredible concentration of strength and wealth in the hands of few
companies. They are responsible for the main sectors of the world economy, such as automotive,
technology, banking, retail, and pharmaceutical industry. These super large companies present in
almost all sectors are always growth-driven, as the objective is permanently to increase their scales.
This market concentration should theoretically make companies more efficient and once a scale
economy is achieved they can charge lower prices and offer better quality for their merchandise.
However, this is not what we see. What we see is that companies using robots, 3Dprinters, A.I. reduce
their cost and eliminate employment and competitors. Therefore, the question is if there will be
competition in the next few years in the major sectors of the world economy or if the main sectors
will become monopolies headed by one very powerful company. To sum up, we have reached the point
where modernization needs to be deeply questioned by society. Is it worthwhile to eliminate jobs and
consequently consumption?
Keywords: unemployment- large companies- technology- scale economy- competition.
Introduction
The issue of poor distribution of income and wealth has been much discussed in
numerous countries lately. Curiously, there is a much worse type of income
concentration and strength that receive the same attention neither from scholars nor
from the society or the media: It is the concentration of strength and wealth in the hands
of few companies or other words a monopolistic or oligopolistic regime, that are
responsible for the main sectors of the world economy, such as the automotive,
technology, banking, retail, and pharmaceutical industry. These super large companies
present in almost all sectors are always growth-driven, as the objective is to
permanently increase their scales. Their executives live under what is called “economy
of scale dictatorship”. It is to be sought after all costs and, surely, for that purpose they
fire workers and increasingly have more robots, computers, artificial intelligence, etc.
Just to cite a few examples: Google and Apple together have 90% of the operational
system market for smartphones. Intel has 85% of the market for integrated circuits of
the world. The five main North American banks have half of all the banking assets in that
country. In emerging countries, the concentration is even greater and, in Brazil, for
example, the five largest banks have 80% of the total banking assets of the country.
116 Strategica 2020
The fact is that the world is being dominated by an increasingly smaller number of giant
companies, and for now, there is no solution in sight. Vitali, Glattfelder, and Battiston
(2011) carried out a research in which they found that only 1,318 large multinational
companies represented 60% of the revenues of all the companies in the world and that
there was a hardcore where 147 mega-companies controlled 40% of worldwide
revenues. A more recent study would certainly prove that concentration is even higher
now.
Market concentration
Every week a large number of mergers take place in the most varied sectors, from
pharmaceutical laboratories and beer manufacturers to telecommunication operators
and cable TV. This market concentration should theoretically make companies more
efficient as once a scale economy is achieved they can then charge lower prices and offer
better quality for their merchandise. But this is not what we see: As a result of their
growth, large companies dominate the markets that they are in, and they not only define
the prices but also block any competitor that could offer the same merchandise at a
lower price or a better quality form entering the market.
The “Council of Economic Advisors to the United States Government” published a report
in 2016 showing that the profit of the companies was growing, which could be
considered positive. However, the same report emphasizes that companies had been
growing at the cost of market concentration. In other words, profits increase but in a
small number of companies, and not as in the past, when increases in any given sector
would permeate to all companies in that same. As a consequence, even in the most
innovative sectors, there is an enormous market concentration, and the profit remains
in the hands of one or two large companies. What we see is that profits have grown
throughout the years, but most of the companies that were not giants in their sectors no
longer either exist or are struggling to be alive.
The problem gets worse because these large companies are reverting to not such
praiseworthy gimmicks to preserve their lead. They are the ones who can get banks to
loan them huge amounts of money at the lowest interest rates. And also the ones that
discover mechanisms to find the loopholes to avoid paying taxes, or at least lower taxes
than small or medium-sized businesses. Besides, they have armies of lobbyists to
arrange any changes in the law when they need it. These facts happen when they are not
influencing governors or politicians for special favors being hired by fraudulent
manners, as so often seen around the world.
According to David Korten (1995), “corporations have emerged as the dominant

institutions on the planet, with the largest among reaching into virtually every country
of the world and exceeding most governments in size and power”. Moreover, “it is the
corporate interest more than the human interest that defines the policy agendas of
states and international bodies” (Korten, 1995). According to the author, there is a
tendency for large corporations to develop their institutional agendas aligned with their
imperatives of protecting themselves from the uncertainty of the market. These agendas
mean restructuring rules and institutions of governance in the countries where they
have operations.
Economics 117
Brian Roach, a North American professor and author of the classic Corporate Power in a
Global Economy, is one of the most studied authors regarding the reasons that some
companies have become the leaders in their sectors. For him, a scale economy is no
longer the main factor because what really matters now is the massive use of new
technology aiming to reduce operational costs and the size of the payroll (Roach, 2007).
The magazine Economist mentioned in 2014 that the share of nominal GDP generated
by the Fortune 100 Biggest American Companies rose from about 33% of GDP in 1994
to 46% in 2013. In other words, in less than 20 years the strength of the 100 greatest
companies had increased incredibly (Economist, 2016). The magazine points out that in
1990 the three largest automobile manufacturers in Detroit had a capital of US$ 36
billion and employed 1, 2 million people, but looking at the Information Technology
sector during 2014 you see that only the capital of the three largest companies reached
US$ 1 trillion but the number of employees of these was no more than 137,000
employees. Look at Exxon’s case, a company with more than 60 years and an important
leader in the petroleum sector. Although it has grown significantly since its foundation,
having even bought Mobil, in 1960 it had 150,000 employees, whereas it currently
employs only 75,000, that is, half the workforce of 58 years ago.
The US Census Bureau has presented especially worrisome data showing that from 1997
to 2012 the participation of four of the largest companies varied from 22% to 33%. But
this is the general average, in sectors that most affect the economy such as
manufacturing and information technology the four largest companies already had
almost half the market share in 2012. The problem gets worse when we consider that
despite their strength and wealth the 500 largest companies in the United States employ
only 10% of the entire labor force of the country.
As Tepper (2019) mentions there are dozens of studies that show that high industrial
concentration leads to higher profits for firms, higher prices for consumers, fewer
startups, lower productivity, lower wages, and greater inequality. The fact is that in most
industries the largest companies are buying smaller competitors and cutting their costs.
Even start-ups that are frequently highly innovative with the potential to grow prefer to
sell their companies to a mega-company because by doing so their partners become
millionaires overnight. That is perhaps the greatest contradiction of the capitalist
system: To increase the profits companies, need to eliminate their competitors. But
would it be possible for capitalism to exist without there being a competition among
companies?
Economic theory and reasons for the concentration
One of the greatest difficulties in solving this problem is that the very Economic Theory
has not yet advanced these questions and that the predominance of the ideologies from
the classic and neoclassic economists preach that the market always knows best, which
we all know is not true: If we leave it to the market, we will see increased growth of the
largest companies, which would mean even fewer jobs and fewer consumers. Why the
large companies? Because competition is very fierce and the only winner is the one able
to develop and buy new machinery and robots. This makes them even more productive,
and they end up acquiring or eliminating smaller competitors.
118 Strategica 2020
One of the first authors to deal with this subject was undoubtedly Karl Marx (1894). In
Chapter XIII of Capital, he had already stated that “...the alternative of using
technological innovation, modifying production techniques through the introduction of
labor-saving machines so that each operator could work with more capital and the
production per worker would increase, as always, from the point of view of
businessmen, the best alternative, as in this way the accumulation of capital, freeing
labor, allows the capitalist to expand his production with the same number of
employees, or even less…”. Marx also forecasted another phenomenon mentioned at the
beginning of this article, that the mechanisms of the large companies would inexorably
and gradually absorb small companies, and from that point on the tendency for declining
interest rates would be developed.
In 1776, Adam Smith, the father of Modern Economics, launched his classic an
Investigation about the Nature and Causes of Wealth Among Nations, in which he
preached the wonders of competition in the free market, consisting of the basic ideology
of capitalism for at least 200 years. But does that remain true nowadays? Could
capitalism exist without competition? (Smith, 1776/1982). Using a completely different
reasoning Peter Drucker (1999) raised in the mid-1990’s the possibility that those
mega-companies would collapse in the 21st century. He stated that entrepreneurship
would triumph and that the world in the 21st century would show the importance of
agility in the creation of new products or services that, according to him, only small and
medium-sized companies could offer. It seems that Drucker was wrong because what
we saw is that new company that could differentiate themselves and offers completely
new products truly appeared, such as Skype or the Israeli Waze for example, but both
were immediately bought by two giants after their initial success, Microsoft and Google
respectively.
So, the question is if there will still be competition in the next few years in the major
sectors of the world economy or if the main sectors will become monopolies headed by
one very powerful company. This fear is not recent: Schumpeter (1939) had predicted
that the very success of the capitalist system would undermine the social institutions
that protect it, and inevitably create the conditions under which it cannot survive. In
other words, the Austrian economist predicted more than 60 years ago what we can
observe today. More recently, Arrighi (1994) named his book’s The Long Twentieth
Century epilogue chapter as "Can Capitalism Survive Success?", in which he comments
that Schumpeter was right because every successful condition for capitalism's own
survival is eliminated or impaired.
As Harvard professor Dani Rodrik (2011) stated, the problem is related to the fact that
globalization weakens states and governments of nations because according to him the
only way to implement hyper globalization is by weakening states' governance
mechanism of individual countries. The reason is due to the necessity to harmonize laws
and regulations across countries. More recently, some important “expert” economists
pondered that there are three main reasons for this unequal concentration of strength
in the hands of so few companies: first is technology, as it permits the substitution of
workers for machines, computers, or robots; globalization is the second because now
companies can easily transfer their respective productions to countries that offer lower
costs; and finally, the third factor is the weakening of unions in the developing world.
Economics 119
From the point of view of the company, it is inconceivable not to employ the most
modern technology. Competition is severe in most sectors, and companies today need
to be obsessed with increasing productivity, which implies investment in robots, drones,
and total automation of their production lines. If economic growth does not increase the
number of jobs, what will happen to the unemployment rate? The answer is difficult, but
it is certainly about time for society to act since it is an irreversible tendency that
everything becomes totally automated. As a consequence, the creation of new jobs will
drastically fall. We had reached more than 200 million people unemployed in the world
before the COVID-19 epidemic, according to ILO- International Labor Organization
(2018), and in the future, how many will lose their jobs?
The solution involves large companies directly like the ones that most benefit from the
use of new technology. At the same time, they should be worried: if all of them dismiss
their employees, there will be no consumers to purchase the products that they will
produce!
Jobless growth
The real issue is that companies are becoming increasingly computerized and using even
more powerful software and artificial intelligence in such a manner that they continue
to grow and continue selling but using fewer employees. Americans call this
phenomenon jobless growth. It is time for society to be awake to the problem and think
about attenuating measures.
In fact, this time society will probably be alert, because something different is occurring.
There have always been reactions against automation throughout the history of
humankind. Many lost their jobs in agriculture when equipment began to be used. The
reaction was huge. The Luddites in the 19th century in England fought against the
sewing, and Henry Ford was considered the great enemy of the carriage riders and horse
trainers. Technology had always won because increasing the productivity of the
economy as a whole only affected low qualifying jobs. Herein is the difference: High-
qualified jobs are the ones being greatly affected now. Watson, the robot developed by
IBM based on artificial intelligence is capable of reading a hundred tomographies per
hour, and doctors evaluating its diagnoses and results have concluded that they were
correct 99% of the time. In other words, the most-valued and intellectualized jobs, as a
medical doctor, are already being affected. Summarizing, the middle class is leaving
heaven. The interesting thing is that whoever is on the top or the bottom of the pyramid
is less affected. Studies carried out by researchers in the area of Labor Economy like
Michael Osborne and Carl Frey (2017) have shown that functions that normally involve
creativity and the capacity to solve problems, for example, specific areas of engineering
or science, cannot be harmed. Machines are still not able to compete with them in these
areas, luckily. These professionals are normally located on the top level of companies.
The same occurs at the other end of the spectrum, workers without any qualifications
such as janitors or carpenters will not be affected; not because technology has not
reached them yet, but because economically it is not worth it.
Wolfgang Streeck (2016) is very clear in this matter and calls attention to the fact that
this time the process of substitution by technology not only reaches its peak but also for
the first time it contributes to the destruction of the middle class, which was always
120 Strategica 2020
considered the indispensable basis for the growth of capitalism. For Streeck (2016),
automation will do to the middle class what mechanization did to the working class from
the 19th to the mid-20th century, and the few ones that benefit from this from now on
will be the owners of robots and new equipment that is being increasingly used. But
there is another aspect that will bother middle-class life mostly in emerging countries.
It is a fact that when robots become cheaper the foreign multinationals tend to rethink
the question of taking part in their respective productions to other countries. From now
on, it will be more advantageous for a North American multinational to set up an
automated factory on American territory, instead of opening a unit in another country
where labor cost is cheaper.
Michael Osborne and Carl Frey (2017) are responsible for studies where they forecasted
that by the year 2030 approximately 45% of the North American jobs will have been
eliminated by automation]. Evidently, this problem has already been thought about and
discussed to exhaustion in some important European countries, mainly Germany,
France, and Italy. The most important recommendation is to reduce the number of hours
worked per shift. Today in France and Italy the working week is already down to 34
hours, against 40 or 44 in the majority countries of the world. This measure was not
easily implemented at first, and it took many years to somewhat succeed. The problem
is that after some years all those countries noted that the reduction of the weekly hours
would only be effective if one day every country in the world implements the same
measure. Due to globalization and companies wanting to increase their productivity,
corporations no longer seek these countries that have reduced their working hours, but
they rather go to countries where there is no limit on hours worked. They most
commonly go to Asian countries. More than a hundred years ago, Leon Trotsky (1982)
forecasted this possibility when he made his famous statement: “Binding all countries
together with its mode of production and its commerce, capitalism has converted the
whole world into a single economic and political organism.”
The reduction in the number of hours in the weekly journey is considered one of the best
measures to attenuate the elimination of jobs. Therefore, many unions around the world
adopt the expression: “working fewer hours so that all can work”. The most advanced
countries in this discussion as always are the Scandinavian ones, for which a program of
national low income could attenuate the unemployment issue. That is to say, every
citizen would receive a monthly income to guarantee minimum subsistence, whether or
not he or she is employed. The premise supporting this idea is that unemployment will
frighteningly grow, and all society needs to be protected. Numerous other measures
such as unemployment salary or technological moratorium have been considered, and
some even put into practice to fight unemployment. But the danger of the greatest
problem was always turned around because the unemployment generated by the new
technology was always greater than the number of jobs that were being eliminated;
except that now the context is much more complicated for two reasons: Firstly, the
lowering prices of robots, artificial intelligence software and other equipment is
shocking; ten years ago robots were unthinkable devices for a medium or large-sized
company, and today even small-sized company can start to afford them. Secondly, there
is still hope that post-industrial society can create new occupations and jobs in new
service-related sectors to absorb the workers displaced by the manufacturing industry.
This notion was totally demystified because the service sector is the one that uses new
equipment the most. Contrary to popular belief, more and more jobs are being
Economics 121
eliminated. Moreover, jobs created for new functions coming from this new equipment
are in a decreasing number.
Final considerations
As mentioned before, Dani Rodrik (2011) is probably right when he says that today’s
problems need international solutions, shared by all the countries. For the present
matter, this is becoming more and more evident as no country alone can solve this
problem; as happened when working hours were reduced and companies went to
countries that had not adopted this, the same will happen with countries that place
restrictions on the use of robots or artificial intelligence. This time the solution will have
to be shared by all countries at the same time.
To sum up, we have reached the point where modernization needs to be deeply
questioned by society. Is it worthwhile to eliminate jobs and consequently
consumption? The most affected by unemployment crises and lack of consumption are
as always the developing countries, for which there is a crucial dilemma to be solved: if
they don´t computerize and employ the most modern robots, they will certainly lose
competitiveness, and their companies will probably shut down resulting in higher
unemployment. On the other hand, if they allow massive “modernization” their
companies will cause unemployment as well. In both cases, the level of consumption will
be reduced and consequences could be daunting. Which is the worst? A real dilemma.
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Economics 123
BLACK ZERO AND ITS CONSEQUENCES ON SUSTAINABLE

DEVELOPMENT. CASE STUDY: EXPLOITATION OF FOREST
RESOURCES IN ROMANIA
Laurențiu CIORNEI
Center for Study and Research for AgroForestry Biodiversity “Acad. David Davidescu”,
Romanian Academy
Bucharest, RO
laurentiu.ciornei@ince.ro
Paula MUNTEANU
School of Advanced Studies of the Romanian Academy (SCOSAAR), Romanian Academy,
Bucharest, RO
pma.munteanu@gmail.com
Abstract
The effects of the recent coronavirus pandemic and the global risk of recession are prerequisites for
the onset of an unprecedented economic crisis. Due to the need to react quickly to the current
circumstances, Germany recently suspended the "Black zero" rule (Schwarze null) by unblocking
investments and taking into account an increase in expenditure. The "Black Zero" rule has generated
profit maximization for countries of origin and limited reinvestment of profits for countries of
destination, without developing developments in countries of destination on the premise of
sustainable development, aiming only at cheap labor and easy exploitation of natural resources. To
understand the consequences of "Black zero" on sustainable developments in Romania and to what
extent these developments can cope with the impending crisis, in the current analysis we considered
the case study on investments in wood processing in the context of exploitation of forest resources.
The results show that the authorities did not consider the development of viable economic
alternatives that would provide solutions to the social and environmental factors, in the case, for the
time being, hypothetically of foreign investment withdrawals. Development is based strictly on the
gain obtained during the period of gross exploitation of resources, whether human or material,
without too much-added value. In this regard, our study will be continued with a series of examples
of good practice and projections that can contribute to the development of healthy sustainable
development projects.
Keywords
Black zero, foreign direct investment, sustainable development, forest resources.
Introduction
According to Paolo Gentiloni, European Commissioner for Economic Affairs "Europe is
facing an unprecedented economic shock since the Great Depression"
(https://ec.europa.eu/commission/presscorner 06.05.2020). German Finance
Minister, Olaf Scholz, announces that "intends to make record investments"
(https://www.bloombergquint.com/ 26.02.2020). Other developed countries will
follow suit. How Romania will cope, given its dependence on investments from
developed countries, is a big question mark. Especially, given the current phenomenon
of capital withdrawals to countries of origin. As we know, for several decades, the
German vision "Schwarze null" has had a serious impact on most members of the
European Union, affecting investment and blocking several projects in priority areas.
124 Strategica 2020
ETUI (European Trade Union Institute) researchers warn that "synchronous austerity
policy will widen the gap between southern European member states and Germany, and
the main cause of the euro crisis will not be overcome but aggravated"
(https://www.boeckler.de/ August 2012).
Germany has not encouraged economic growth by reducing taxes and increasing
consumption but has adopted a tough policy of limiting spending, focusing on debt
repayment to reduce pressure on future generations, given the people's aversion to debt
as a result of high hyperinflation in the 1920s. Chancellor Angela Merkel said "it is
important not to send young people into the future with ever-increasing debts."
(https://www.tagesschau.de/wirtschaft/scholz-schwarzenull-101.html 09.08.2019)
The "Black Zero" rule insists on a balanced budget between tax revenue and expenditure
and requires a severe reduction in spending. Started in 1969, "Black zero" reached its
goal only in 2014 when, for the first time, revenues were balanced by spending.
According to the Deutscher Gewerkschaftsbund, "unlike debt relief, 'Black zero' is not a
legal obligation, but only a political commitment." (https://www.dgb.de/10.02.2020)
Regarding the synchronized austerity efforts of the euro countries, researchers from
IMK (Institut fur Makroeconomie und Konjunkturforschung), Gregor Semieniuk, Till van
Treeck and Achim Truger pointed out that “not only lower levels of public debt are
important […] current accounts balanced also plays a major role"
(https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1956614). Thus, for more than
forty years, this austerity policy of Germany has put pressure on EU countries to follow
its example in reducing spending, to the detriment of loans or monetary issues by central
banks, by limiting the budget deficit.
Theoretical and empirical data used
Consequences on sustainable developments in Romania
"Black zero" echoed the repatriation of foreign earnings and financial flows within
multinational companies.
Figure 1. Foreign direct investment - Profit distribution (EUR million)

Source: authors' processing based on NBR data (taken from Table 1 in the Annex)
(https://www.bnr.ro/PublicationDocuments.aspx?icid=9403)
Economics 125
As shown in Figure 1, until the end of 2014, the profit reinvested in Romania by
multinational companies with foreign capital (FDI enterprises) was negative. In other
words, the entire profit obtained was either distributed in the form of dividends or
covered losses.
We must mention that the first five countries (Table 2 in the Annex), by the size of
foreign direct investment (million euros), according to the latest statistics published by
the NBR (Foreign Direct Investment in Romania in 2018), are: Netherlands (19,389),
Germany (10,298), Austria (9,915), Italy (7,669) and Cyprus (5,015). In this ranking,
there were taken into account entities from non-resident countries that held at least
10% of the paid-in share capital of an entity resident in Romania and not the final
beneficiary (the ultimate beneficial owner) of those non-resident entities, located in
another country, with other tax benefits.
According to the latest data published for 2019 by the Corporate Tax Haven Index
(Corporate Tax Haven Index - 2019), the Netherlands and Cyprus are at the top of the
European ranking of tax havens (4th and 18th place, respectively) due to the treatment
of foreign investments, reduced taxation on profit and dividends (Table 3 in the Annex).
This aspect generated significant losses not only for Romania but for all the countries of
destination of the funds, which had to be satisfied only with the revenues from taxes
applied to the labor force.
As shown in Figure 2, only in 2015 a part of the profit made by FDI enterprises remained
in Romania.
Figure 2. Foreign direct investment - Reinvested profit (EUR million)

According to Alex Cobhan, director of the Tax Justice Network „When our laws for taxing
global corporations stop working, the global economy stops working for the vast
majority of us. [...] To curtail the corporate tax avoidance that costs hundreds of billions
of dollars every year, governments must finally deliver international rules that ensure
profits are declared, and tax paid, in the places where real economic activity takes place.
Corporations should be taxed where their employees work, not where their ledgers
hide.” (https://www.taxjustice.net/2019/05/28/).
126 Strategica 2020
If no action is taken, exacerbated by the COVID-19 pandemic, this aspect will continue
to influence the distribution of profits, given that many European countries are
demanding an increase in the multiannual budget for 2021-2027. The need for new
revenues justifies the move by some European countries (e.g. France, Poland, Denmark)
to form a coalition in order not to grant aid to countries that pay in tax havens and to
support a series of measures that can impact investments, in general. Amid the recent
pandemic, the suspension of the "Black Zero" rule will deepen national security
concerns. According to studies, investment restrictions have been heightened, especially
when it comes to new technologies, defense, sensitive commercial assets, and
residential properties.
Restrictions and limitations
At the end of 2019, globally, 54 countries already had 107 measures issued that affected
foreign direct investment, of which 12 measures were issued by European countries, all
of which were restrictive and limitative.
Figure 3. Number of countries that have issued legislative changes that have affected FDI
(Source: authors' processing based on data extracted from the UNCTAD report - World Investment
Report 2020)
These legislative changes have targeted the screening of new investments in new
technologies in France and Germany, in Hungary - defense, dual-use products,
cryptography, utilities, communications, finance, in the UK - national security, in
Lithuania - military equipment, energy and information technologies, and examples can
go on. The restrictions are also accentuated by the new industrial revolution (Industry
4.0), by the adoption in all sectors of digital technologies that are transforming business
models, from the ground up.
The areas of investment interest are no longer oriented towards the exploitation of
natural resources but, rather, towards infrastructure, renewable energy, water and
sewerage, food and agriculture, and medical care. However, investments in sustainable
development are mostly aimed at renewable energy and are targeted at developed
countries, while other sustainable development goals do not receive much funding. For
these reasons, the investment process needs to be reformulated so that it is geared
towards sustainable development goals, regardless of the level of development of the
destination country.
Economics 127
Due to the COVID-19 pandemic, many investments have been delayed or even blocked.
As a result, the "Black Zero" suspension confirms that developed countries have
understood the importance of the investment process in achieving sustainable
development goals and are ready to restart their investment engines. What will Romania
do?
Sustainable development after COVID-19
During the severe crisis caused by the pandemic, the immediate impact on foreign direct
investment is expected to be dramatic. According to recent studies, decreases of up to
40% in direct investment flows are forecast for 2020, implicitly a decrease of over 50%
in the profit reinvested by multinational companies, given that they hold the majority of
foreign direct investment. (World Investment Report 2020 -
https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2769 ).
Studies anticipate the rise of interventionism and protectionism on the part of states, a
process accelerated by Industry 4.0, sustainable development goals, and supply chain
resilience measures that will reshape investment, business models, and international
production.
State-of-the-art technology-oriented reindustrialization plays an important role in

achieving the goals of sustainable development because it will provide jobs, growth, and
a positive impact on the environment. Affected by the process of premature
deindustrialization in recent decades, developed countries are concerned about taking
appropriate measures to rebuild their manufacturing base, especially in the areas of
advanced technologies. Developed countries stimulate the growth of domestic
production capacity in advanced technologies by providing incentives, subsidies, and
several public investments made in this regard.
In this context, Special Economic Zones (SEZs), an industrial policy instrument based on
attracting foreign direct investment, continue to proliferate and diversify around the
world. (Narula & Zhan, 2019). In recent years, the number of these special economic
zones has increased, especially in the high-tech field, while in the automotive industry,
many such centers have had to reduce or even suspend their activity, especially under
COVID-19. Moreover, as an alternative to declining foreign direct investment, accessing
sustainable funds seems to be the solution for achieving sustainable development
projects. According to the World Investment Report 2020, funds from Europe and the
United States doubled between 2010-2019.
Last but not least, the efficient use of natural resources, by adopting the concepts of
circular economy and eco-innovation will reduce the pressure on resources and open
new development perspectives.
Legislative restrictions, the new industrial revolution, the global trend of the declining
flow of foreign direct investment, which continues in Europe, the repatriation of gains
to the countries of origin of capital are good reasons for Romania to look with concern
128 Strategica 2020
at how the goals of sustainable development were approached, until currently. There is
only one more decade until 2030, and the challenges of COVID-19 overlap.
Already affected by the austerity measures generated by the “Black zero” rule, with a
poorly developed infrastructure, an industry destroyed after 1989, and an economy-
oriented on the exploitation of natural and human resources, Romania must find
solutions so that the developments that will be undertaken by now to have a lasting
character. In this sense, in our analysis, we approached how the objectives of sustainable
development in the field of wood processing were taken into account in the context of
the exploitation of forest resources.
According to the data published by the Ministry of Public Finance

(https://www.mfinante.gov.ro/pjuridice.html ?pagina=domenii), at the end of 2018, in
Romania, there were 3,176 companies with the main activity "Forestry and forestry
activities ”which achieved a turnover of RON 3,494,809,242. Also, at the end of the same
year, 5,256 more companies were operating in Romania with the main activity
"Logging". They achieved a turnover of RON 3,424,819,796. Cumulated, the two
activities of exploitation of forest resources totaled the turnover of RON 6,919,629,038.
Analyzing the same data published by the Ministry of Public Finance, we identified that,
at the end of 2018, there were 327 companies with the main activity " Manufacture of
wood and of products of wood" which achieved a turnover of RON 4,216,125,952.
According to the data in Table 4 of the Annex, more than 80% of this turnover was
realized by five FDI companies, with Austrian capital. Also on the wood processing
activity, there were still 6,585 companies with the main activity "Sawmills and planning
of wood" which obtained a turnover of RON 7,143,917,999. More than 40% of this
turnover corresponds to other FDI companies with capital, mainly from Austria, Turkey,
Finland, Cyprus, and Israel. Totally, a turnover of RON 11,360,043,951 (approximately
2.3 billion euros) was achieved in Romania in the wood processing activity.
Over 60% of the turnover in the wood processing activity belongs to FDI enterprises,
while on the part of the exploitation of forest resources the share of Romsilva, a
Romanian state company, is around 33%. At the end of 2017, at the level of the European
Union, FDI enterprises, although representing approximately 1.3% of the total number
of companies, achieved an average value added of over 26%. In Romania, the level of
value-added generated by multinational companies stood at over 44%, as can be seen in
Figure 4, ranking 4th in the European Union.
Economics 129
Figure 4. Value-added at the cost of production factors, achieved by companies with foreign
capital, 2017
Source: Author processing based on Eurostat data - egi_va1)
Moreover, as can be seen in Figure 5, the balance of foreign direct investment in the
wood processing industry decreased after 2015, with a very slight revival in 2018. This
aspect reflects the fact that the profit was not reinvested in Romania, it being transferred
abroad.
Figure 5. Evolution of FDI balance in the wood processing industry in Romania (EUR million)
The balance of the international trade in goods of FDI enterprises indicates a trade
surplus in the wood processing industry, of 1,142 million euros, with a positive impact
on Romania's exports. The goods produced by these entities targeted the external
market.
130 Strategica 2020
Figure 6. Evolution of exports/imports of FDI enterprises in the wood processing industry in

Romania (EUR million)
Based on the preliminary results of the case study, we extended the analysis, judging
statistically the data from Table 7 in the Annex, in an attempt to demonstrate the
economic links between FDI investments and some of the sustainable development
indicators included in the National Sustainable Development Strategy (NDS). We took
into account the GDP growth rate per capita, the unemployment rate, resource
productivity, and the poverty rate after social transfers. Table 9 shows the result of the
correlation between these indicators.
Table 9. Correlations between sustainable development indicators
Covariance Analysis: Ordinary

Date: 07/06/20 Time: 12:24
Sample: 2007 2018
Included observations: 12
Balanced sample (listwise missing value deletion)
Correlation
ISD GDP/ Resources Poverty Unemployment
(t-Statistic)
Balance capita productivity rate rate
[Probability]
ISD Balance 1.000000
-----
-----
PIB/capita 0.186987 1.000000

(0.60192) -----
[0.5606] -----
Resources 0.313145 -0.622257 1.000000

productivity (-
(1.04269) -----
2.51369)
[0.3216] [0.0307] -----
Poverty rate 0.302565 0.598525 -0.516320 1.000000

(1.00384) (2.36262) (-1.90653) -----
Economics 131
[0.3391] [0.0398] [0.0857] -----
Unemployment -
-0.460120 -0.066318 -0.182316 1.000000
rate 0.643348
(2.65741) (1.63881) (-0.21018) (-0.58636) -----
[0.0240] [0.1323] [0.8377] [0.5706] -----
Source: authors' processing in Eviews 11 based on the data of Table 7 in the Annex
There is a direct and medium-intensity link between the GDP growth rate per capita and
the poverty rate after social transfers (the probability that the linear correlation
coefficient estimator is zero is 0.0398), respectively, resource productivity (the risk
associated with the null hypothesis is 0.0307). Similarly, if we look at the FDI balance in
correlation with the unemployment rate we observe an indirect link (the risk associated
with the hypothesis of non-linear correlation is 0.024). Otherwise, there is either no link
between the variables or the links are of low intensity, whether they are direct or
indirect. These relationships could be real or the statistical correlations could be altered
by the small number of records.
Linear correlation coefficients do not identify a link between resource productivity and
the FDI balance (the probability attached to the null hypothesis is 0.3216, much higher
than the standard prognosis of 0.05). This may indicate that resources are not being
used efficiently and that production models are based on resource-intensive use,
contrary to the flagship initiative "Resource Efficient Europe" in the Europe 2020
Strategy. identified a linear correlation between the FDI balance and the poverty rate
(the probability attached to the null hypothesis is 0.3319), which could indicate that
foreign investment has not actively contributed to reducing poverty in Romania.
Starting from these elements, we analyze the possibility of more complex relationships
between those variables. Specifically, we analyze causality in the Granger sense. The
Granger causality test is a statistical test used to determine whether one-time series
influences (is a cause for) another. If the value of the probability attached to the non-
causality hypothesis is less than 0.05, then the hypothesis is rejected and admits that the
variables are in a causal relationship.
For the application of the Granger causality test, in the first phase, we analyze the nature
of the series. The results of the application of the Kwiatkowski-Phillips-Schmidt-Shin
statistical test (which has the null hypothesis: stationarity) are presented in Table 8.
Subject to the small number of records, the KPSS test does not reject the hypothesis of
stationarity. This means that we can apply the Granger causality test to the level data.
The results for a VAR model (1) are presented in Table 10.
Table 10. Granger causality test in the VAR model
VAR Granger Causality/Block Exogeneity Wald Tests

Date: 07/06/20 Time: 13:08
Sample: 2007 2020
Included observations: 11
Dependent variable: ISD

Excluded Chi-sq df Prob.
GDP 0.715762 1 0.3975
132 Strategica 2020
PRES 0.052300 1 0.8191

RPOV 2.069821 1 0.1502
UNEMP 0.244555 1 0.6209
Dependent variable: GDP
ISD 0.037418 1 0.8466
PRES 0.309363 1 0.5781
RPOV 1.177968 1 0.2778
UNEMP 0.693800 1 0.4049
Dependent variable: PRES
ISD 4.660891 1 0.0309
GDP 13.85832 1 0.0002
RPOV 4.660386 1 0.0309
UNEMP 10.52107 1 0.0012
Dependent variable: RPOV
ISD 2.805850 1 0.0939
GDP 3.034140 1 0.0815
PRES 1.306062 1 0.2531
UNEMP 12.11052 1 0.0005
Dependent variable: UNEMP
ISD 1.395855 1 0.2374
GDP 0.001978 1 0.9645
PRES 0.132873 1 0.7155
RPOV 0.464991 1 0.4953
The small number of records does not allow the identification of causal relationships in
a longer-term VAR model (number of lags greater than 1). Under these conditions, we
applied the test for models with a single equation. In table 11 we retained only those
causal relationships that are econometrically significant, at least at the threshold of 10%.
Table 10. Standard Granger causality test
Pairwise Granger Causality Tests

Sample: 2007 2020
Lags: 2
Null Hypothesis: Obs F-Statistic Prob.
GDP does not Granger Cause ISD 10 0.28347 0.7645
ISD does not Granger Cause GDP 14.3293 0.0085
UNEMP does not Granger Cause ISD 10 0.02423 0.9762
ISD does not Granger Cause UNEMP 14.2442 0.0086
Lags: 3
PRES does not Granger Cause ISD 9 0.16642 0.9107
ISD does not Granger Cause PRES 24.2075 0.0399
Economics 133
RPOV does not Granger Cause PRES 9 28.8147 0.0337

PRES does not Granger Cause RPOV 1.12021 0.5036
In the medium term (a lag of 2 years), the Granger causality test does not reject the
hypothesis of a one-way causal relationship FDI  GDP/capita nor the one-way
relationship FDI  UNEMP. In the longer term (lag = 3 years), the test does not reject
unidirectional relationships: FDI  PRES and RPOV  PRES. This may also mean that,
in the longer term, foreign investment and the poverty rate affect resource productivity.
The results in Table 11 indicate the existence of a one-way causality in the medium term
(2 years) between the FDI balance and the GDP / capita rate at the application of two
lags, at the significance level of 5%. Under the same conditions, we find the existence of
a one-way causal relationship between the FDI balance and the unemployment rate. In
other words, the size of the balance of foreign direct investment influences the size of
GDP / capita and the unemployment rate. These results confirm current theories that
foreign investment increases the number of people employed and reduces the
unemployment rate, but this does not mean reducing poverty and social inequality and
increasing resource productivity.
Results
The results of the case study reveal that a percentage of only 0.14% of the total number
of companies operating in the field of wood processing has a share of approximately
60% of the total turnover of this sector of activity in 2018. These companies are FDI
enterprises. Overall, even if from the wood processing activity occasioned by FDI
enterprises, Romania benefited from a trade surplus, the fact that the balance of foreign
direct investments related to this economic activity decreased indicates the low interest
of investors to orient the results towards sustainable developments in Romania and
confirms the consequences of applying “Black zero”, to direct earnings to countries of
origin.
The cumulative results of the analysis indicate the low efficiency of the use of natural
resources and the fact that they (in particular, the forest ones) have been exploited on
the principles of unsustainable development. The positive impact on the decrease in the
unemployment rate did not echo on the decrease in the poverty rate after social
transfers. This aspect confirms the theoretical and empirical data from the specific
literature, according to which the number of poor but working people is increasing. The
results of the correlation analysis and the Granger causality test may also indicate that
sustainable development in Romania is dependent on how FDI companies understand
to integrate environmental, social, and corporate governance practices in their current
activity to ensure a positive investment impact.
Addressing the principles of sustainable development requires that much of the current
added value be incorporated into future developments as alternatives to resource
exploitation. Or, the fact that the added value is transferred to the countries of origin of
FDI, means that from an economic, social, and environmental point of view, we have
limited ourselves to “living the present” without finding and developing solutions for the
future. Even if some resources are renewable, as is the case with forest resources, they
134 Strategica 2020
are part of the category of hard-to-renew natural resources, and it will take decades to
reach the optimum age of exploitation. Also, even though the unemployment rate has
now fallen, the fact that no viable alternatives have been developed for years to come, in
the context of resource depletion, human resources will suffer.
In this regard, to reduce resource depletion and environmental degradation, current

business, production, and consumption models must be replaced by other models:
modern, refurbished, resilient, and sustainable. However, this requires large sources of
funding. It is difficult to predict how Romania will cope, from an economic, social, and
environmental point of view, beyond the crisis generated by COVID-19, given that recent
studies anticipate declining foreign direct investment flows and halving reinvested
earnings, and concerns about finding alternatives are not visible.
Conclusions
Against the already austere background of the "Black Zero" policy that has affected the
entire euro area, Romania must find viable solutions designed to attract sustainable
sources of funding in future projects and areas, given that the pandemic is expected to
influence both flows, as well as the balance of foreign investments. At the same time,
“technological changes transform the way goods and services are produced and pave
the way for the new industrial revolution, also called the fourth industrial revolution or
Industry 4.0” (Schwab, 2016). This requires funding sources for refurbishment,
reindustrialization, and new business models. If we add the funds needed to stem the
direct and indirect effects of COVID-19, we realize that we need huge sources of funding.
Remaining stuck in the area of resource exploitation, whether human or natural
depletable or slowly renewable, only postpones an imminent economic catastrophe that
Romania could avoid if it adopts economic, social, and environmental measures in
accordance with the objectives of Sustainable Development. In this sense, a new
approach is more than necessary. The development of special economic zones and
access to sustainable funds (investments dedicated to sustainability and responsible
investments) are possible solutions that Romania could consider if it wants to develop
sustainably. These funds have increased in recent years as a result of "low risks and
higher returns" (Morgan Stanley, 2019), and for Romania could be a serious financing
alternative. In this regard, our study will continue with a series of examples of good
practice and projections that can contribute to the development of healthy sustainable
development projects.
References
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Investments in Romania in 2018], National Bank of Romania.
Corporate Tax Haven Index – 2019
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Morgan, S. (2019). Sustainability Reality: Analyzing Risks and Returns of Sustainable
Funds. New York
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policy implications. Transnational Corporations 26(2), 1–25.
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Economics 135
Schwab, K. (2016). The Fourth Industrial Revolution. Geneva, CH: The World Economic
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Semieniuk, G., van Treeck,T., & Truger, A. (2011). Reducing Economic Imbalances in
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goals/
*** https://www.weforum.org/reports/the-global-risks-report-2019
*** https://www.imk-boeckler.de/de/index.htm
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*** https://ec.europa.eu/eurostat/data/database
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budget-rule-may-be-gone-forever
*** https://ec.europa.eu/commission/presscorner/detail/en/ip_20_799
*** https://www.dgb.de/schwerpunkt/schwarze-null-schuldenbremse-und-
investitionen
*** https://www.bnr.ro/PublicationDocuments.aspx?icid=9403
*** https://insse.ro/cms/files/Web_IDD_BD_ro/index.htm
***https://www.taxjustice.net/2019/05/28/new-ranking-reveals-corporate-tax-
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semester_thematic-factsheet_resource-efficiency_ro.pdf
***https://www.mfinante.gov.ro/pjuridice.html?pagina=domenii
Annex
Table 1. Profit distribution of FDI companies

Year Profit Dividends Losses Profit Reinvested
2008 6.412 2.696 4.108 - 392
2009 4.496 1.608 4.277 - 1.389
2010 4.222 1.970 4.495 - 2.243
2011 4.710 2.075 5.132 - 2.497
2012 4.691 2.212 4.360 - 1.881
2013 5.504 2.287 3.554 - 337
2014 5.518 2.176 4.718 - 1.376
2015 6.038 2.399 3.129 510
2016 7.410 3.149 3.123 1.138
2017 8.068 3.526 2.809 1.733
2018 8.930 3.551 2.807 2.573
Source: NBR, Foreign direct investment in Romania,
Chapter 1, https://www.bnr.ro/PublicationDocuments. aspx? ICID = 9403
136 Strategica 2020
Table 2. Origin of the FDI balance
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Total, of
which 48798 49984 52585 55139 59126 59958 60198 64433 70113 75851 81124
Netherlands
8402 10907 10903 11982 13229 14624 14224 16100 17060 19638 19389
Germany
7509 6718 6398 6272 6499 6744 7482 7991 9256 9704 10298
Austria
9186 9037 9346 9667 10920 11438 9694 9131 8336 9575 9915
Italy
3585 2528 2808 3341 2930 2816 2776 3349 4428 4739 7669
Cyprus
1896 2344 2550 2536 2687 2677 4274 4421 4526 4647 5015
France
4294 4259 4384 5042 5272 4568 4119 4308 4801 4731 4919
Switzerland
2298 2115 2021 1839 2194 1942 2151 2231 2546 3144 3641
Luxembourg
1107 810 989 1274 1368 1694 2150 2700 2987 3543 3439
Other countries
10521 11266 13186 13186 14027 13455 13328 14202 16173 16130 16839
Chapter 2.4, https://www.bnr.ro/PublicationDocuments. aspx? ICID = 9403
Table 3. Corporate Tax Haven Index - 2019

Nr. CTHI CTHI Haven Global Scale
Jurisdiction
Crt Value Share Score Weight
1 British Virgin Islands 2,769 7.29% 100 2.12%

2 Bermuda 2,653 6.98% 100 1.86%
3 Cayman Islands 2,534 6.67% 100 1.62%
4 Netherlands 2,39 6.29% 78 12.76%
5 Switzerland 1,875 4.93% 83 3.41%
6 Luxembourg 1,794 4.72% 72 10.53%
7 Jersey 1,541 4.05% 98 0.42%
8 Singapore 1,489 3.92% 81 2.11%
9 Bahamas 1,377 3.62% 100 0.26%
10 Hong Kong 1,372 3.61% 73 4.37%
11 Ireland 1,363 3.58% 76 3.11%
12 United Arab Emirates 1,244 3.27% 98 0.22%
13 United Kingdom 1,067 2.81% 63 7.30%
14 Mauritius 950 2.50% 80 0.65%
15 Guernsey 890 2.34% 98 0.08%
16 Belgium 822 2.16% 68 1.82%
17 Isle of Man 804 2.11% 100 0.05%
18 Cyprus 698 1.83% 71 0.73%
19 China 658 1.73% 58 3.67%
20 Hungary 560 1.47% 69 0.49%
Economics 137

Jurisdiction
21 Curacao 552 1.45% 72 0.32%

22 France 525 1.38% 56 2.81%
23 Malta 519 1.36% 74 0.22%
24 Germany 460 1.21% 52 3.32%
25 USA 407 1.07% 43 12.88%
26 Panama 405 1.06% 72 0.13%
27 Spain 403 1.06% 55 1.53%
28 Gibraltar 398 1.04% 66 0.28%
29 Sweden 364 0.96% 56 0.89%
30 Italy 301 0.79% 51 1.27%
31 Czech Republic 269 0.71% 59 0.23%
32 Turks and Caicos Islands 265 0.69% 100 0.00%
33 Austria 257 0.67% 52 0.66%
34 Finland 236 0.62% 55 0.28%
35 Anguilla 232 0.61% 100 0.00%
36 Denmark 226 0.59% 52 0.44%
37 Liechtenstein 224 0.59% 70 0.03%
38 Lebanon 220 0.58% 73 0.01%
39 Estonia 211 0.55% 67 0.03%
40 Monaco 206 0.54% 68 0.03%
41 Latvia 196 0.51% 68 0.02%
42 South Africa 184 0.48% 47 0.54%
43 Romania 177 0.46% 56 0.11%
44 Seychelles 163 0.42% 68 0.01%
45 Bulgaria 143 0.37% 56 0.05%
46 Macao 144 0.38% 57 0.05%
47 Slovakia 135 0.35% 53 0.07%
48 Croatia 126 0.33% 55 0.04%
49 Portugal 127 0.33% 46 0.23%
50 Taiwan 120 0.31% 47 0.16%
51 Andorra 109 0.28% 69 0.00%
52 Lithuania 106 0.28% 55 0.02%
53 Poland 98 0.25% 40 0.32%
54 Aruba 91 0.24% 64 0.00%
55 Slovenia 80 0.21% 50 0.02%
56 Botswana 74 0.19% 55 0.00%
138 Strategica 2020

Jurisdiction
57 Liberia 71 0.18% 49 0.02%

58 Kenya 60 0.15% 51 0.01%
59 San Marino 56 0.14% 62 0.00%
60 Ghana 56 0.14% 49 0.01%
61 Greece 53 0.14% 39 0.07%
62 Tanzania 40 0.10% 46 0.00%
63 Gambia 9 0.02% 48 0.00%
64 Montserrat 7 0.01% 65 0.00%
Source: https://corporatetaxhavenindex.org/en/introduction/cthi-2019-results
Table 4. Turnover in the wood processing industry compared to the forest resource
exploitation industry
Country
Name NACE Company of origin
NACE Code % Turnover
Code name of
capitals
Egger Romania 37,65% Austria 1.587.290.151,00
Kronospan
Sebes 19,74% Austria 832.238.843,00
Kronospan RO 11,64% Austria 490.688.393,00
Manufacture HS Timber
1621 of wood and (Schweighofer)
of products BACO 6,85% Austria 290.700.527,00
Kronospan
Trading 6,02% Austria 253.742.829,00
Other
companies 18,10% 761.465.209,00
Manufacture
of wood and Total 100,00% 4.216.125.952,00
1621 of products
HS Timber
25,20% Austria 1.787.246.002,00
(Schweighofer)
Kastamonu RO 9,87% Turkey 705.216.758,00
Sawmills and Karelia 2,53% Finland 180.497.520,00
1610 planning of Barlinek
2,19% Cyprus 156.113.232,00
wood Romania SA
Xilobaia SRL 1,68% Israel 119.868.192,00
Other
58,53% 4.194.976.295,00
companies
Sawmills and
planning of Total 100,00% 7.143.917.999,00
1610 wood
1610+1621 Total wood processing industry 11.360.043.951,00
Forestry and Romsilva 65,66% 2.294.662.560,00
other forestry Other
34,34% 1.200.146.682,00
O21 activities companies
Economics 139
Country
Name NACE Company of origin
NACE Code % Turnover
Code name of
capitals
Forestry and
other forestry Total 100,00% 3.494.809.242,00
O21 activities
O22 Logging Total 100,00% 3.424.819.796,00
021+ 022 Total forestry and logging 6.919.629.038,00
Source: https://www.mfinante.gov.ro/pjuridice.html? Pagina = domenii
Table 5. FDI balance in the wood processing industry in Romania

The FDI balance of
Year ISD balance manufacture of wood %
products
2018 81.124,00 1.398,00 1,72%
2017 75.851,00 1.340,00 1,77%
2016 70.113,00 1.433,00 2,04%
2015 64.433,00 1.711,00 2,66%
2014 60.198,00 1.519,00 2,52%
2013 59.958,00 1.255,00 2,09%
2012 59.126,00 1.090,00 1,84%
2011 55.139,00 1.029,00 1,87%
2010 52.585,00 1.013,00 1,93%
2009 49.984,00 962,00 1,92%
2008 48.798,00 891,00 1,83%
Source: NBR (Foreign direct investment in Romania,
Chapter 2.1., Https://www.bnr.ro/PublicationDocuments. aspx? ICID = 9403
Table 6. Evolution of exports and imports of FDI enterprises in the wood processing industry
Wood processing industry
Year Exports Imports Balance
2010 1223 396 827
2011 1355 470 885
2012 1492 486 1006
2013 1809 553 1256
2014 1953 681 1272
2015 1757 622 1135
2016 1743 597 1146
2017 1792 668 1124
2018 1799 657 1142
Chapter 6, https://www.bnr.ro/PublicationDocuments. Aspx? Icid = 9403
140 Strategica 2020
Table 7. FDI balance and sustainable development indicators
Resource Poverty rate
ISD GDP/capita
Employment productivity after social
Year balance growth rate
rate (%) thousand transfers
(%) (%)
RON/tone (%)
2007 42.770 8,8 6,40 1,24 24,6
2008 48.798 11,1 5,60 1,28 23,6
2009 48.827 -4,7 6,50 1,55 22,1
2010 51.414 -3,3 7,00 1,91 21,6
2011 53.723 2,5 7,20 1,4 22,3
2012 57.851 2,5 6,80 1,52 22,9
2013 59.958 3,9 7,10 1,52 23
2014 60.198 3,8 6,80 1,57 25,1
2015 64.433 4,4 6,80 1,37 25,4
2016 70.113 5,4 5,90 1,42 25,3
2017 75.851 7,7 4,90 1,64 23,6
2018 81.124 5,1 4,20 1,64 23,5
Source: https://insse.ro/cms/files/Web_IDD_BD_ro/index.htm - O1-1, O1-6, O4-1, O7-1, O12-2
Table 8. Kwiatkowski-Phillips-Schmidt-Shin statistical test

Variable KPSS test statistic*) Exogenous Conclusion
IDS balance 0.145030 Constant, Linear Trend Stationarity
GDP/capita 0.138392 Constant Stationarity
Resources productivity 0.0330416 Constant Stationarity
Poverty rate 0.188619 Constant Stationarity
Unemployment rate 0.253841 Constant Stationarity
*) Asymptotic critical values for 5% level: 0.0463
Source: EViews estimations based on Table 7 data

Economics 141
PAST, PRESENT, AND FUTURE OF BEHAVIORAL ECONOMICS.

THE PARADIGM OF HOMO ECONOMICUS
Alexandra UNGUREANU
Stefan cel Mare University of Suceava
13 Universitatii St., 720229 Suceava, RO
alexandra.ungureanu2016@gmail.com
Abstract
It is a known fact that the 21st century is marked by the digital revolution alongside the involvement
of artificial intelligence, constant changes that are persuading the economic behavior of individuals.
Nevertheless, in this global story, we do not debate exclusively innovative technologies sustained by
artificial intelligence or about governments' attempts to settle the foundations of a global economy,
but also about social science innovations. The most relevant permutation of this domain is the
behavioral economics that emerges at the collision between psychology and economy, being in
contrast with standard economic principles based on figures and financial analyzes. Although the
research is at the inception, behavioral economics is the psychology of numbers, and from its
perspective we understand human emotions, thus removing the risk of losing the benefits of humanity
and the creative spirit of human beings. The behavioral economics challenge is represented by the
connection with economic development and the potential impact it might have on the global
economy. Because the present research involves a topic about the importance of behavioral
economics, I have chosen triangulation as a qualitative research method, based on the sufficiency
and adequacy of the data selected and analyzed according to the theoretical needs of research. I hold
my opinion about the fact that this method is the most appropriated one because qualitative research
implies the discovery of depth information, understanding, and knowledge assessed by human
criteria, this type of discoveries being extremely useful in the process of knowing the human nature,
which is why this data cannot be achieved through the quantitative methodology.
Keywords
neoclassical economy; homo economicus; behavioral economics; loss aversion.
Introduction
Economics is the study of people and choices. The famous economist Alfred Marshal
defined economics: “The study of man and woman in the ordinary business of life. It
inquires how he gets his income and how he uses it. Thus, it is on the one side, the study
of wealth and on the other, and more importantly, the study of man” (Metu, 2017, p. 3).
When economists make their models, they generally assume that people are rational and
predictable. But when we glance at actual human beings, it accouters that people are
impulsive, short-sided, and irrational.
Behavioral economics is a subfield of economics that focuses on the psychological, social,

and emotional factors that influence decision-making. Generations of economists choose
to ignore many irrational elements of decision making since it is harder to predict
human behavior. But in the last few decades, behavioral economics has managed a
comeback. Several Nobel Prizes have been rewarded to researchers that blend
economics and psychology, and behavioral economics is being applied progressively in
fields like marketing, finance, political science, and public policy. Furthermore,
behavioral economics is about rationality, and in most cases people are rational. When
142 Strategica 2020
the price falls for a product, people develop a tendency to buy more of that product,
proving the law of demand holds true. But economists also accept that this reaction is
bounded rationality (Samson, 2014, p. 21). Limits of information, time, and abilities
might prevent people from seeking out the best possible outcome, and if this happens,
then the law of demand does not hold true, which creates a serious problem in classical
economics, because the classical economic theories explain the big picture, but there are
a lot of things about individual decision-making that are not fully understood.
Classical economics assumes that consumers have all the information when making
choices. That is, they know or at least can quickly access information about prices and
quality, but, in reality, they often do not. In this situation, consumers may act on the
limited information they have, a suspiciously low price, which means either the product
is a profitable situation or the quality is low.
Prices do send a lot of signals, and many studies have confirmed the fact that prices
change perception. Contrary to the basic assumptions of economics, marketing actions
can successfully affect experienced pleasantness by manipulating non-intrinsic
attributes of goods (Plassmann, O’Doherty, Shiv & Rangel, 2007, p. 1050). At the same
time, the fact that perceptions and passions influence our actions also applies in the
finance field. Many economists used to believe that assets, like stocks and real estate,
would stay at or near their real value because cold, calculating investors would buy
undervalued assets and sell overvalued assets (Skousen, 2013, p. 84). But this procedure
does not explain bubbles because in real life, investors are not always cold and
calculating and they can get irrational sometimes. In this situation, we can admit that
behavioral economics does not blow up traditional economic theory, it seeks to
understand when and why people behave differently than economic models suggest. If
people were entirely rational they would consistently make the same decision given
identical options, but sometimes people’s preferences are dependent on how the
options are presented. Psychologists call this type of cognitive bias the Framing Effect
and classical economics argues that framing should have a relatively inefficient effect on
decision making (Seo, Goldfarb & Feldman Barrett, 2010, p. 21).
Behavioral economists also like to talk about the nudge theory. Nudges encourage
people to act a certain way, without actually changing the choices available to them, and
at the same time, is changing how public policy is implemented. Another important issue
that is related to behavioral economics is the risk and in particular loss aversion, the
idea that people strongly want to avoid losing. Studies show that, in general, losses are
more painful than gains are pleasurable (Mukherjee & Sumitava, 2019, p. 24). So people
might choose a safe course of action even if it is not the most logical choice.
Understanding of loss aversion can help businesses and policymakers influence
decisions.
Neoclassical theoretical approach
Since the beginning, economics has had a blind spot. But behavioral economics helps us
get a better look at how people make decisions and the inception of our understanding
of behavioral economics lays down in the neoclassical economic theory. Whether it is
understood or not, behavioral economics started to be heard in economics more often.
The way that I understand it, made me think about the statement of Herbert Simon, an
Economics 143
alumnus of the University of Chicago, awarded in 1978 with the Nobel Prize in Economic
Science for his pioneering research into the decision-making process within the
economic organization. In his Ph.D. thesis, he stated: “The phrase behavioral economics
appears to be a pleonasm. What non-behavioral economics can we contrast with it? The
answer to this question is found in the specific assumption about human behavior that
is made in neoclassical economic theory.” (Herbert, 1987, p.12), explaining what non-
behavioral economics might be.
Economics is about the behavior of all the factors which are creating the global economic
system, like companies, human capital, consumers, and employees. The common factor
is that all of them are people. This is a collision point that raises the question about what
non-behavioral economics is, but the answers are within the assumptions of the
neoclassical economic theory. The core assumption that drives everything in economics
is the assumption that agents of the economic ecosystem choose by optimizing.
But in the beginning, economics started in a behavioral way. For a better understanding
of this affirmation, we should go back in the economic history, to the founder of
economics, Adam Smith, who was the first behavioral economist. He spoke about
behavioral economics, drawing research directions for economists through the
statements he has made. Regarding behavioral economics, he fostered the following
main topics (Ashraf, Camerer & Loewenstein, 2005, p.132):
Table 1. Behavioral economics core

“The overweening conceit which the greater part of men have of their
Overconfidence
own abilities.”(1776)
“Pain…is, in almost all cases, a more pungent sensation than the opposite
Loss aversion
and correspondent pleasure.”(1759)
“The pleasure we are to enjoy ten years hence interests us so little in
Self-control
comparison with the which we may enjoy today.” (1759)
own representation based on N. Ashraf, C. F. Camerer and G. Loewenstein, 2005
The language might be slightly different from the modern way of speaking of, but what
Adam Smith stated 260 years ago, are the core ideas of behavioral economics. The
second neoclassical economist who realized the importance of behavioral economics
was John M. Keynes, the inventor of behavioral finance, a status which he won with his
general theory (1936): “Day today in the profits of existing investments, which are
obviously of an ephemeral and non-significant character, tend to have an altogether
excessive, and even absurd, influence on the market.” (Faten, 2016, p. 5).
This observation was later demonstrated by Robert Shiller (1981), when he shared the
Nobel Price with Eugene Fama and Lars Hansen, who won in large part for work
documenting the fact that stock prices seem to move too much compared to the
movement of fundamentals.
At the same time, for a better understanding of what behavioral economics is, it is
important to bring in discussion another early behavioral economist, Vilfredo F.D.
Paretto, who stated (1906) that: “The foundation of political economy, and, in general, if
every social science, is evidently psychology. A day may come when we shall be able to
decide the laws of social science from the principles of psychology.” (Candela, Rosolino
Wagner &Richard, 2016, p.35).
144 Strategica 2020
In addition to this statement, John Maurice Clark, a professor in the economics

department of the University of Chicago, came up with a filling: “The economist may
attempt to ignore psychology, but it is a sheer impossibility for him to ignore human
nature… if the economist borrows his conception of man from the psychologist, his
constructive work may have some chance of remaining purely economic in character.
But if he does not, he will not thereby avoid psychology. Rather, he will force himself to
make his own, and it will be bad psychology.” (Clark ,1918)
Recent studies about behavioral economics
An important work in the development of finance and behavioral economics was written
by Amos Tversky and Daniel Kahneman in 1979. Their work, "Theory of Perspectives: A
Risk Analysis", used cognitive psychological techniques to explain a series of
documented divergences in decision making in neoclassical theory. Over time, many
other psychological effects have been included in behavioral funding, such as overload
and the effects of limited attention. Other milestones in the development of the field
include a well-organized and diversified conference at the University of Chicago, a
special edition of the Quarterly of Economics (1997) dedicated to the theme of
behavioral economics, and the Nobel Prize for Daniel Kahneman in 2002 because he had
an integrated perspective on psychological research in the field of economic science,
especially as regards human judgment and decision-making under uncertainty.
Prospectus theory is an example of the expected general theory of utility. Although not
frequently included in behavioral economics discussions, the theory of generalized
utility is similarly motivated by concerns about the descriptive inaccuracy of the
expected utility theory.
Behavioral economics has also been applied to problems of intertemporal choice. The
most prominent idea is that of the hyperbolic reduction proposed by George Ainslie
(1975), which uses a high rate of reduction between the present and the near future and
a lower rate between the near future and the distant future (Ainslie, 1991). This updated
model is dynamically inadequate, or inconsistent with time, and therefore inconsistent
with some rational choice models because the reduction rate between time t and t + 1
will be reduced at time t-1 when t is near future but high at t when t is present and time
t + 1 near future.
At the beginning of the research, behavioral and finance economics theories were
developed almost exclusively through experimental observations and survey responses,
although real-world data has taken a more prominent position. Functional Magnetic
Resonance Imaging, fMRI, has completed this effort by using it in determining areas
where the brain is active in various stages of economic decision-making. Experiments
simulating market situations such as stock market trading and auctions are considered
particularly useful as they can be used to isolate the effect of some particular biases on
behavior. The behavior observed on the market can be typically explained in a number
of ways, carefully designed experiments can help narrow the range of plausible
explanations. Experiments are designed to be compatible with mandatory incentives
and transactions that imply that real money is the norm.
There are three main themes in the field of behavioral finance and the economy:
heuristic, training, and market failure (Howard & James, 2013, p.125). When it comes
Economics 145
to heuristic, people often make decisions based on approximate rules, not on strictly
rational analyzes. Cognitive biases or limited rationality are also considered. According
to training, the way that a problem or decision is presented to the decision-maker will
affect its action. Finally, about market failure, there are explanations for observed
market outcomes that are contrary to rational expectations and market efficiency. These
include incorrect prices, non-rational decisions, and return abnormalities.
Generally, cognitive prejudices can have strong abnormal effects overall if there is social
contamination with a strong emotional content (collective greed or fear), which leads to
more widespread phenomena such as feeding and group thinking. Behavioral finance
and the economy are based on social psychology in large groups and on individual
psychology. However, some behavioral patterns explicitly demonstrate that a small but
significant group can also have market-related effects.
Defining assumptions of Economics. The paradigm of Homo Economicus
Homo Economicus is a philosophical precept that runs through economics from Adam
Smith onwards that basically tells us what it means to be a human being, to be self-
interested; to be monetarily sensitized to one’s environment, an individualist. It became
the principle on which the society was organized around with the rise of neoliberal
economics that really saw this as the heart of the economic machine: self-interested
individualism. For the last four decades, we have been waterboarded by the ideology of
homo economicus. The following main characteristics of the economic man guides us to
a better understanding of this ideology (Bowbrick, 1996, p. 18):
Optimization – people are assumed to choose the best option for those they can afford.
Consumer sovereignty – no self-control problems – people know what is best for
themselves and in particular, they know better than anyone else could know. The idea
of consumer sovereignty, that we choose what is the best for us, means that we never
choose what is wrong.
Unbiased beliefs – there is a large literature in economics, called rational expectations
literature, which formalizes something that was always assumed informally in
economics: people’s expectations about the future are unbiased, meaning that people
couldn’t improve it.
Self-interest – economists assume that people are selfish and only care for themselves.
The mingling of these assumptions defines homo economicus, the starting for behavioral
economics because there is a difference between humans and homo economicus.
Economics is not supposed to be a theory for experts, but for all the humans, just like
the life-cycle theory of savings is a theory about how everybody saves for retirement,
but in the same time people makes errors which are predictable or systematic because
they are optimizing and are deviating from that in a predictable manner.
Another argument based on the early data from laboratory and experiments is that
people used to believe this type of experiment are low stakes, but they would get it right
if the stakes wore raised. Also, when it came to learning, it was believed that in the real
world, people get to learn, but in the experiments, they are given this chance. From this
paragraph, we can conclude that people behave more like home economicus. Though
these arguments are self-contradictory, at the same time, both are real because the
higher the stakes, the less often people confront. Markets have no way of transforming
146 Strategica 2020
humans into homo economicus and this is why the data should be taken seriously if we
are willing to understand why humans behave differently from homo economicus. For
every fluctuation in the economy, there are models created in order to understand the
changes and to measure the impact of them. Behavioral economics would not exist
without neoclassical economics, because it was the benchmark of the economy of today.
In a nutshell, homo economicus is a representation of people as individuals who are

constantly rational and narrowly self-interested and who usually optimally pursue their
subjectively defined goals. Generally, the economy seeks to maximize utility as a
consumer and profit as a producer. As a theory of human behavior, it contrasts with the
concepts of behavioral economics, which examines cognitive biases and other
irrationalities, and another mythical species, homo reciprocates, a model that
emphasizes human cooperation (Dohmen, Falk, Huffman, Sunde & Uwe, 2009, p.595).
In game theory, homo economicus is often modeled by assuming perfect rationality. The
notion of homo economicus is often used by non-economists to criticize or approach
economics. There are distinct concepts: the preferences that individuals have among
outcomes and the processes that individuals use to make decisions. The question of
whether individuals are in fact able to make the best choices, given their preferences,
leads to the economic definition of rationality or the so-called rational economic man.
This concept of rationality does not limit what kind of preferences are permissible.
Behavioral Economics impact in economic development
The standard perception of the economy is that all consumers act fully rationally and try
to maximize their usefulness, but this perception of the economy does not explain why
things such as the capital market do not work with a high level of efficiency; in fact, the
standard model of the economy would suggest that the stock market would be much
more efficient than it is today. The field of the behavioral economy was created to fill in
the gaps and inconsistencies left by standard economic theory. The behavioral economy
is a theory that suggests that consumers' decisions are prone to be affected by irrelevant
influences, with consumer decisions being relatively irrational. Colin Camerer, an
important behavioral economist, said that: "Behavioral economics increases the
explicative power of the general economy by providing more realistic psychological
foundations."(Camerer & Loewenstein, 2004, p.55). This theory attempts to adapt
standard econometric models to reflect the consumer's irrationality that follows a
predictable model and to help us better understand how the consumer mindset and
decisions are influencing economic development.
The behavioral economy is full of numerous sub-theories and ideas that attempt to
explain the individual behaviors exposed by consumers when making decisions; sub-
theories that wore able to explain illogical behaviors and phenomena exposed by
consumers. This area, which threatens to change many standard economic notions,
existed in the concept of the birth of the economy but was initially ignored because of
its base in psychology, which at that time was much less scientific. The field of behavioral
economics and the fusion of psychology and economics, gives the opportunity to of a
better understanding for the economic analysts about the decisions of the average
consumer and the previously abstract economic phenomena, thus explaining the
influences in economic growth and development.
Economics 147
These theories and principles aim to broaden human knowledge, the economic field of
behavior with implications in macroeconomics, and many concepts with a behavioral
basis that could be elucidated through psychological research. The behaviors described
in macroeconomics can be understood using behavioral principles and theories. A
publicized version of a theory of macroeconomics, namely the theory of labor
economics, suggests that unemployment is the result of wage payments above the level
that would balance supply (jobs) and demand (job seekers) causing a surplus of workers
without sufficient jobs (Jahan, Mahmud & Papageorgiou, 2014, p.53).
A similar branch of behavior, finance, explores the idea that investors have limited
rationality and are quite similar to the concept of behavioral economics. An important
phenomenon in behavioral financing is the observation that the average return on
equity is much higher than bond yields. To take this into account, people dealing with
stocks would be at a higher risk than would have been predicted by the standard utility
model, which means there is a problem with current theories of market functioning.
Although the cause of this phenomenon has not yet been fully understood, the
behavioral economy is trying to understand the reasons for this situation.
The so-called "Groucho Marx" theorem states that people would not want to trade with
other people who would like to trade with them, but the volume of capital market
transactions is amazing. For example, the annual turnover rate for New York Stock
Exchange shares is more than 75%, and the daily volume of currency transactions in all
currencies is about a quarter of total world trade and investment flows (Harbaugh,
Maxwell, Roussillon, 2006, p.17).
This is another phenomenon that behavioral finances are trying to understand, which is
what drives the exorbitant and irrational size of volume on the stock market. Behavioral
finances are trying to cope with the notions of the market and the influence of the
behavioral economy in growth and economic development. Regarding these
assumptions, I consider that behavioral economics is an important segment that can
change the way the economy is perceived and applied.
Critical to Behavioral Economics
Behavioral economics critics usually emphasize the rationality of economic agents.

From their point of view, experimental behavior is inappropriate for market situations,
as learning opportunities and competition will ensure a rapprochement with rational
behavior. At the same time, critics note that cognitive theories, such as perspective
theory, are decision-making models are applicable only to decision-making issues once
presented to experienced participants or respondents in the survey.
Traditional economists are skeptical about experimental and survey-based techniques

that are widely used in behavioral economics, arguing that experiments and surveys
should be carefully designed to avoid systemic prejudices, strategic behavior, and lack
of incentive compatibility, not trusting the results obtained in this way because of the
difficulty of eliminating these problems.
The behavioral economists reject these criticisms, defending that the results are
typically reproduced in different situations or countries and can lead to a good
148 Strategica 2020
theoretical understanding. They incorporated these criticisms, focusing on field studies

rather than on laboratory experiments, pleading that this division is a fundamental
schism between experimental economics and behavioral economics, but behavioral and
experimental economists tend to overlap techniques and approaches to respond to
common questions.
For example, many behavioral economists are actively investigating the neuro-
economy, which is entirely experimental and cannot be verified in the field. Other
supporters of the behavioral economy note that neoclassical models often fail to predict
results in real-world contexts. From my point of view, I consider that behavioral
perspectives can be used to update neo-classical equations, and in the same time,
behavioral economists should note that these revised models do not just go to the same
predictions as traditional models, but also correctly predict some results where
traditional patterns have failed.
Conclusions
The main findings of the theoretical research indicate that lately, behavioral economics
has made its presence felt more and more as an independent area of research, its study
being animated both by the technological advance of the last decades it has imprinted
on humanity and by the economic crises. often, which brought back into question the
need to return to “origins”, to the attempt to “rediscover” the fact that, beyond any
abstracted, formal and mathematical model, economics is a living science, with man at
its center. If, on the one hand, this discipline is intended to be a continuation of the work
of the classics, on the other hand, it creates its own concepts by capitalizing on
knowledge in psychology and other social sciences. The ultimate goal of this discipline
is to increase the explanatory power of economics, by providing a more realistic
psychological basis, given that human behavior is not only the object of study of
economics but also of psychology and social sciences as a whole. However, as it is still at
an early stage of development, its status, role, and implications cannot yet be fully
assessed.
In standard economics, individual differences are neglected, but in modern economics,

economists would allow that differences in age, gender or socio-demographic
characteristics can have an influence. The role of personality, moods, and emotions are
not allowed in standard economics, and this is the particularity fascinating area of
behavioral economics because it is allowing the different personality types affect how
people decide and choose.
Behavioral economics is not well designed for capturing macroeconomic behavior

because behavioral economics assumes that people might be independent and might
learn from each other. These personality and individual differences, make it very
difficult to aggregate, and the point about standard macroeconomic models is they have
got the aggregation problem really solved. If the masses are the same, then
macroeconomic happens, but in behavioral macroeconomics, it is more complicated
because people are interacting and are different, so in terms of behavioral
macroeconomics it is a big challenge for behavioral economics to do, to capture
behavioral macroeconomics more efficiently.
Economics 149
At the same time, another conclusion of the paper is that in the context of today's global
economy, positions focus on how homo economicus bases its economic decisions on
consumption, production, or investment. Assumptions about the behavior of individuals
faced with decision-making that determine economic actions have a history as long as
that of economics itself. Present in Adam Smith's work and at the heart of the
neoclassical theoretical approach that still represents the mainstream, these
presumptions were in fact based on brilliant intuitions about human psychology. The
rapid development of psychology as a science and the progress in sociological research
has inevitably given way to new behavioral perspectives in economics. Thus, behavioral
economics, through its representatives, has become a continuous challenge to
neoclassical hypotheses, broadening the scope of scientific research and trying to insert
a higher degree of realism to the theory itself.
Further research directions
Behavioral economics is an area that offers the possibility of a large volume of research
whose results can influence the global economy. For this reason, I would like to go
further with this research, identifying the connection of behavioral economics with the
Industrial Revolution 5.0, the one of personification, which announces a new paradigm
whose keyword is coopetition, focused on cooperation between man and artificial
intelligence. Coopetition is a term belonging to Francisco Jaime Quesada, a specialist in
innovation and competition, representing a combination of competition and
cooperation between people and robots, which is the hallmarks of this new era, which
will be the personification revolution, centered on cooperation between human capital
and artificial intelligence. The aim of further research will be highlighting the
importance of implementing the principles of behavioral economics in the global
economic ecosystem as it might provide new perspectives for the development and
reorganization of the global governance systems.
Lately, behavioral economics has made its presence felt more and more as an
independent area of research, its study being animated both by the technological
advance of the last decades it has imprinted on humanity and by the economic crises.
often, which brought back into question the need to return to “origins”, to the attempt
to “rediscover” the fact that, beyond any abstracted, formal and mathematical model,
economics is a living science, with man at its center. If, on the one hand, this discipline
is intended to be a continuation of the work of the classics, on the other hand, it creates
its own concepts by capitalizing on knowledge in psychology and other social sciences.
The ultimate goal of this discipline is to increase the explanatory power of economics,
by providing a more realistic psychological basis, given that human behavior is not only
the object of study of economics but also of psychology and social sciences as a whole.
However, because of the fact that behavioral economics is still at an early stage of
development, its status, role, and implications cannot yet be fully assessed.
References
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Journal of Economic Perspectives 19(3), 131–145.
150 Strategica 2020
Bouheni, Faten. (2016). Managing behavior to make better investment decisions,

Institut Superieur de Commerce, Paris, Conference Paper, pp.35-49.
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Harari, Y.N. (2011). Sapiens: A brief history of humankind. Harper
Harbaugh, R., Maxwell, J., & Roussillon, B. (2006). The Groucho Effect of Uncertain
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Economics and Public Policy, Working Papers, 1-26.
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Howard, J. (2013). Advances in Financial Decision Making: In Search of a New
Paradigm. The Journal of Behavioral Finance & Economics. 3(1), 99-138.
Kahneman, D., Slovic, A., & Tversky, A., (1982). Judgment Under Uncertainty: Heuristics
and Biases. Cambridge Univ. Press, Cambridge. (1), 115-172
Khaneman, D., (2011). Thinking Fast and Slow. Farrar, Straus and Giroux
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Department of Economics, 1-14. DOI:org/10.2139/ssrn.3068214
Samson, A., (2014). The Behavioral Economics Guide 2014 (with a foreword by George
Loewenstein and Rory Sutherland), (1): 15-44.
Sarwat, J., Saber, A., Papageorgiou, C., (2014), What Is Keynesian Economics?, Finance
& Development, 51(3), p. 53-54
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Palgrave Macmillan, London. DOI:10.1057/978-1-349-95121-5_413-1
Skousen, M., (2013). A Viennese waltz down Wall Street, Austrian Economics for
Investors, Laissez Faire Books, ISBN: 978-1-6212909-3-3 (ebook), Maryland.
Thaler, R., Sunstein, C., (2008) The Nudge. Yale University Press
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Tversky, A., Kahneman, D., (1992). Advances in Prospect Theory: Cumulative
Representation of Uncertainty. Journal of Risk and Uncertainty, 5(1), Kluwer
Academic Publishers, 297-323.
Videography - TED Talks

Predictably Irrational - basic human motivations: Dan Ariely at TEDxMidwest.
https://www.youtube.com/watch?v=wfcro5iM5vw
Behavioral economics - how to make it work for us | Maciej Kraus | TEDxWarsaw,
https://www.youtube.com/watch?v=bTDBeI-mtDg
Applying behavioral economics to real-world challenges: Kelly Peters at TEDxUtrecht,
https://www.youtube.com/watch?v=0rLb0pGZzOw
Google talks: Richard Thaler: Misbehaving: The Making of Behavioral Economics,
https://www.youtube.com/watch?v=42qbHeFxdzE&t=1430s
2
Management and
Leadership
Chairs
Mariana NICOLAE & Victoria A. SEITZ
152 Strategica 2020
THE IMPACT OF A MULTIGENERATIONAL WORKFORCE ON HUMAN

RESOURCES PRACTICES
Cristina PRUND
“Lucian Blaga” University of Sibiu
17 Calea Dumbrăvii, 550324 Sibiu, RO
cristina.prund@ulbsibiu.ro
Abstract
Companies all over the world are facing the challenge of understanding different generations and
elaborating policies that are able to meet the needs of both: company and employee. Even if those
policies are elaborated correctly, it is important to be well implemented, otherwise, the success of the
company will not be guaranteed. Based on recent studies it is known that there are 4 generations on
the labor market who work together: Baby Boomers (1946-1964), Generation X (1965-1979),
Generation Y, or Millennials (1980-1994), and Generation Z (1995-2015). Every generation has its
characteristics influenced by the events that took place during their lifetime. The purpose of the
paper is to discuss some of the essential things about generations and human resource (HR) processes
and to analyze the impact produced by generations on HR practices. The research questions are: (1)
How can generations be defined in terms of characteristics, motivations, etc?; (2) Which are the most
important HR processes in a company? (3) Which is the positive/negative impact generations can
have on HR practices? The objectives of the paper are: (1) to synthesize the literature on Human
resource management (HRM), with emphasis on the HR processes; (2) to define the term of
generation and analyze the characteristics of each one; (3) to give some examples on HR processes.
The available literature in the area on this subject is minimal and that is why the paper will use
alternative sources for the research: official reports, proceedings, articles, conferences, and books.
Related to the methodology, the article will collect and analyze secondary data. The paper will
compare some of the most important HR processes in a company (planning, recruitment, selection,
induction, training, evaluation, and feedback) in relation to the characteristics of each generation
present on the labor market. The paper will try to complete the theoretical part with practical
examples regarding HR processes in important companies such as Google, Hilton, and Apple. In this
regard, the paper is going to take into consideration two important ranked lists which are published
in Fortune Magazine: (1) 100 Best Companies to Work for; (2) World’s Most Admired Companies.
The findings will present the positive and negative impact generations have on HR practices. The
intended contribution of the research comes in the form of suggestions for companies, suggestions
that will make them able to better face the generational impact.
Keywords
Generations; values; HR practices; workforce; impact; change; success.
Introduction
In today's competitive business context, organizations from all over the world must
provide customer satisfaction with high performance to maintain their competitive
advantage and to satisfy their customers. Based on this fact, to have happy and pleased
customers it is necessary to have happy and motivated employees as well.
Employees have become one of the most important resources of companies over time
and this is the reason why all the companies need to keep their employees motivated. If
an employee is motivated and understood in the workplace, he/she will be willing to
give as much interest as possible. In this way, both the company and the employee will
Management and Leadership 153
have the same values and will move towards the same goals. As Michael Armstrong
(2009, p.164) has stated in his book: “The number of HR practices and the proportion of
the workforce covered appeared to be the key differentiating factor between more and less
successful firms”.
Organizations and especially the Human Resources Department should understand the
differences between generations to be more productive in leading a multigenerational
labor force. Generational diversity has become an important and actual challenge in
many companies. As the baby boomers’ generation retires and new generations
(Generation X, Millennials, Generation Z) enter the labor market, it becomes mandatory
for HR departments to learn more about their job satisfaction and motivations. “Through
interviews with different generations over a period of ten years, Bruce Tulgan (an
American writer specializing in management training and generational diversity in the
workforce) discovered that the face of the workforce is changing as a result of generational
differences within the four groups.” (Dwyer Rocky, 2009, pp.101-110)
Currently, companies from all over the world are competing to attract the most valuable
employees who will be able to keep the company at a high level and make the
organization sustained through the years. From another point of view, “leaders should
review their organizations’ overall policies and procedures and include any factors that
may affect employee performance. Asking employees from all generations to participate in
this process is crucially important, especially if an organization is experiencing some
generational problems.” (Al-Asfour & Lettau, 2014, pp.58-69) One of the most important
things is that companies need to align their policies and practices based on the needs
and values of each generation.
The impact of a multigenerational workforce on HR practices
The human resources managers deal with the efficient management of the staff to
minimize the risk of financial and personnel loss, maximizing the return on investment
from the human capital of the organization. According to Michael Armstrong (2009,
p.31), “The overall purpose of human resource management is to ensure that the
organization is able to achieve success through people. People and their collective skills,
abilities and experience, coupled with their ability to deploy these in the interests of the
employing organization, are now recognized as making a significant contribution to
organizational success and as constituting a major source of competitive advantage. “ It
can be said that the workplace is where different generational values coexist and
preferences influence the working atmosphere and success of the organization.
(Kicheva, 2017, p.103-121)
Human nature and the basic characteristics of our behavior are often in contrast with
the organizational and corporate requirements for the sake of reaching and maintaining
competitiveness (Bencsik, 2016, pp.90-106). In this case, the situation must be viewed
from two different perspectives: (1) on one hand the employer will differentiate itself
from the competition by a resource that cannot be easily copied or imitated; (2) on the
other hand, employees will work in a motivating environment and will have multiple
opportunities for development and promotion. From another point of view, it is
essential “to make people strategic assets of the firm: Criteria for selection and retention
of people must be consistent with company values”. (Crain, 2009, pp.33-38). In the
154 Strategica 2020
recruitment and selection processes, the employer needs to look for candidates whose
values coincide with those of the company. In the following, we will analyze a part of the
HRM processes and present some of their most important characteristics.
HRM processes
The first and perhaps most important process is related to workforce planning. “The
planning of the workforce in a company is one of the most difficult problems managers
face. As the size of the company increases, the problem tends to get more and more
difficult” (De Bruecker, Van den Bergh, Beliën, & Demeulemeester, 2015, pp.1-16).
Recruitment and selection are based on the needs identified in the planning process
being defined by Michael Armstrong (2009): “Recruitment is the process of finding and
engaging the people the organization needs. Selection is that part of the recruitment
process concerned with deciding which applicants or candidates should be appointed to
jobs”. After the selection process is completed, the next important step for both the
employer and especially the employee is induction.
The company performs organized induction of new employees by setting the

appropriate content of the program that contains two groups of activities: Orientation
and Training new employees under specific jobs. The most successful organizations of
the future will differ depending on their ability to encourage the inclusion of all
employees in making decisions to acquire new knowledge and develop learning
potential at all levels of the organization. (Dragomiroiu, Hurloiu, & Mihai, 2014, pp.368-
373).
Training and development are the processes that take place either after the completion
of the induction process or during the same period. Last, but not the least process, is
related to Performance Evaluation and Feedback. Through a good evaluation, process
companies can contribute to the accomplishment of organizational goals.
Based on the evaluation process, feedback will be provided, and it will contribute to the
individual improvement of the performance of each employee.
Like we can see in the findings presented in Figure 1 there are 4 important questions to
be answered for effective HR Processes: What, Who, How, When. As Bill Gates said, “We
all need people who will give us feedback. That’s how we improve”.
Planned
WHAT
Recruited
WHO
SHOULD BE Selected
HOW Induced
WHEN Trained
Evaluated
Figure 1: Questions to be answered for effective HR processes

Composed by the author based on the information from Osibanjo and Adeniji, 2012, p.31.
Findings from Global Rankings
In this chapter, we will analyze two ranked lists which are published in Fortune
Magazine (it is a well-known American business magazine which regularly publishes
ranking lists). We are going to take into consideration the next two important lists which
were published over the years: (1) 100 Best Companies to Work for; (2) World’s Most
Admired Companies. The article is going to reflect the results of these ranking lists and
to make a chronological comparison regarding the companies that have ranked in the
first place over the years.
Table 1: Companies that placed 1st according to 100 Best Companies to Work for and
World’s Most Admired Companies ranking lists
FORTUNE RANKINGS COMPANY YEAR
Google 2014-2017
100 Best Companies to Work For
Salesforce 2018
Hilton 2019-2020
World’s Most Admired Companies Apple 2014-2020
Composed by the author based on the information from Fortune Rankings
Based on the information from the “100 Best Companies to Work for” ranked list we are
going to discuss some important characteristics of Google and Hilton.
Google
As we can notice in the findings in Table 1, Google placed first for more than 4 years –
from 2014 until 2017. We are going to discuss only the recent data about the company
because it is essential to focus on the actual challenges. Google believes that employees
are the most important assets of the company. In this regard, in the selection process,
experience does not represent a criterion in choosing a potential employee. The
company needs to have smart and talented employees, who are guided by excellence
because in this way they can focus on achieving success. The company supports
creativity and communication between employees from different hierarchical levels
within the company and that is the reason why employees feel motivated to express
their opinion openly in any situation.
Google is trying to attract a diverse workforce which is considered to be representative

for customers. Therefore, Google has employees from all over the world without taking
into consideration characteristics like age, generation, race, etc. Google has a very strong
organizational culture where the most important thing is the work-life balance and
employees are highly motivated within the company because they have development
opportunities and training programs.
Hilton
Hilton ranked 1st from the last year until today, in 2020. Here are some reasons why
according to Fortune magazine this year Hilton is viewed as the best company to work
for. The company is defined by the following words: Hospitality, Integrity, Leadership,
Teamwork, Ownership, Now. If we look more closely, we notice that when we put
together the first letter of each word, it forms the name of the company: H I L T O N.
156 Strategica 2020
For Hilton, it's important to show to their employees how much they matter to the
company and not just tell them. The company’s vision wants to apply the values and
culture equally to every member of the team. They treat their employees in the same
way they would treat their customers. If the company can understand what the needs of
customers are, they believe they will know how to handle issues concerning employees
from different generations. Employees have a huge number of benefits in the company
starting from travel benefits, personal and professional development, and continuing
with a great workspace. Another benefit could be considered the fact that Hilton started
to design and to use modern and innovative training programs compared to the
traditional ones. They want to keep the idea that everybody should be treated equally
no matter what hierarchical position they have. All employees can present their ideas.
They are encouraged to decide on their own and to get out of their comfort zone.
From another point of view, we will take into consideration another essential ranked list
“World’s Most Admired Companies”. We believe that considering another perspective
would help us in having a better knowledge of the companies. In this case, we can see
that the second-ranked list is placing Apple on the 1st place from 2014 until today.
Apple
Their mission is to bring amazing people together to make extraordinary things happen.
Apple highly encourages the diversity of employees and that is the reason why they have
employees between the ages of 18 to 87 years old and from different countries. The
company’s values are based on creativity and innovation and most importantly they
manage to create a culture of empathy. Apple considers that all their success is owed to
the most important resource- their employees- which they call “our soul”. They do invest
a lot in training, development programs, and benefits but the results based on
employee’s productivity and motivation are more than enough for the company’s
satisfaction.
We can highlight the fact that previously presented companies consider their employees
the central point of their business. In our opinion is remarkable that Apple was able to
maintain its leading position for so many years. On the other hand, we consider Hilton
is using the best approach because they are not just telling their employees how
important they are to the company, they are showing them that through training
programs, opportunities to grow, and benefits. Regarding Google, it is worth noting that
the company is focusing on employees’ abilities, ideas, innovation, and not on
experience.
Defining generations
A generation is describing all the people who were born and lived in the same period
and who were affected by the same events. The term generation represents those people
who have almost the same motivations, values, and attitudes. “In today’s business
environment, it is not surprising to see people from different generations working side-by-
side. Because each generation has its own unique values, set of skills, and characteristics,
having employees from different generations has created its own challenges and
opportunities for managers.” (Gursoy, Chi, & Karadag, 2013, pp.40-48)
Currently, 4 generations on the labor market need to work together: Baby Boomers,
Generation X, Millennials, Generation Z. In the present article we will take into
consideration the following periods: Baby Boomers (1946-1964), Generation X (1965-
1979), Generation Y or “Millennials” (1980-1994), Generation Z (1995-2015).
- Baby Boomers represents those people who are already retired or about to retire soon;
- Generation X are the ones who are known for their active role in social life and business;
- Millennials (Y) are also known as the children of the globalization;
- Generation Z represents the newest emerging workforce that will fill up the workplace in
the next years.
Not very comfortable with technology

Motivated by stability
Strong work ethic
BABY BOOMERS
1946-1964
View change as a vehicle for opportunity

Motivated by freedom and removal of rules
Work –life balance
GENERATION X
1965-1979
Aligning with company values

Focused on business
MILLENIALS (Y) Motivated by public recognition
1980-1994
Waiting for feedback constantly

Motivated by daily challenges
Changing jobs frequently
GENERATION Z
1995-2015
Figure 2: Managing different generations in the workplace

Composed by the author based on the information from Bscai Editorial Staff, 2017.
The findings in figure 2 present different characteristics of the generations. It seems to

be essential for companies to understand the characteristics of each generation in terms
of age, preferences, motivation, work ethic, etc. If organizations will not take into
consideration the age transitioning of the workforce, negative consequences in
performance can occur.The generational gap will impact processes like communication,
problem solving, knowledge, interpersonal relationships, etc. From a Human Resource
Management point of view, organizations need to recognize the presence of a multi-
generational workforce and thereby focus on what is important for each employee from
each generation.
158 Strategica 2020
Impact on organizational HR processes
In companies, it is not important only to have well-conceived HR policies and practices.

What is truly important is how these policies and practices are implemented. In this
case, the findings in table 2 will present the positive and negative impact generations
can have on HR processes.
According to the findings in Table 2, the planning process can be difficult for a company
because generations either retire, change jobs often, or have just entered the labor
market. Recruitment and selection depend very much on the tools used by the
companies because some generations are not used with media and online recruitment
while others don’t take in seriously this process and don’t show up for the interviews.
Induction of staff can have a negative impact on the process: difficulties in connecting
with younger generations and the need for innovative induction programs. At first, an
older employee (from the baby boomer generation) may find it difficult to be a part of a
younger team. On the other hand, the youngest generations will ask for more innovative
induction programs.
Regarding the training and development process, the negative impact will relate to the
fact that Baby Boomers will retire shortly and the youngest generations will change jobs
frequently and somehow the company won’t invest in an employee who will leave the
organization in the near future. On the other side, for the youngest generations, the
company will have to accomplish a challenge regarding external coaching and
personalized programs for development. However, there is a positive impact too
concerning online training that can be used with the youngest generations.
The Performance Evaluation and Feedback process will have problems because of the
generational differences. Some of the older employees won’t be happy to receive
feedback from a younger supervisor. On the other side, feedback and evaluation are
considered constructive processes.
In the end, based on the research we will contribute with some suggestions which can
improve the relationship between generations and HR policies.
Table 2. Positive and negative impact generations can have on HR processes

 Negative impact Positive impact
Generation/
Baby Boomers Generation X Millennials Generation Z
HR process
Planning  Are retiring  Starting to Possibility Entering the
at a rate of retire soon to change the labor market
around 10,000 a Changing job Changing
day jobs: only if Changing jobs: Regularly
Changing necessary jobs:
jobs: almost Sometimes
never
Recruitment  They are not  They won’t Sense of  They will
very familiar leave the actual entitlement miss interviews
with online job  They have They will
recruitment The highest updated CV have
Strong work job supply enthusiasm for
ethic a new job
Selection  They are not  They will They  Lack of

used with have high claims expect a seriousness
technology  They have promotion Being
 They have experience within 2 years involved in
experience They Can different
Help Build activities
Strong Culture
Induction Difficulties in  Difficulties in Innovative Innovative
relation with relation with induction induction
younger younger programs programs
generations generations They make They are
They know  Ready to great teams willing to learn
how to adapt absorb and try new things
new ideas.
Training  They will Want more Want more Personalize
retire external external learning and
soon coaching coaching development.
Add value They will ask Online  Online
with their work for more trainings trainings
experience trainings if
potential is not
fully tapped
Evaluation & Generational Generational Generation Generational
Feedback conflict conflict al conflict conflict
They receive They are  Use Email,  They
feedback happy to receive text appreciate
effectively feedback messages, humor
PowerPoint
Result and suggestions
To overcome the problem related to the impact of generations on HR practices, in the

previous section we have analyzed the positive and negative impact multigenerational
workforce can have on HR practices. We think the planning process is the most
significant because this is the moment when the priorities and the personnel needs are
established. Companies should consider the fact that employees are much more willing
to change jobs today. This fact presents a risk to the company and that is why HR
departments should supervise this process carefully. On the other hand, processes such
as recruitment and selection are also important because they require finding the right
person to fit well in the company’s requirements and the team.
This is how the problem can be tackled:
To have a better planning process companies should:

- Be aware of how many employees they need for a new position and make long term
plans;
- Consider if a person who will retire soon is suitable for the said position;
- Be aware of the fact that new generations are tempted to change their jobs more often;
Regarding the recruitment and selection process companies should:

- Use diverse recruitment tools in order to reach more employees from different
generations;
160 Strategica 2020
- Be prepared and have a B plan for the employees who will confirm and still miss an
interview;
- Be prepared to persuade the employees who are not 100% convinced to leave their
current job;
Related to induction of staff companies should:
- Be prepared to handle the potential generational conflicts;

- Be willing to invest in innovative induction programs;
To have an effective training and development process companies should:

- Take into account if it is worth to invest in an employee who will retire soon;
- Be prepared to invest in personalized learning programs and external couching;
- Use to their advantage the employee’s experience and knowledge;
For a better performance evaluation and feedback process the companies should:
- Be prepared to handle generational differences;
- Invest more in employees who are willing to learn;
- Use more innovative tools for younger generations.
In conclusion, these processes are very important for companies, forming an essential
basis for the Human Resources Department. Some companies have good results on some
processes while others have major problems because they are dealing with different
circumstances. Companies and especially HR departments should understand the
differences between generations and focus on a dynamic process that will help them
cope with labor market changes.
References
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Generational Workforce. Journal of Leadership, Accountability and Ethics 11,
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162 Strategica 2020
QUO VADIS IN MILITARY AND SECURITY ORGANIZATIONS

GOVERNANCE? THE WAY BETWEEN LEADERMENT AND
MANAGESHIP
Dorel BADEA, Elena Diana RANF, Gabriel MĂNESCU,

Crenguța MACOVEI, Dumitru IANCU
"Nicolae Bălcescu" Land Forces Academy
3-5 Revoluției Street, 550170 Sibiu, RO
manescug@yahoo.com
Abstract
The elaboration of the working framework for this article is fundamented by perspectives that have
been encompassed in numerous dedicated reports, forums and workshops on the topic of
management during the last decade, both as a theory and in practice. These mainly advocate a
management approach through the lens of the main organizational and technological trends and
tendencies, as the current management seems to have already exhausted almost all its development
possibilities. Against this backdrop, the present research proposes an analysis of some tendencies of
the manifestation of the two related aspects, management and leadership, seen as a social process,
in the field of security and defense. The investigation targets the two concepts already utilized in
specialized literature, from the point of view of intensive and extensive, inter-disciplinary and trans-
disciplinary implications, which prove challenging not only due to the simple combination of the
forms of the two words, but also in light of their mutual semantic potential. By continuing previous
research dedicated to the proposed topic, the work plan unfolds in the following directions:
investigating the need to use the two concepts and the exploration of the recent literature review
which refers to the approaches employed to operationalize them in different civilian organizations
that produce goods or offer services; identifying the interdependencies between the two notions, in
relation to the multidimensional character of organization management typified by volatility,
uncertainty, complexity and ambiguity; customizing the previously mentioned effort lines for
security defense organizations; highlighting the particularities of the correlation between
management and leadership in the framework of the military organization, based on analyses,
results and discussions generated by the application of the questionnaire in 2019.
Keywords
Management, leadership, military organization, values
Overview of the conceptual sensitivity of the content of management and

leadership as states of social leadership
The need to adapt theoretical approaches to the field of management stems from
studying the practice of organizations, of the positive and negative examples of
leadership and the results, taking into account the methods adopted: leadership based
on management techniques or leadership based on leadership styles. The focal point of
the theoretical analysis follows an investigation that has long been the concern of
specialists (Nicolescu & Lloyd-Reason, 2016): is it recommended to make a clear
differentiation of concepts or do they overlap? The idea of overlapping has already been
criticized in specialized literature.
From the analysis some landmarks provided by specialized literature (Nicolescu &
Verboncu, 2008), we can infer that management means planning, predictability, focus
on increasing performance while constantly scanning the external environment,

adaptability and rapid, almost instinctive reaction to changes, special skills, decision
making, good organization, proper communication and motivation; in other words, it
means practice. Implementation involves the use of models, methods and techniques,
which in turn benefit from adapting to an environment characterized by sudden
changes, and so methods that have worked efficiently under normal conditions may not
lead to the best results in the current environment. Thus, the science of management,
with its entire array of concepts, theories, methods, and techniques, is practically
inseparable from the practice of management, just as the service is inseparable from
providers and consumers. Just as science is constantly improving on the basis of
practice, so is practice constantly benefiting from the results of research, analyses, and
syntheses developed by theorists and specialists in the field. Complementarily, the
practice of management based on scientific knowledge in the field must be provided by
a management team, subordinated to a general management to ensure the adaptation
of the methods, techniques, and theories developed by the science of management for
the specific organization it coordinates, as well as of the best practices applied to
increase organizational performance (Gorski, 2008).
The exercise of the leadership function has involved the adoption of a certain
management style, and the science of management has developed several styles starting
from the definition of three types of managers: authoritarian, participatory and
participatory-authoritarian (Nicolescu & Verboncu, 2008). Gradually, a transition was
made from management style to leadership style, with emphasis on the development of
team spirit, on influencing employees to follow the leader in the direction indicated by
them and on making an effort to meet certain objectives; consequently, the human
resource emerged as pivotal. The focus on human resources arose from the need to
address different issues, for example of ethnic, racial, and national identity (Van Laer &
Zanoni, 2020). Therefore, the leadership takes into account the human dimension of
management. Progressively, the leadership has experienced a great rise both in practice
and in theory, benefiting from transitions to conceptions according to which true leaders
are born, an idea contested after 1950, when the specialists reached more realistic
conclusions, according to which anyone who has a minimum of qualities and has been
trained appropriately and professionally can become a leader. Recent, the concept of
leadership has become the subject of studies in responses to strategic situations across
a variety of incentive structures, in order to adapt to new situations (Ahmad & Loch,
2020).
Other references (Mládková, 2012), in the field bring to attention the two terms,
management and leadership, in relation to the field of knowledge, and with
particularizations for the activity environment in the militarized sector (Police Academy
of the Czech Republic). We should also note the assertion that, mainly nationally, both
terms benefit from the same translation into Romanian, namely leadership, a term
widely and generically used in the military.
The purpose of these analyses and researches is to identify some changes aimed to
harmonize the theory and practice of leadership. Identifying the existing relationship
between them has led to many debates, the motivation being none other than increasing
managerial and organizational performance. The current reality in which we carry out
our activity has an urgent need for change, for adaptation, but not necessarily in the
direction of increasing the complexity of the scientific side of management, but
164 Strategica 2020
especially towards a flexibility of concepts, and a simplification of methods and working

procedures. If traditionally, managers’ skills were considered sufficient to achieve the
best results, and then the focus on the human resources became the main engine of
development, the manager losing ground to the leader, in today’s society none of these
models is considered sufficient to cope with the current challenges. A clear-cut
distinction between concepts can be observed in the decrease of managerial
performances. In order to address such a challenge, the need to identify new solutions
was highlighted, materialized in the emergence of two new terms: leaderment and
manageship. The first attempts to use these two terms manifested in the last decade, as
the terminology was approached by the specialists responsible for improving leadership
skills (NHS Leadership Academy), trainers who support and guide the business
environment through their own consulting firms.
Recently published studies (Fitzsimmons & Callan, 2020) criticize current leadership
theory, suggesting the need to update it, based on evolving practice, or simply promote
the interdisciplinary exchange of methods and ideas for improving leadership practice
and theory (Kosfeld, 2020), these being arguments to justify the need for the study.
The emergence of these terms only provides solutions for innovation in leadership,
solutions that are offered by practice, which is again ahead of theory. The lack of reaction
in the literature denotes a high conservatism of the theorists. The theoretical foundation
provided by the management schools in our country and worldwide allows the
development of innovations, ideas, methods, and management techniques tailored
according to the requirements of the market, of the type of organization, of the level of
development of the country, of the policies, laws and regulations, etc. Analyzing the
context and period of the first appearance of the terms leaderment and manageship, we
can conclude that it overlaps with the economic crisis, and especially with the years that
followed, a crisis that generated a number of challenges for the business environment
(2008-2014). Another observation refers to the fact that the tendencies of change come
from practice, where a need for change was felt at that moment, in order to re-launch
the activity. This attempt at innovation did not resonate with the scientific side and was
forgotten once the conditions for carrying out activities were relaxed and the effects of
the crisis overcome.
The current context, the crisis that the humanity is going through, namely the
coronavirus pandemic has affected the entire globe and will be the premise of other
types of economic, social, and financial crises, which will make their mark on the society
as a whole. Managing such a critical situation requires quick and appropriate solutions
to the situation. In such contexts, leadership skills must be based on managerial skills.
The terms leaderment and manageship are like an urgent call from practice: a good
manager without leadership knowledge or skills cannot become competitive, and a good
leader without management skills and training cannot achieve the best performance.
This does not mean that the two concepts are identical, but such an approach definitely
opens the door to great challenges to revolutionize the theory that combines the wide
array of activities of management with the human side, with the desire of the people to
think, feel and react harmoniously in order to accomplish tasks and attain objectives.
It can therefore be stated that the definition of the terms leaderment and manageship
must take into account several aspects and theories, as compared to those specific to the
theoretical background of the terms management and leadership. The transformations
imposed by today’s global challenges force managers and leaders to become true
catalysts for change. In this context, another aspect that can define the leaderman must
be taken into account, namely the ability to manage emotions. Skills such as self-control,
emotion management, social awareness and social skills are nothing but components of
emotional intelligence. Thus, one can advance the idea that the terms that are the subject
of the study, although essentially more complex than management and leadership, aim
to make the management activity more flexible and to increase the degree of
adaptability to the increasingly turbulent environmental challenges.
Peculiarities of understanding, contextualizing and applying management and

leadership in the military environment
In any corner of the world, the military organization is one of the most conservative
organizations in terms of leadership practice, one of the most expensive organizations
in terms of budget allocations for its operation and, last but not least, one of the
organizations whose existence is either strongly disputed in periods of social calm, when
socio-economic prosperity is booming and the risks and threats to state security are at
a minimum, or acclaimed only when its energetic intervention can solve a situation of
national risk or vulnerability or why not, when its prompt, professional involvement
solves cases of civil emergencies.
Regardless of the stance we take when we refer to the military organization, and
disregarding its conservatism or the fact that it is a great consumer of resources, and
regardless of its usefulness in different temporal or situational contexts, we must
emphasize that the military organization is one of the organizations that responds most
rapidly to the current political, social and economic realities. At the same time, it must
anticipate vulnerabilities, risks and threats to the state and respond appropriately to
inputs coming from the geo-political and strategic environment.
The military organization is perceived as one of the most stable organizations of the
state, and in considering this aspect, two defining characteristics emerge, namely
efficiency and effectiveness. It is no coincidence that these two concepts are associated
with management and leadership. There are still many voices in the military
organization proclaiming the superiority of one or another of the concepts. The factual
truth is that in the last 30 years, the military organization in our country has undergone
profound doctrinal, structural and action transformations, as it has transited from the
science of empirical leadership to the science of management and, in the last decade, to
the art of leadership.
In the military organization it is very difficult to differentiate between the two concepts
and this is due to the particularity of the activities / actions carried out. There are
numerous situations in which it is necessary to do things properly (efficiency) just as
there are situations in which it is necessary to do the right things (effectiveness). This
fact is also illustrated by the studies undertaken by Gairola (2017, p. 10) according to
which “Leadership is about effectiveness, Management is about efficiency”, this actually
highlighting the organizational investments in the development of new capabilities.
Another critical aspect that is quite often presented in recent specialized studies
(Collins, 2001; Mintzberg, 2009; Gairola, 2017;) refers to the correlations between
management levels (most often having a pyramidal representation). and the
166 Strategica 2020
characteristics of leadership associated with each level. Continuing the parallel between
the application of management and leadership at the level of civil sector organizations
and that of the military organization, one can easily see the similarity with the levels of
military organization in terms of military ranks (also having a pyramidal
representation). This is illustrated in the following figure.
Figure 1. Different roles different accentuation of leadership and management in

military organization using the criteria of military ranks
(source: own interpretation based on Gairola's study, 2017)
One of the best descriptions of this state of affairs belongs to Gleeson (2017), namely
“Senior leaders do the leading, while most of the important managerial tasks are
delegated to the lower ranks. Junior team members are empowered with great deals of
responsibility and the autonomy to make decisions”. Obviously, this military model
cannot be applied to any organization, in any situation, and also the military leaders
themselves consider that this is not perfect but perfectible. According to the same
source, the efficiency of this model in the military organization is given by “a culture
founded on trust and extreme levels of accountability, this teamwork mechanism works
very well” (Gleeson, 2017).
Is it enough? Does this model reflect the needs of the military organization, in the
medium and long term, in the context of a 21st century marked by rapid and sometimes
unpredictable changes in all areas? We believe that it is difficult to give an answer, but
we are convinced that military leaders at all decision-making and / or action levels are
or can become agents of organizational change. Why do we need change in the military?
The answer is simple; because “building military capabilities requires the introduction
of new doctrines, organizational structures, and record programs for equipment,
facilities, and services” (Allen, 2014, p. VII).
Pettigrew, one of the challengers of the paradigm of organizational change focused

exclusively on the process, demonstrated the existence of two more critical factors that
influence organizational change, namely: “the contexts that the organization is in - both
the internal context of the organization” and “the content of the change effort, explaining
how the organization articulates the impetus behind the change, the purpose for
changing, and the path to success” (Galvin, 2014, pp. 1-2). All of these factors, that are
critical for organizational change and known as Pettigrew’s triangle (Figure 2), are not
static but evolve over time, influencing organizational change, sometimes positively and
other times negatively.
Figure 2. Pettigrew’s Triangle

(source: Galvin, 2014, p. 2)
The main actors that can influence these critical factors are called agents of change.
“Change agents are those with the will and abilities to make their organizations better,
whether in performance, morale, alignment with the environment, efficiency, and so on.
It is more than a part of the duty description. It is an orientation, an attitude, and part of
the strategic leader’s identity. They enact this role by acting as internal consultants who
advise organizational leaders on the needs, ways, and means of exercising change in the
organization” (Galvin, 2014, p. 12). But not everyone can be an agent of change.
This requires good knowledge of the managerial processes at all levels of the
organization, vision, and identifying the optimal direction for change whether it is Top-
down or Bottom-Up. In the military organization, the tasks of the agents of change,
strictly aim at those processes through which the aim is to obtain an organizational
added value. These tasks are presented in Figure 3.
Regarding the missions of the agents of organizational change, the question naturally
arises “how do the job-specific attributions differ from these missions?”. In accordance
with the structure of the military organization, but also with the nature of the
responsibilities specific to the military function, decision makers are advised to adopt
an action plan, to use a certain weapons system, while an agent of change advises
decision makers on how to address a particular issue or on how the organization can
exploit information about a particular situation.
168 Strategica 2020
Figure 3. The tasks that change agents perform

(source: personal interpretation based on Galvin's study, 2014)
Of course, becoming an agent of organizational change is not a given, but rather a state
that is acquired as a result of thousands and thousands of unforeseen situations
resolved, some favorably and others to the detriment of the organization, but all of
which enabling the extraction of lessons or being starting points for new situational
approaches. The more action and managerial experience is intertwined with a higher
position on the hierarchical scale, the greater the chances that a certain person will
become an agent of change and to benefit from the support of the team they belong to.
Studies have shown that most often “colonels often find themselves acting as change
managers to a greater degree, working together in groups or teams and engaging with
organizations to analyze organizations and build strategies and plans to operationalize
their superiors’ vision” (Galvin, 2014, p. 12).
As we have seen, management brings out as much form people as possible, while
leadership strives to develop people and the organization as much as possible. This
whole process of organizational transformation is based on three premises of leadership
learning, namely:
 “learning leadership is a leadership task, which means that it is necessary to
make an independent decision at the management level, with whom exactly you can
consult, train and from whom you want to learn;
 leadership learning is a practice that reflects the behavior in this complex
field of action, as leadership tasks need to be supported by consultants and trainers, and
last but not least, are perceived as learning opportunities;
 leadership learning is organizational learning, which means that individual
learning is not enough. Project teams are the best way to generate learning situations”
(Lenz, 2014).
Coming back to the essence of our intervention, namely, the particularities of

management and leadership in the military organization, we consider it difficult and
especially premature to issue a definite conclusion. And this is because there is a current
among young officers that they are leaders, their role being to inspire subordinates and
not to actually lead them. This can be translated by an insufficient knowledge of what
management represents in the military organization and also a possible overestimation
of the potential leader. What is certain, however, is that the military organization needs
very good managers in the fields that support the functioning of the military
organization, but it also needs inspired, visionary leaders to lead the military
organization towards new paths, to ensure an organizational and especially actional
optimal, aligned to the current security environment trends.
It might be more appropriate to identify how that dual role of manager and leader can
be achieved at the same time. A possible solution would be what specialists call
leaderment, “which means leading through effective management by applying a
systematic management practice and by building strong collaborative organizations of
people who have the conviction and capability to achieve a shared purpose” (Gairola,
2017, p. 11). But, “to integrate management and leadership, therefore, demands a
delicate balance between a calculated and logical focus on organizational processes
(management) and visioning, energizing employees, and a genuine concern for them as
people (leadership)” (Gairola, 2017, p. 15).
Studies and research on the perception of management and leadership in the

Romanian military environment
The study conducted in 2019 at the “Nicolae Bălcescu” Land Forces Academy of Sibiu is
part of a larger research initiative initiated by the Department of Management of the
Faculty of Military Management in 2018 (materialized by editing the collection Military
Management) which, with the help of research topics included in the internal plan of the
Academy, mainly aims to an investigation of the current state of development of
leadership science in the military environment, which will subsequently have as a
consequence the updating of the specialized scientific fund, with benefits for both the
military education and the practical, operational component. The characteristics of the
sample used for the study are shown in Table 1.
Table 1. The characteristics of the sample used for the study

Age groups No. of respondents Percentage
Under 30 9 19.1 %
Sample structure according to:
Between 30 and 40 18 38.3 %

Between 40 and 50 19 40.5 %
Over 50 1 2.1 %
Total 47 100.0
Field of activity No. of respondents Percentage
Human resources 6 12.8 %
Logistics 11 23.4 %
Financial-accounting 2 4.3 %
Training and education 19 40.4 %
Other (production and support) 9 19.1 %
Total 47 100.0
Managerial experience No. of respondents Percentage
170 Strategica 2020
Under 5 years 10 21.3 %

Between 5 and 10 years 11 23.4 %
Between 10 and 20 years 21 44.7 %
Over 20 years 5 10.6 %
Total 47 100.0
Academic specialty No. of respondents Percentage
Management of organizational
13 27.7 %
capabilities
Postgraduate course 34 72.3 %
Total 47 100.0
In order to be able to compare the age groups in terms of the variables analyzed in this
study, we removed the age group over 50 because it contained a single subject. The
remaining three age categories are small and therefore in the first stage an analysis of
the homogeneity of the dispersion in each group was performed. In each case, the value
of the Levene test was insignificant and therefore it can be said that the dispersions
within the three groups are homogeneous, which allows the application of the one-way
ANOVA procedure. The application of the ANOVA test, to examine statistically significant
differences in the concepts analyzed in this questionnaire, depending on the age of the
subjects, showed that there are significant differences between the respondents who
prefer to take decisions by themselves, without offering explanations to their
subordinates. Thus, in their capacity as leaders / managers, the subjects under the age
of 30 (m1 = 3.22, sd = .97) make decisions on their own to a greater extent than subjects
aged between 30 and 40 (m2 = 2.06, sd = .87) and those aged between 40 and 50 (m3 =
2.00, sd = .97). The difference is statistically significant: F (2, 43) = 6.86, p = 0.003. No
significant difference was identified between subjects aged between 30 and 40 and
those between 40 and 50 years old. The averages obtained by the three age categories
are shown in the graph in Figure 4.
Figure 4. Valorization of the statement

“As a leader / manager, I take decisions on my own, without offering explanations
to my subordinates”
The application of the ANOVA test to examine the statistically significant differences in
the concepts under analysis in this questionnaire, based on the managerial experience
of the subjects, highlighted the features detailed below.
There are significant differences between the respondents in terms of their belief that
an organization works better with creative people. Thus, subjects with less than five
years of managerial experience (m1 = 3.70, sd = .48) are less convinced that an
organization works better with creative people than subjects with 5 to 10 years of
managerial experience (m2 = 4.64, sd = .48) and those with managerial experience
between 10 and 20 years (m3 = 4.52, sd = .92). The difference is statistically significant:
F (3.41) = 3.74, p = 0.018. The averages obtained by the four categories of managerial
experience are highlighted in the graph below (Figure 5).

“An organization functions better with creative people / managers”
There are significant differences between the subjects surveyed in terms of their belief
that it is really useful for their organization that they are good managers. Thus, subjects
with less than five years of managerial experience (m1 = 3.90, sd = .73) are less
convinced that it is useful for their organization to be good managers compared to
subjects with 5 to 10 years of managerial experience (m2 = 4.64, sd = .50) and those with
managerial experience between 10 and 20 years (m3 = 4.62, sd = .59). The difference is
statistically significant: F (3.41) = 3.63, p = 0.019. The averages obtained by the four
categories of managerial experience are presented in Figure 6.

“Being a good manager is indeed useful for my organization”
172 Strategica 2020
The application of the t test to examine the statistically significant differences in the
concepts under analysis in this questionnaire, depending on the form of education in
which the subjects are enrolled (master versus postgraduate course), highlighted the
following:
- as leaders / managers, subjects attending master courses (m1 = 3.31, sd = .85)
consult to a lesser extent with their subordinates when making a decision compared to
students taking postgraduate courses (m2 = 3.97, sd = .79); t (45) = - 2.50, p = 0.033. The
effect size index indicates a weak association between the form of education followed
and the degree of consultation with subordinates in the decision-making process (ω2 =
.05); the confidence interval (95%) for the difference between the averages is between
the lower value -1.19 and the upper value -.12, expresses a low accuracy of the
estimation of the difference between the averages;
- in correlation with the difference highlighted above, in their capacity as leaders
/ managers, the subjects who attend the master courses (m1 = 2.92, sd = .95) make
decisions on their own, without giving explanations to subordinates, to a greater extent
compared to students attending postgraduate courses (m2 = 2.03, sd = .87); t (43) =
3.07, p = 0.004. The effect size index indicates an average association between the form
of education followed and the degree to which managers make decisions alone (ω2 =
.07); the confidence interval (95%) for the difference between the averages is between
the lower value .24 and the upper value 1.46, expressing a low accuracy of the estimation
of the difference between the averages;
- subjects attending master courses (m1 = 3.23, sd = 1.16) feel that it is more
difficult for them to bring change to the organization which they work for, compared to
students attending postgraduate courses (m2 = 2.44, sd = .96); t (45) = 2.37, p = 0.022.
The effect size index indicates a low association between the form of education followed
and the feeling of difficulty in triggering change in the organization (ω2 = .04); the
confidence interval (95%) for the difference between the averages is between the lower
value .12 and the upper value 1.45, expressing a low accuracy of the estimation of the
difference between the averages.
Conclusions
The article supports the need for scientific investigation of the management in the field
of defense and security. Military management, as a subdomain of general managerial
theory and practice, is also subject to universal rules and principles specific to
management as a distinct science, with beneficial development and scientific effects. The
renowned professor Ioan Abrudan (2012, p. 71) states about management that “Like
any other field of knowledge, it must have its sources of innovation, change,
development, in a word, evolution”.
The study undertaken on the basis of a questionnaire brings to attention some novelty
elements, related to the specifics of the military organization, which demonstrates the
difficulty of clearly delineating the discussion between the two concepts of management
and leadership, proving at the same time the usefulness of the coexistence between the
two facets of leadership, in proportions determined by age, experience, hierarchical
level of the position held, etc. For example, from the data presented in Figure 5, the score
(3.9) given to the statement under analysis, remarkably demonstrates the distrust given
to management, which is somewhat validated by the fact that at the beginning of the
career (less than five years’ experience) the focus is on occupying predominant
positions (for example, participation in missions in theaters of operations) of small

groups of people (about 30), with clear tasks in the field of military action. This
observation is also supported by the data shown in Figure 3, for the age group under 30
years. Based on the explanation of the taxonomies provided by Brătianu (2015), it is
interesting to note from the interpreted results a certain tendency to overcome the
typologies of inertial and conservative thinking and to head towards a dynamic one.
As an all-encompassing work hypothesis, the idea of the manifestation of the two

concepts is still in a pioneering stage. In the context of achieving interoperability, the
particular case of the military organization is interesting to tackle due to some defining
characteristics: functions of the organization, the organizational structure, risk and
uncertainty management, internationalization and multiculturalism, the
implementation of advanced technologies, uniqueness in the organizational spectrum in
terms of missions and values assumed, ethics and social responsibility, internalization
of knowledge, etc. At least at the level of the existing literature at national level, the
article contributes with a novelty element - an approach based on the complementarity
of two notions, resulted from the combination of the two terms, management and
leadership. The idea is new for the domain of the Romanian military organization and
the contextualization under the conceptual umbrella of governance - generically
understood as a process of solid and effective supervision of the way in which a
phenomenon or an activity is achieved, led, controlled or managed - and of the
customization based on ideas, resulting from the application of a questionnaire (43
processed sample respondents) increases the value of possible theoretical and practical
benefits: the renewal and updating of the documentary base with applicative value in
the field, ensuring more robustness in connecting leadership with management, both
from theory to practice and conversely, and, last but not least, supporting the
transformation processes. Obviously, the authors have taken into account the fact that
the transformation of the current military field is typified by particular quantitative and
qualitative dynamics, whose change-generating vectors are the young generations of
graduates, who will be part of the process, at least on medium and long-term.
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https://doi.org/10.1002/9781119430452.ch29
ASSURANCE OF BUSINESS CONTINUITY TOWARDS

UNCERTAINITY-BASED THINKING
Ioseb GABELAIA
Transport and Telecommunications Institute
Lomonosova Iela 1, Riga, LV-1003, LV
iosebgabelaia@gmail.com
Olga BUCOVETCHI
“Politehnica” University of Bucharest
313 Spl. Independentei, Bucharest, RO
olga.bucovetchi@upb.ro
Radu D. STANCIU
“Politehnica” University of Bucharest
313 Spl Independentei, Bucharest, RO
radu.stanciu@upb.ro
Abstract
The future world of work is uncertain. What was relevant today, might not be actual tomorrow. The
new reality has reshaped managers’ vision regarding the assurance of business continuity. Hence, it
confronted workplaces and business leaders. The pressure of risk has impacted the anatomy of future
work. The magnitude and consequence of impact are colossal. Today when never, the workplace
needs dynamic manager leaders who are up to the challenge. Employees feel unstable, which inflicts
a threat to the workplace. Combating “new reality” fatigue requires effective task management. The
focus is on future business strategies and propositions. Consequently, how to prepare leaders in the
fourth industrial revolution in times of disruption? How ready leadership is to rein and align
performance strategies purposefully by improving the employee capabilities, creating meaningful
work experiences, and delivering supportive management? The future is nothing but a proposition.
Moreover, it is the acceptance of today and preparing for tomorrow. The study considers the
pandemic period as the Black Swan event, even though many might consider it as the White Swan
event. In times of disruption, the tactical game is challenged by additional “moving variables”. The
uncertain future demands flexibility, and fast adaptation. Furthermore, this process requires a strong
organizational culture and leadership management. Leaders need to envision how to nurture
individuals in cross-functional teams. The goal of the study is to investigate managers' vision
regarding the assurance of business continuity and how to advance with a new reality in times of
disruption. The study will present results via analyzing workplace trends and their future
implications in the time of the pandemic. The study discusses disruption, decentralization,
disillusionment, and destabilization that business leaders, therefore, the workforce faces in times of
uncertainty. The change is unstoppable, new markets are emerging, businesses are in the mode of
anticipation. The study is pilot research from the project, with a mixed methodology, a combination
of quantitative and qualitative methods. The study intends to review existing literature to explore
the Black Swan event. Second, the study conducted expert interviews with business leaders to obtain
feedback on current events. Besides, the study performed an online survey to acquire data from
workplace expectations in times of disruption. The results of the study contribute to a better
understanding of the risks associated with business continuity in times of disruption. It elaborates
and offers the reasoning behind considering the pandemic as the Black Swan event. Finally, the study
provides recommendations to businesses and manager leaders on how to respond to new
developments in times of disruption.
Keywords
Business continuity; strategy; risk; workplace; disruption, manager leaders
176 Strategica 2020
Introduction
The future is nothing but a proposition. It is a strategic direction of business activities,

human capital management, so on. into the future. Frankly speaking, it is a strategic
aligning of Xs and Os.
Today, business continuity depends on the alignment of purpose in times of disruption.

Pandemic has influenced the future of work anatomy. It has challenged workplace
management and leadership. Many businesses became vulnerable to the “new reality”.
Therefore, business continuity was questioned as there was no assurance of longevity.
Pandemic has instructed businesses to align their business purposes in the time of
disruption. Spencer (2013) indicates that to design a business model, we have to decide
what we mean by value (for both our customers and ourselves), and we have to figure
out how to bring together the elements needed to make it happen in such a way that it
will not easily be duplicated or outperformed. It obliged them to adjust and shift
workplace dynamics. The tactical redesign of corporate culture and structure became a
must. The impact on internal and external business environments was significant. Hiles
(2014) argues that business dynamics demand a recovery plan and capability that are
flexible and adaptable to meet the specific priorities and circumstances at the time of
disaster or disruption.
Pandemic has impacted business management and leadership. The role of engagement
and participation in daily activities increased. Moreover, it prompted businesses to
concentrate on building a strong connection. Leading by example generated different
magnitude. Consequently, the interaction between managers and subordinates moved
to more personal levels. According to Green (2017), the recognition program is one of
the most powerful opportunities managers must reinforce company culture, improve
the mindsets of their people, and improve overall performance. The key is to make the
recognition program meaningful, repetitive, and simple.
An overall impact from the pandemic is early to calculate; however, the workplace
manager leaders are required to support employees to maximize their role in business
longevity. Mutual trust needs to be created to build future strategies, which could be a
vital part to show assurance of business continuity. Newth (2012) states that there are
many definitions of leadership and the practice of leadership varies from leader to
leader as well. However, it is well known that the purpose of leadership is to strategically
manage an organization by setting a strategic direction. Today, management cannot
dictate but collaborate and work as a whole team.
Business continuity
Engemann and Henderson (2012) claim that a business continuity starts from senior
management commitment. Business continuity is directly related to retaining
employees. During pandemic retention numbers has been a topic of discussions.
Businesses cannot just cut employees. Every person lost, is an asset to the business.
Therefore, losing employees during the pandemic affects any type of business. Each
employee is essential whether for short or long-term business continuity.
Workplaces need manager leaders to support employees to maximize their role in

business success. Burtles (2016) recognizes that in any organization, no matter what the
size, all disciplines have a hierarchy, and the business continuity management structure
is no exception. Although managers will play a leading role in the development and
delivery of the business continuity program, they will need to engage with several others
who will contribute to its success.
An on-time involvement of manager leaders in business developments benefits the

whole organizational culture. It has the potential to provide real-time feedback when
needed, focus attention on plans, sustain retention at the workplace, accept employee
behavioral change, and finally to grow employ accountability. This type of internal
development prepares employees better. It enhances their skills and capabilities,
recognizes their role at the workplace, and encourages personal growth with new
challenges.
To encourage continuity, businesses need to quickly evaluate all products and services
offered. They need to focus on products and services that have a longer lifespan on the
product lifecycle. Those decisions do not necessarily mean losing market share, but the
opposite. A strong product line with enough product depth creates a competitive
advantage.
The “new reality” is complicated. Therefore, change management is a must. Grecu et al.
(2009) accept that change management is the process of developing a planned approach
to change in an organization. Businesses must shift the focus on succeeding. For business
continuity, this means that managers need to eliminate waste in productions. They must
find hidden factories to gain a time advantage. The study believes that focusing on
reining and alignment of purpose in the times of disruption demands an understanding
of VUCA. According to Hollingworth (2016), VUCA describes the nature of the change
that the world is currently facing: its parameters describe how the change will affect us
daily. Furthermore, Johansen and Johansen (2012) state that leadership direction is
particularly important in the VUCA world where the confusion is everywhere.
According to Wolke (2017), there is no unified definition of risk concepts applied in

business literature. A relatively commonly used definition of risk is based on possible
damage or the potential loss of a net asset position, with no potential gains to offset it.
In addition, Springer (2019) elaborates that risk management is a process composed of
four distinct, yet dependent, activities: risk planning, risk assessment, risk analysis, and
risk handling. Nevertheless, knowledge management is an important step in identifying
risks. Badea (2019) underlines that once a risk is cataloged, one could update the risk
index the organization is vulnerable to.
Workplace in uncertainty
In times of pandemic, VUCA should allow businesses to better anticipate potential issues
with its consequences. Clark (2016) elaborates on recent Business Continuity Institute
surveys that have demonstrated that the pandemic is a threat taken very seriously
across all sectors. It must prepare to analyze and measure alternative actions and
realities. Therefore, there is a need to deliver new directions to adapt to a new
environment.
178 Strategica 2020
 Volatility – The nature and dynamics of change, and the nature and speed of
change forces and change catalysts
 Uncertainty – the lack of predictability, the prospects of surprise, and the sense
of awareness and understanding of issues and events
 Complexity – the multiplex of forces, the confounding of issues, no cause-and-
effect chain, and confusion that surrounds organization.
 Ambiguity – the haziness of reality, the potential for misreads, and the mixed
meanings of conditions; cause-and-effect confusion
Business management is required to carefully analyze and measure the relevance of the
four components mentioned above. VUCA components assist businesses to redefine
their business vision, therefore mission and values. It can create clarity for the assurance
of business continuity. And finally, showcase the agility of the businesses for the future.
Each component allows businesses to calculate potential future risks and developments.
It is better to have a clear picture, compared to unrealistic goals. Besides, Springer
(2019) emphasizes that when discussing risk, we must also address rewards.
The biggest challenge of reining and alignment of purpose in the times of disruption is
digital technologies and digital learning. Pandemic revealed how insecure businesses
were while aligning their teams to digital technologies. To create assurance for business
continuity, businesses have to observe surroundings and develop calculated initiatives
to position their businesses effectively and adapt to the change.
Consequently, businesses should accept technological advancements and encourage

digital learning. Workplace and human capital need technological advancement.
Businesses need to encourage a culture of learning in the organization. Furthermore,
businesses should recognize the difference between spaced and continuous learning to
provide in-time learning/training to enhance the productivity of the workplace.
Moreover, pandemic enforces that businesses need to consider several trends that
shape the workplaces. For business continuity, it will be a mistake to leave them without
attention. The study identifies the following trends that will influence the longevity of
the businesses going into a new reality:
 Alternative Workforce
 Impact Businesses on Society
 New competencies of future leaders
 Effect of Generations
At first, opportunities in the alternative workplace will challenge business. Today, many
choose to freelance, contract, and gig work. The workplace will be impacted, as it will be
harder for businesses to retain full-time employees. For successful business continuity
businesses need committed employees. Besides, the job profiles are changing, and
pandemic pushed for more automation. Al supported technologies will take away
repetitive works. Additionally, to assure business continuity in the future, businesses
must recognize four forces at work: disruption, destabilization, decentralization, and
disillusionment at work.
Second, today, and the future intensifies focus on sustainability. Customers are more
attentive to the sustainability of businesses more than ever. Therefore, it manipulates
and encourages businesses to strategize. The impact of businesses on societies will be a
huge indication for business continuity.
Furthermore, new competencies of future leaders must be needed for business

continuity and adaptability in times of disruption. Phillips and Connell (2011) state that
excellent leadership motivates employees to stay in an organization. Effective leaders
have good interpersonal skills and can guide coach, and mentor employees. Leaders
need to have unique soft skills combined with technical skills. Agile leaders will be a
cornerstone of long-term business success. And finally, the study identifies that
generations will play a huge role in the longevity of the business.
The study considers the pandemic period as the Black Swan event, even though many
might consider it as the White Swan. According to Taleb (2015), a Black Swan is a high-
impact event well beyond expectations set by a normal bell-curve distribution. Humans
are inclined to narrate causes for Black Swan outliers after the fact. Furthermore,
Tuominen (2016) acknowledges that the newly created standard is not just to be
reached and maintained but represents a foothold, a starting point, for new and
continuous improvement.
The risks associated with business continuity are high during the current pandemic.
Even though risks are perceived differently by people, they come with the same size,
type, or significance. Those factors do affect businesses and their ability to identify,
analyze, and communicate potential risks.
Table 1. Black Swan vs. White Swan event

Black Swan Event White Swan Event
Characteristics
Highly Improbable High Certainty
Unpredictable Certainty
Massive Impact Impact Easily Estimated
After the fact, explained to appear less After the fact explanation shifts the focus
random and more predictable on errors in judgment or some other
human forms of causation
Table 1 illustrates the major characteristics of both events. For the study, the COVID-19
pandemic is highly improbable and unpredictable. It has a massive impact on businesses
around the world. The total damage yet to be determined. It is also too early to calculate.
Hence, it makes it more unpredictable. Taleb (2015) explains that the best way to
withstand a Black Swan event is to understand which risks not to take, to utilize
redundancy and balance risk on each extreme of a distribution, to be humble about the
knowledge available, and to avoid predictions made with unsound methods. Moreover,
the study understands that because of different perceptions people might understand
COVID-19 as the White Swan event, as defined by its major characteristics; high
certainty, impact easily estimated, and focusing on errors in judgment or some other
human forms of causation.
180 Strategica 2020
Research methodology and findings
The current study is pilot research from the project on strategic management, initiated
in December 2019. In April 2020, the research was adjusted, and the impact of COVID-
19 was added. In the current piece, the study represents the issue of business continuity
in times of disruption. Figure 1 illustrates the research design that was incorporated into
the study to prepare discussions, conclusions, and recommendations.
The study used a mixed methodology, a combination of quantitative and qualitative

methods. Research data was collected via primary research. Primary data examples
were online surveys and in-depth interviews. Secondary data was gathered from online
sources, notes, and so on.
The first, exploratory research was used to discover ideas, information, and insights
around business continuity towards uncertainty-based thinking. The second,
descriptive research was used to define the characteristics of the existing environment.
And lastly, the causal research was used to determine the assurance of business
continuity.
The study reviewed existing literature related to assurance of business continuity

towards uncertainty-based thinking. Furthermore, the online survey was launched with
in-depth interviews. The target audience for the survey were business managers,
employees, interns, and owners. The sample population was 100, with confidence level
= 95%, and margin error = 5%. An online questionnaire was the instrument used to
collect and analyze data. The survey considered the estimated response rate between
20-30%, therefore, approximately 300-400 invites were distributed to the study
population.
The research problem was studied through theoretical and practical data analysis. The
study blended information shared by five business manager leaders, and 87 online
survey responders. From online respondents, 46% were business employees, 34.5%
were managers, 16.1% business owners, and 3.4% interns.
The study asked respondents if business continuity was affected by the COVID-19
pandemic. From 87 respondents, 65.5% believed that it was affected, compared to
20.7% who said “maybe” and 13.8% “no”. Additionally, 42.5% agreed that COVID-19
pandemic affected workplace fatigue, turnover, and retention. Besides, 33.3% was
“neutral” with 18.4% “disagreed”.
The study asked respondents to rank the importance of strategic planning and risk
prediction for business continuity. Figure 1 illustrates the following. From 87
respondents, 36.8% ranked the importance of strategic planning and risk prediction for
business continuity by “4”, 24.1 % ranked by “5”, 18.4% by “3”, 14.9% by “2” and 5.7%
by “1”.
Figure 1. Importance of Strategic Planning and Risk Prediction
Furthermore, respondents were asked to rank the importance of dynamic manager

leaders in times of disruption. The figure 2 illustrates that 46% ranked it by “4”, 26.4%
ranked by “3”, 14.9% ranked by “2”, 9.2% ranked by “5” and 3.4% ranked by “1”.
Figure 2. Importance of dynamic manager leaders
The study asked respondents to rank the importance of business and workplace
flexibility, adaptation, mutual trust, assurance, commitment, and leadership in times of
disruption. Table 2 illustrates the following. The majority of respondents ranked
flexibility as “2” and “5”, Adaptation as “3” and “4”, mutual trust as “3” and “4”, assurance
as “3” and”4”, commitment as “4” and “3” and leadership “4”, and “3”.
Table 2. Importance of business and workplace characteristics

1 2 3 4 5
Flexibility 4 26 17 19 21
Adaptation 3 21 31 28 4
Mutual Trust 3 19 29 27 9
Assurance 2 14 29 29 13
Commitment 2 10 33 36 6
Leadership 0 16 24 34 13
The respondents were asked to rank the workplace trends identified by the study. Table
3 illustrates the following. The top two rankings for the alternative workplace was “2”
182 Strategica 2020
and “3” followed by “5”. Business's impact on society was ranked as “3” and “4” followed
by “2”. New competencies of future leaders were ranked as “4” and “3” followed by “2”.
And lastly, the effect of generation was ranked as “3” and “4” followed by “2”.
Table 3. Ranking of Workplace Trends

1 2 3 4 5
Alternative workplace 4 23 22 18 20
Businesses impact on society 2 20 40 23 3
New competences of future leaders 5 15 29 33 5
Effect of Generation 6 17 30 18 16
The study continued collecting responses regarding workplace strength for business
continuity. Respondents were asked to rank the importance of workplace disruption,
destabilization, decentralization, and disillusionment in times of uncertainty. From 87
respondents, 32.2% ranked it “2”, 27.6% ranked “3”, 19.5% ranked “4” 12.6% ranked
“5” and 8% ranked it as “1”. Furthermore, respondents ranked the importance of VUCA
(Volatility, Uncertainty, Complexity, and ambiguity) for business continuity. From 87
respondents, 31% ranked “3”, 28.7% ranked “2”, 25.3% ranked “4” 10.3% ranked “1”
and 4.6% ranked “5”.
The study asked respondents to share their feedback on recognizing the COVID-19
pandemic as a Black Swan event or a White Swan event. The results indicated that 52.9%
agreed that the COVID-19 is a Black Swan event in contrast to 25.3% against another
21.8% being “neutral”. Furthermore, when asked about a White Swan event, 41.4%
disagreed, compared to 19.5% agreed, and 39.1 % chose “neutral”. To support the data,
respondents were asked to rank the impact of the COVID-19 pandemic on business
continuity. Respondents had to rank the characteristics of the Black Swan and White
Swan events.
Figure 3. Ranking of Impact of the COVID-19 Pandemic
Figure 3 illustrates the following situation. The massive impact was ranked as follows:
1(4), 2(22), 3(32), and 4(29). High Certainty: 1(8), 2(24), 3(50) and 4(5).
Unpredictability: 1(8), 2(21), 3(43) and 4(15). And Impact easily estimated: 1(10),
2(19), 3(35), and 4(24).
Engemann and Henderson (2012) underline that the main components of development
begin with the program initiation and the allocation of resources and assignment of
responsibilities. Manager 1 indicated that “in times of disruption resources whether
tangible or intangible must be allocated purposefully. The development includes the

identification and analysis of the organization’s operations, the assessment of natural
and man-made threats to the organization, and the selection of the strategies needed to
meet the established response, continuity, and recovery objectives. It also includes an
analysis of information technology and other organization controls and exposures to
manage risks. Besides respondents ranked the importance of strategic planning and risk
prediction for business continuity. Additionally, the study identifies that having a
dynamic manager leader for business continuity is compulsory.
Additionally, the importance of business and workplace flexibility, adaptation, mutual

trust, assurance, commitment, and leadership in times of disruption is recognized by the
online survey respondents. Besides, from interviews, manager 3, stated that “business
continuity in times of disruption is a delicate notion. It is not only about how businesses
will survive but the ability to commit to their employees”. Contrary, manager 5, stated
that “business continuity is a matter of time, and does not necessarily mean that
pandemic is the reason. Many businesses use the current situation to file bankruptcies
to generate more revenue from insurances”. Hiles (2014) argues that business
continuity should ensure you can recover from a disaster within the optimum time
frame, suffering only those losses you can afford to bear.
The role of workplace adaptation to uncertainty is clear. As Hollingworth (2016) claims

rather than trying to manage change in the workplace, you and your organization need
to move with the change. Therefore, businesses must carefully analyze workplace trends
and cause-effects for future longevity.
The study identified that respondents were not specific to recognize the COVID-19
whether Black Swan or White Swan event. However, the survey numbers lean towards
accepting the COVID-19 as the Black Swan event. From characteristics ranking,
illustrated in table 4, the study identifies that massive impact and unpredictability has a
small edge over high certainty and impact estimations.
Table 4. Ranking of characteristics

1 2 3 4
Massive Impact 4 22 32 29
High Certainty 8 24 50 5
Unpredictable 8 21 43 15
Impact easily estimated 10 19 35 24
Conclusion and recommendations
To conclude, the study contributes to better recognize the risks associated with business
continuity in times of disruption. No matter, whether it is a pandemic or uncertain new
reality, a business must plan, calculate, and strategize. They must anticipate and predict
short versus long-term future. As risk management is a cyclic process, once a new risk
is identified, the company should introduce it into the company’s risk index and draw
the strategy framework according to the new situation.
184 Strategica 2020
Uncertain future must teach to better allocate business resources whether tangible or
intangible. Moreover, human capital is the priority resource for business continuity.
Manager leaders and subordinates create a cornerstone of success.
The study on the current pandemic, even though it is still early to calculate impact,
recognizes it as the Black Swan event. From the study results, the data support the
statement. The COVID-19 has a massive impact, and it is still early to predict what is
coming. The study provides recommendations to businesses and manager leaders on
how to respond to new developments in times of disruption.
1. Refresh business competencies now. Businesses must align and adapt to the
future, therefore organizational structure and culture must be flexible and
adaptable.
2. Analyze and measure your strong products and services. Businesses must be
strategically positioned in a competitive market to generate profit and revenue
growth. Besides, they must stay sustainable.
3. Prepare and equip workplace leaders with the necessary skills and tools. Today
leaders must have the ability to adjust in any working environment, therefore
the need for soft skills is a must. Digital learning trends and technologies must
be encouraged.
4. Get your manager leaders to be involved in daily tasks. Managers leaders must
create more meaning to their subordinates. Subordinates must feel needed and
supported. It allows us to keep them as full-time employees versus to contract,
or gig.
Additionally, the study suggests businesses integrate five Ws and one H into strategic
planning. Five Ws and one H are principles and techniques to get a complete
investigation on a subject, therefore, to identify, analyze, measure, and develop
solutions. It answers questions Who, What, When, Where, Why, and How. It is an
essential evidence-gathering tool to assure business continuity towards uncertainty-
based thinking. It allows businesses to identify internal and external audiences,
determine complexity levels, find solutions, allow tactical time management, and create
solutions for effectiveness. The study believes that it will permit businesses to better
align themselves with business continuity.
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Improve Customer Service, Retention, and Performance. Hoboken, NJ: John
Wiley & Sons.
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ContinuityManagement:Global Best Practices (4 ed.). Brookfield, UK: Rothstein
Associates.
Hollingworth, P. (2016). The Light and Fast Organisation : A New Way of Dealing with
Uncertainty (1 ed.). Melbourne, AU: John Wiley & Sons.
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for an Uncertain World (2 ed.). San Francisco, CA: Berrett-Koehler Publishers.
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Phillips, J.J., & Connell, A. O. (2011). Managing Employee Retention: A Strategic
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Approach (4 ed.). West Lafayette: Purdue University Press.
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Improbable Fragility (2nd ed.). New York, NY: Random House Trade
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Wolke, T. (2017). Risk Management. Berlin, DE: de Gruyter.
186 Strategica 2020
STRENGTHENING THE COMPETITIVE POSITION

OF HIGH-TECH ENTERPRISES
Jacek WOŹNIAK
Military University of Technology
2 Gen. Sylwestra Kaliskiego St., 00-908 Warszawa, PL
jacekj.wozniak@wat.edu.pl
Abstract
The study addresses the issue of strengthening the competitive position of modern high-tech
companies. Theoretical considerations identify the main factors/activities that may have a potential
impact on the competitiveness of companies and they are supported by empirical studies (using the
CATI method). The research has been carried out in Polish service companies belonging to the high-
tech knowledge-intensive services subsector (N=150). The study aims to demonstrate the most
frequently undertaken actions by companies in terms of strengthening their competitive advantage,
as well as to assess the complexity of the activities involved in strengthening the competitive position
of this category of companies. The research problem is as follows – What actions most strongly
determine the competitive position of high-tech companies in Poland, what is the average level of the
complexity of the activities undertaken in strengthening the competitive position in this category of
innovative enterprises? Two hypotheses were evaluated to achieve the goal of the study: (1)
strengthening the competitive position of high-tech enterprises is primarily determined by financial
and intellectual capital factors, and (2) strengthening the competitive position of high-tech
enterprises has a high level of complexity. To verify Hypothesis No. 1 the basic descriptive statistics
were analyzed, as well as Friedman’s test (with the specification of average ranks for each factor),
and to verify Hypothesis No. 2 the composite index was constructed – i.e. the Enterprise
Competitiveness Strengthening Complexity Index – ECSCI. Conducted studies have shown that factors
related i.e. to development of intellectual capital, quality, innovations, knowledge, and know-how, as
well as competencies of employees, play a key role in strengthening competitive position in the
surveyed companies. The much less "interest" in companies "enjoys" the area of production and
financial management. What more, the average complexity of strengthening the competitive position
of high-tech enterprises is at a relatively high level throughout the research sample.
Keywords
Management; enterprise; competitiveness; high-tech sector; the complexity of strengthening
competitive position.
Introduction
The environment of modern enterprises is constantly evolving, it is increasingly

complex and unpredictable (or difficult to predict). Therefore, managing the factors
located in such an "ecosystem" of enterprises becomes a real challenge. The role and
importance of environmental conditions are constantly increasing, exerting an
increasing impact on the development potential and competitiveness of companies. Due
to the dynamics of the environment, companies need to change the way they operate, to
strengthen their competitive advantage.
The study aims to identify how today's enterprises – especially in innovative high-tech
industries – can create and improve their competitive position. In other words, the
research aims to demonstrate the most frequently undertaken actions by companies in
terms of strengthening their competitive advantage, as well as to assess the complexity

of the activities involved in strengthening the competitive position of this category of
companies. These considerations are also intended to highlight the need for an active
and structured approach by managers and employees at different levels of management
to create competitive advantages and strengthen the competitive position of companies
in an evolving environment. The analyses contained in the study are both theoretical
and empirical, as well as are aimed at presenting a new perspective on the issue of
strengthening the competitive position of high-tech enterprises – mainly on Polish
"ground".
The paper consists of four essential parts addressing the following issues:
(1) specification of basic circumstances of the competitiveness of high-tech enterprises,
(2) description of the research methodology, considering the frameworks of the
selection of units within the research sample, as well as the specification of the research
sample structure and research assumptions, (3) description of the basic results of the
empirical research – exposing issues of interpretation of the average value of the ECSCI
index, and description of profiles of the average assessment of the level of complexity of
strengthening the competitive position of high-tech enterprises, (4) discussion and
conclusions.
Circumstances of the competitiveness of high-tech enterprises
Circumstances of business activities and strengthening the competitive position of

today's high-tech companies is difficult to capture in a simple, unambiguous
classification. In few studies (see Zaskórski, 2012; Niemczyk, 2013; Pakulska, 2017;
Jasiński, Głodek, & Jurczyk-Bunkowska, 2019; Pietrewicz, & Sobiecki, 2019) indicating
that these conditions are complex networks of relationships with "blurred" borders, and
should be considered on the principles of a holistic and systemic approach.
The main internal factors in companies, in particular those involved in innovation

activities and belonging to the high-tech industries, that may influence their competitive
position, include (Gautam, Muhanna, & Barney, 2005; Kaplan, & Norton, 2010; Hamel,
2012; Krzyżanowska, 2015; Poniatowska-Jaksch, 2017):
 changes in the way the customer perceives – the customer is a key resource;
 the application of prosumption;
 creation of transitional innovations and the use of knowledge resources;
 the increase in the role and importance of innovation in business management;
 shaping the networking relationships and building trust in business relationships;
 focus on identifying value by company's stakeholders;
 shaping social and leadership competencies, as well as IT competencies in employees
mainly responsible for basic processes (creating value for stakeholders);
 development of procedures for managing information resources and creating
knowledge;
 the continuous increase in the importance of the human factor – as a source of the
innovation potential;
 the increase in the role and importance of risk management procedures in the
development of enterprises.
188 Strategica 2020
On the other hand, the main external factors and conditions that may affect the
competitive position of enterprises include (Gautam, Muhanna, & Barney, 2005;
Pietrewicz & Sobiecki, 2017; Łobejko, Nowicka, & Szpringer, 2018; Kozielski, Olsztyński,
& Sroczyński, 2018; Błaszczyk, 2019; Ilin, 2019; Wereda & Woźniak, 2019;
Niedzwiedskaja, 2019):
 development of internet technologies and the processing of information resources
(IoT, CC, Big-Data, etc.);
 change in regulatory conditions i.e. in the frameworks of the use of modern ICTs, and
protection of intellectual property;
 the emergence of new generations of customers and employees – "millennials", "Z",
"alpha";
 changes in the access to finance for innovative activities of enterprises, as well as in
the way in which their development is financed;
 the evolution of new manufacturing techniques and technologies, as well as the
provision of services;
 focus on standardizing business processes and standardizing management
processes;
 the increase in the importance of institutional support for businesses in different
sectors of the economy – including the terms of financing innovative activities;
 the emergence of modern forms of promoting innovative activities.
As shown above–example, but leading for business development – conditions state only
a selective set. It is worth to remember this in case of developing an analysis of the
environment for a particular company, especially innovative (Woźniak & Gemra, 2020).
Also, the modern approach to understanding and strengthening the competitive
position is due to the need for extensive integration (often in-depth) of environmental
analysis into internal processes in enterprises (see Flak & Głód, 2012; Jones, Balle,
Chaize, & Fiume, 2019). This is crucial for strengthening the entity's potential to create
value for both employees, executives, and business owners (mainly in the form of profits
and satisfaction from strengthening the brand's position on the market), as well as
external stakeholders, i.e. co-operators, suppliers, intermediaries, and customers (by
improving the quality of the market offer in general, and by increasing the level of
matching of this offer to the needs, opportunities, requirements, and constraints of
external stakeholders). The competitive position of modern high-tech companies is a
kind of "mapping" of environmental conditions. Some factors can strengthen companies,
increasing their competitive potential, and others, on the contrary, weaken them
(Assylbekova, 2016, p.165). To properly prepare the "instrumentation" for creating and
developing competitive advantages, it is appropriate to understand in which the
"ecosystem" a company operates.
At this point, it is also worth noting that ICTs and the technical "potential" of changes
taking place in the environment (e.g. augmented and virtual reality, Web 3.0, mobile and
wireless technologies, or the Internet of Things and Big-Data) can also constitute the so-
called "foundation" to support the competitive empowerment processes of high-tech
companies (based on Nambisan, Lyytien, Mjchrzak, & Song, 2017, pp.226 et seq.; Kelly,
2017, pp. 21 et seq.; Surma, 2017, pp. 12 et seq.; Wodecki, 2018; Kreft, 2019).
To sum up the above considerations, it can be assumed that business processes in high-
tech enterprises (mainly innovative ones) should address the challenges that can be
connected with (based on Deschamps, 2011; Anthony, Johnson, Sinfield, & Altman,
2014; Bova, 2019; Woźniak & Gemra, 2020):
 obtaining funding for innovative processes;
 the integration of technological changes on a global scale with local innovations;
 the acquisition of external (global) resources and the potential of the sharing
economy;
 managing the creativity of employees;
 understanding the peculiarity of the market in innovative processes;
 creating trust in business processes;
 ensuring decision-making efficiency and information resource management;
 the use of a visionary and long-term approach to creating innovation.
Thus, it can be seen that in today's high-tech companies – in terms of strengthening their
competitive position – the following areas of factors, which are specific "challenges", can
be observed (Figure 1) (based on Woźniak & Gemra, 2020, p. 63):
 manufacturing and market (ensuring the process continuity, commercialization of
innovation, quality control, etc.);
 financial (optimizing the efficiency and costs, creating value, etc.);
 relational (the ability to network cooperation and maintaining the lasting
relationships with stakeholders, the ability to trigger trust in business relationships,
etc.);
 human resources (development of employees’ creativity, seeking and improving
their competences, etc.);
 technological, innovative, and knowledge-intensive (the ability to implement basic
activities in innovative processes and the use of ICTs, the ability to create new
knowledge useful in innovative processes, etc.).
Figure 1. Key categories of factors and “challenges” for strengthening competitive

position of high-tech enterprises
(based on Woźniak, & Gemra, 2020, p. 63)
The study will further provide quantitative analyses related to the identification of the
basic actions taken by high-tech companies to strengthen their competitive position
(using the potential of their environment) and to determine the average level of the
complexity of activities in strengthening the competitive position in this class of
enterprises.
190 Strategica 2020
The methodology of the research
This study will present selected results of the survey of activities (related to the
implementation of statutory innovation activities) undertaken by companies belonging
to the high-tech industries in Poland in terms of strengthening their competitive
position. The study is also intended to demonstrate activities the most frequently
undertaken by companies in terms of strengthening their competitive advantage, as well
as the complexity of the activities involved in strengthening the competitive position of
this class of companies. The research problem is as follows – What actions most strongly
determine in the opinion of respondents the competitive position of high-tech
companies in Poland, and at what average level is the complexity of the activities
undertaken in strengthening the competitive position in this class of innovative
enterprises?
Two hypotheses were evaluated to achieve the goal of the study:

 Hypothesis No. 1: Strengthening the competitive position of high-tech enterprises is
primarily determined by financial and intellectual capital factors – according to the
studies of Vargas-Hernández and Noruzi (2010), and Kianto, Andreeva and Pavlov
(2013), suggesting that intellectual capital significantly increases the competitive
potential of modern companies, as well as the researches of Gunasekaran, Rai, and
Griffin (2011), López Salazar, Contreras Soto, and Espinosa Mosqueda (2012), and
Ahmedova (2015), indicating that financial resources can, in a high level, manage the
competitiveness of enterprises.
 Hypothesis No. 2: Strengthening the competitive position of high-tech enterprises
has a high level of complexity – according to the studies of Cristelli, Gabrielli,
Tacchella, Caldarelli, and Pietronero (2013), as well as Tacchella, Cristelli, Caldarelli,
Gabrielli, and Pietronero (2013), suggesting that shaping the competitiveness of
economic units (also enterprises) is a highly complex and multi-faceted action.
To verify Hypothesis No. 1 the basic descriptive statistics were analyzed, as well as
Friedman’s test (with the specification of average ranks for each factor), and to verify
Hypothesis No. 2 the composite index was constructed – i.e. the Enterprise
Competitiveness Strengthening Complexity Index – ECSCI.
The subject of the study is strengthening the competitive position of companies from
high-tech industries in Poland. Respondents' opinions were used to assess the level of
implementation of certain activities with a potential impact on the competitive position
of enterprises. Service companies belonging to the high-tech knowledge-intensive
services subsector were eligible for the study, marked with the following PKD
numbering (i.e. the code list of classification of business activities in Poland): section 59
and section 60 (activities involved in the production of films, videos, television
programs, sound, and music recordings, as well as the broadcasting of public and
subscription programs), section 61 (telecommunications), section 62 (software and
consultancy activities in the field of IT), section 63 (information service activities), as
well as section 72 (research and development).
The empirical study was conducted in the CATI form (i.e. the Computer Assisted
Telephone-Interviewing) on a sample of 150 innovative companies. The empirical study
was conducted between December 2019 and January 2020. Respondents were business
owners or managers responsible for risk management, innovation processes, or project
management. The research covered companies operating throughout Poland (16

voivodships). The study was carried out by "ASM – Centre for Market Research and
Analysis Sp. z.o.o." located in Kutno (Poland).
The study used a random systematic selection (taking into account the criterion of the
leading business activity profile in high-tech industries, according to PKD, i.e. the Polish
Classification of Business Activities) in layers (layers were determined taking into
account the size of the company according to the number of employees) – reflecting the
quantitative structure of the enterprises in the population. The specification of the
research sample is presented in Table 1.
Table 1. Structure of the research sample – CATI study (N=150)

Size of enterprise
Small, medium,
Basic criteria for specification Micro Total
and large (≥10
of the research sample (1-9 employees)
employees)
N* %** N % N %
Leading business profile (according to PKD)
Section 59 and section 60 19 13 11 7 30 20
Section 61 18 12 12 8 30 20
Section 62 8 5 22 15 30 20
Section 63 15 10 15 10 30 20
Section 72 0 0 30 20 30 20
Total 60 40 90 60 150 100
Age of enterprise
Less than 10 years ("relatively young") 20 13 18 12 38 25
10-15 years old ("mature") 11 7 19 13 30 20
More than 15 years ("relatively old") 29 19 53 35 82 55
Total 60 40 90 60 150 100
Scale of business operation
Local (1 town/municipality/district) 11 7 8 5 19 13
Regional (1-8 voivodships in Poland) 12 8 6 4 18 12
Domestic (9-16 voivodships in Poland) 17 11 30 20 47 31
European (at least 1 country in Europe
14 9 16 11 30 20
outside of Poland)
International (at least 1 country in the
world outside Europe, including outside 6 4 30 20 36 24
of Poland)
Total 60 40 90 60 150 100
Level of average annual turnovers
Less than 40 million PLN 60 40 75 50 135 90
<40 – 100 million PLN) 0 0 11 7 11 7
<100 – 170 million PLN) 0 0 3 2 3 2
170 million PLN and more 0 0 1 1 1 1
Refusal to respond 0 0 0 0 0 0
Total 60 40 90 60 150 100
* Number of enterprises in the research sample.
** Percentage share of enterprises in the research sample.
The main research tool was the CATI questionnaire. The data analyses were supported
by the PS IMAGO PRO 5.0 software. The questionnaire applied a screening question if
companies had successfully implemented at least 10 innovations for their customers in
192 Strategica 2020
the last 5 years of their activity on the market. During the CATI interview, respondents
assessed each activity (see: Table 2) on a 10-point scale. If the respondent assessed the
activity at "1", this meant that there was a lack of implementation (or the
implementation is weak) of the action, and if it was assessed at "10" – the action was
fully implemented. In the following parts of this work, the results of the study of
strengthening the competitive position of high-tech enterprises from the high-tech
knowledge-intensive services subsector in Poland will be presented – using the analysis
of basic descriptive statistics, Friedman’s test, factor analysis (i.e. Principal Components
Analysis method – PCA), as well as cluster analysis (k-mean method).
Results of the empirical study
The empirical study took into account twenty-five specific factors that could have a
potential impact on strengthening the competitive position of high-tech companies.
These factors were detailed based on the following studies: Gautam, Muhanna, & Barney,
2005; Kaplan, & Norton, 2010; Hamel, 2012; Krzyżanowska, 2015; Pietrewicz, &
Sobiecki, 2017; Poniatowska-Jaksch, 2017; Łobejko, Nowicka, & Szpringer, 2018;
Kozielski, Olsztyński, & Sroczyński, 2018; Błaszczyk, 2019; Ilin, 2019; Wereda, &
Woźniak, 2019; Niedzwiedskaja, 2019. Specific factors are included in five groups: (1)
technology, innovations, and knowledge, (2) relationships with stakeholders and
environment, (3) manufacturing processes and market offer, (4) financial resources, as
well as (5) human resources (Table 2) (see also: Figure 1). This approach is determined
by the desire to meet the basic principles of the systemic analysis (see: Zaskórski, 2012),
as well as to identify those areas of activity of companies that can most strongly
determine strengthening the competitive position.
Table 2. Main specific factors in the area of strengthening the competitive

position of high-tech enterprises (N=150)
of variation
Coefficient
Dominant
deviation
Standard
Variance
Median
Mean
Skew
Specific factors / activities
GROUP I: Technology, innovations, and knowledge (i.e. R&D&I)

Innovation and technological
7.95 8.00 10 2.103 4.421 -1.132 26%
advancement of enterprises
Efficiency of the use of production
6.30 7.00 1* 3.229 10.426 -0.657 51%
resources
Improvement of the productivity
and efficiency of innovation 6.65 7.00 10 2.979 8.872 -0.682 45%
processes
Knowledge of employees and
managers about resources that can
8.21 9.00 10 2.175 4.729 -1.801 26%
be used
in innovative processes
Know-how derived (from the
environment) or developed 8.37 9.00 10 2.068 4.276 -1.869 25%
internally
Increase in the value of intellectual
8.16 9.00 10 2.095 4.390 -1.501 26%
capital and intangible resources
of variation
Coefficient
Dominant
deviation
Standard
Variance
Median
Mean
Skew
Effectiveness of informational and

decision-making processes in
7.73 8.00 10 2.287 5.230 -1.359 30%
companies and knowledge
generation
GROUP II: Relationships with stakeholders and the environment
Complexity and number of contacts
with third parties and number of 7.25 8.00 8 2.282 5.207 -0.693 31%
business partners
Quality and usability of
relationships between companies 7.82 8.00 10 2.155 4.645 -1.162 28%
and cooperating entities
Shaping the relevant industry
system
6.34 7.00 8 2.783 7.743 -0.469 44%
(by supporting and related
industries)
Socio-economic policy of the
6.98 8.00 10 2.806 7.872 -0.685 40%
government
Possibility of the company's impact
6.46 7.00 5 2.711 7.351 -0.426 42%
on its market environment
GROUP III: Manufacturing processes and market offer
Quality of products, services
8.73 9.00 10 1.697 2.881 -1.810 19%
and/or projects
Size and structure of production
resources in the environment that 5.59 6.00 1 2.981 8.887 -0.324 53%
can be obtained and shared
Equipping the company with
6.76 7.00 10 2.756 7.593 -0.776 41%
manufacturing factors (resources)
Offering new types of products,
7.61 8.00 10 2.326 5.408 -1.233 31%
services and projects
Shaping production volumes 4.44 5.00 1 3.210 10.302 0.237 72%
GROUP IV: Financial resources
Cost reduction 6.76 7.00 8 2.473 6.117 -0.597 37%
Prices of products, services
6.87 7.00 5 2.305 5.311 -0.435 34%
and/or projects
Company's own (internal)
investments and the possibility of 6.71 7.00 8 2.731 7.457 -0.715 41%
raising external capital
Availability and methods of
6.73 7.00 10 2.659 7.072 -0.669 40%
financing activities
GROUP V: Human resources
Competences and capabilities
of employees involved in innovative 8.55 9.00 10 1.989 3.954 -2.115 23%
processes
Competences and capabilities
8.59 9.00 10 1.984 3.935 -2.151 23%
of managers in enterprises
194 Strategica 2020
of variation
Coefficient
Dominant
deviation
Standard
Variance
Median
Mean
Skew
Employee attitudes resulting from

the company culture, mainly in
terms 7.83 8.00 10 2.273 5.164 -1.368 29%
of promoting innovation processes
and creativity of employees
Motivational systems for employees 7.29 8.00 8 2.531 6.407 -1.161 35%
* There are many modal values in Table 2. The smallest value is given.
Based on respondents’ assessment, the degree of implementation of the various

activities related to strengthening the company's competitive advantage on a 10-point
scale, for each of the five groups of factors, the dominant factor was specified (Table 2).
For the Group I this is "know-how derived (from the environment) or developed
internally" (mean at the 8.37 level). For Group II this is "quality and usability of
relationships between companies and cooperating entities" (mean at the 7.82 level). In
Group III, there dominates the factor aimed at "quality of products, services and/or
projects" (mean at the 8.73 level). The leading place in the Group IV takes the factor
combined with "prices of products, services and/or projects" (mean at the 6.87 level).
For Group V the leading factor is "competencies and capabilities of managers in
enterprises" (mean at the 8.59 level).
Based on the above results, it can be noted that the activities of companies, related to
the strengthening of competitive position, are mainly aimed at increasing the quality in
general – both in terms of products, competencies, and relationships. Such observations
– although much simplified – can be satisfying. It follows that Polish entrepreneurs are
focused on strengthening their competitive position by implementing a broadly
understood quality strategy, not a strategy for reducing costs and optimizing the
efficiency of manufacturing processes. This approach seems to meet the requirements
of modern markets, shaped e.g. by generations of customers such as: "millennials", "Z",
"alpha" (Wereda & Woźniak, 2019).
It is also worth noting here that twenty-four of all twenty-five specific factors have a left-
sided skew, which shows that a major proportion of the respondents in the research
sample rated the implementation of a given action at a higher level than the average
mean for the action/factor. It is also worth highlighting here that the means for
individual factors are high and almost all are above 6.30 points (except for two means:
5.59 and 4.44). This is a positive situation, as it indicates that respondents are more
likely than average to implement actions relating to improving their competitiveness.
Relatively weak positive skewness occurs only for the "shaping production volumes"
factor – which is not an unfavorable situation, but merely highlights the fact that
respondents do not put such action at the forefront to increase their competitiveness.
The median value for each factor is also relatively high (Table 2).
However, the listed factors are characterized by relatively high values of the coefficient
of variation (Table 2). The smallest value of this ratio is 19%, and the largest is 72%.
This shows that the respondents' assessment of for almost every specific factor is
relatively diverse. This indicates that the sample included respondents providing
"extreme" and "detached" assessments. Furthermore, this shows that, despite the high
values of means, dominants, and medians for the whole research sample (N=150), not
all companies are involved in the specific competitive strengthening activities.
The above analysis of the basic descriptive statistics for the twenty-five specific factors
has been extended to the Friedman’s test (Table 3). The Friedman test was used to
assess the degree of compliance of the uniform ranking of given factors.
Table 3. Statistics of Friedman’s test for specific factors aimed at strengthening

the competitive position of high-tech enterprises (N=150)
Chi-square 811.972
df 24
Significance 0.000
Based on Friedman's rank test, it is possible to specify those specific factors which, in
the opinion of respondents, most strongly influence the strengthening of the competitive
position of companies (Figure 2). Within all twenty-five factors/actions, the highest rank
values have: "quality of products, services and/or projects" (rank 18.31), "competences
and capabilities of managers in enterprises" (rank 17.86), "competences and capabilities
of employees involved in innovative processes" (rank 17.59), "know-how derived (from
the environment) or developed internally" (rank 16.86), "knowledge of employees and
managers about resources that can be used in innovative processes" (rank 16.37), as
well as "increase in the value of intellectual capital and intangible resources" (rank
16.12). In contrast, the smallest rank values have: "the possibility of the company's
impact on its market environment" (rank 10.03), "shaping the relevant industry system
(by supporting and related industries)" (rank 9.71), "size and structure of production
resources in the environment that can be obtained and shared" (rank 8.03), as well as
"shaping production volumes" (rank 5.98) (Figure 2).
196 Strategica 2020
Figure 2. Average ranks for each specific factor aimed at strengthening

the competitive position of high-tech enterprises (based on Friedman’s rank test) (N=150)
Comparing the above results of Friedman’s rank test with the average respondents'
values (Table 2), it can be seen a relatively high convergence of results. Particular
attention should be paid to the emergence of focusing of respondents on a pro-quality
approach, competence development, and know-how at "leading" locations in both
analyses. Much less "interest" of companies "enjoys" the area of production and financial
management.
Based on the above analyses, Hypothesis No. 1 can be partially confirmed –

because of the fact, that the research has indicated, that strengthening the
competitive position of high-tech enterprises is primarily determined by a
broadly understood intellectual capital, but not financial factors.
A specific compliment to the above conclusions is the analysis of profiles of mean's

values for all groups of specific factors aimed at strengthening the competitive position
of high-tech enterprises (Figure 3). For the factors assigned to groups I, II, IV, and V, all
specific factors are characterized by average values of respondents' ratings above the
average (i.e. median) for the full response/evaluation scale of respondents. This average
is 5.5 points – it is a specific "limit value". Only for Group III, one factor ("shaping
production volumes") has an average value of less than 5.5.
To verify Hypothesis No. 2, a composite indicator was constructed, i.e. ECSCI –

Enterprise Competitiveness Strengthening Complexity Index. The methodology of
constructing the ECSCI index, referring to specific factors (Table 2), will be presented.
These factors (as specific generalizations of various activities) have been specified based
on the analysis of the current literature on the subject, addressing the problem of
strengthening the competitive position of high-tech enterprises. The composite index of
ECSCI was used in the study because (Nardo, Saisana, Saltelli, & Tarantola, 2005):
 they offer the opportunity to include a large number of activities that can potentially
be undertaken as part of creating a competitive position;
 they enable an attempt to undertake a holistic analysis of the complexity of
strengthening the competitive position in innovative enterprises;
 they provide the basis for reliable quantification and assessment of the complexity
of strengthening the competitive position;
 they enable the reduction of the dimensions of the analysis of the level of complexity
of strengthening the competitive position in the enterprises surveyed.
Factors included in the study were designed to measure (on a 10-point scale) the
approach of enterprises to the implementation of individual activities as part of
strengthening the competitive position in the enterprises surveyed. A value of "1" meant
that the activity is very rarely implemented, and the value of "10" meant that the activity
is very often implemented. The reliability of the scale was analyzed using Cronbach's
alpha coefficient to verify the quality of the data (Table 4). For a full list of twenty-five
factors, describing the complexity of strengthening the competitive position, the value
of the coefficient was 0.934. Taking into account the methodological recommendations,
the obtained value can be considered sufficient.
Table 4. Alfa Cronbach factor for ECSCI (N=150)

Alfa Cronbach Number of specific factors
0.934 25
198 Strategica 2020
Figure 3. Profiles of mean’s values for all groups of specific factors aimed at strengthening
the competitive position of high-tech enterprises (N=150)
For the Enterprise Competitiveness Strengthening Complexity Index (ECSCI)

construction, methodological recommendations for the development of composite
indices, developed by OECD (2008), were used. The adopted ECSCI construction
methodology included the following stages (Nardo, Saisana, Saltelli, & Tarantola, 2005):
1. determining the scope of measurement and the legitimacy of using the composite
indicator;
2. selection of partial factors;
3. evaluation of the quality of empirical data;
4. assessment of the relationship between partial factors;
5. giving weights to the partial factors and their aggregation to the composite indicator.
The results of the implementation of the first three stages are included in Tables 2 and
4. In the assessment of the relationship between partial factors and their aggregation to
the ECSCI composite index, the factor analysis method was used (by means of the
principal component analysis – PCA) (Hudrliková, 2013). The Kaiser-Mayer-Olkin
coefficient and the Bartlett sphericity test were used to verify the correctness of the PCA
analysis. The limit value of the KMO coefficient is commonly adopted at the level of 0.5
to 0.7 (Williams, Brown, & Onsman, 2012). In the analyzed case, the KMO coefficient
assumed a value of 0.879. Bartlett's sphericity test showed that the hypothesis of
uncorrelated coefficients can be rejected – the statistic of the test is 2358.001 with a
significance level of less than 0.001. Further PCA analyses are justified and methodically
correct (Table 5).
Table 5. KMO sample adequacy and Bartlett test (N=150)

KMO sample adequacy 0.879
Approximate chi-square 2358.001
Bartlett test df 300
Significance 0.000
In further analysis, the method of distinguishing main component factors with Varimax
rotation was applied. However, the selection of components was based on the Kaiser
criterion, which assumes that the eigenvalues of factors will be greater than one. Factor
analysis (matrix of rotated components – Table 6) offered the basis for qualifying
twenty-five factors to six components: the sum of squares of charges after rotation was
approximately 70% (Table 7).
Assigning individual factors to the components made it possible to name all components
of the ECSCI indicator and to assign component weights (Table 7). The weights were
normalized by the sums of the squares of charges that correspond to the part of the
variance explained by the given component. The developed composite indicator ECSCI
adopted the formula:
ECSCI=[0,29(C1)/8]+[0,19(C2)/5]+[0,17(C3)/4]+[0,15(C4)/4]+[0,1(C5)/2]+
+[0,1(C6)/2]=[0,29(F15+F16+F17+F18+F19+F20+F21+F22)/8]+
+[0,19(F7+F11+F12+F13+F14)/5]+[0,17(F8+F9+F10+F23)/4]+
+[0,15(F1+F2+F3+F5)/4]+[0,1(F4+F6)/2]+[0,1(F24+F25)/2].
Table 6. Matrix of rotated components (N=150)

Components
and innovations
Manufacturing
Relationships
relationships
relationships
environment
Intellectual
processes
Financial
Business
Market
capital
Specific factors
offer
with
C1:
C2:
C3:
C4:
C5:
C6:
F1 – Innovation and technological

0.126 0.233 0.083 0.666 0.125 0.270
advancement of enterprises
F2 – Complexity and number of
contacts with third parties and 0.034 0.223 0.469 0.517 0.113 -0.031
number of business partners
F3 – Quality and usability of
relationships between companies 0.243 0.306 0.192 0.713 0.090 -0.054
and cooperating entities
200 Strategica 2020
Components
and innovations
Manufacturing
Relationships
relationships
relationships
environment
Intellectual
processes
Financial
Business
Market
capital
Specific factors
offer
with
C1:
C2:
C3:
C4:
C5:
C6:
F4 – Prices of products, services
0.037 0.141 0.138 0.320 0.777 0.028
and/or projects
F5 – Quality of products, services
0.207 0.040 0.037 0.750 0.292 0.140
and/or projects
F6 – Offering new types of products,
0.065 0.218 0.391 0.315 0.397 0.265
services and projects
F7 – Shaping production volumes 0.140 0.777 0.136 0.031 0.155 0.063
F8 – Cost reduction 0.225 0.051 0.371 0.249 0.360 0.175
F9 – Company's own (internal)
investments and the possibility 0.174 0.116 0.833 0.159 0.080 0.098
of raising external capital
F10 – Availability and methods
0.267 0.194 0.805 -0.003 0.078 0.136
of financing activities
F11 – Efficiency of the use of
0.271 0.769 0.066 0.284 -0.134 0.123
production resources
F12 – Improvement of the
productivity and efficiency of 0.220 0.656 0.216 0.360 0.125 0.212
innovation processes
F13 – Size and structure of
production resources in the
0.227 0.799 0.161 0.161 0.241 0.074
environment that can
be obtained and shared
F14 – Equipping the company with
0.233 0.384 0.364 0.282 -0.008 0.047
manufacturing factors (resources)
F15 – Knowledge of employees and
managers about resources that can 0.811 0.192 0.075 0.059 0.096 0.147
be used in innovative processes
F16 – Know-how derived (from the
environment) or developed 0.739 0.195 0.259 0.296 -0.205 0.139
internally
F17 – Competences and capabilities
of employees involved in innovative 0.882 0.130 0.187 0.119 -0.037 0.067
processes
F18 – Competences and capabilities
0.755 0.167 0.291 0.267 -0.132 0.036
of managers in enterprises
F19 – Increase in the value of
intellectual capital and intangible 0.642 0.061 0.441 0.207 0.038 0.291
resources
F20 – Employee attitudes resulting
from the company culture, mainly in
terms 0.770 0.270 0.166 -0.001 0.370 -0.008
of promoting innovation processes
and creativity of employees
F21 – Motivational systems for
0.634 0.217 0.097 0.054 0.438 0.030
employees
Components
and innovations
Manufacturing
Relationships
relationships
relationships
environment
Intellectual
processes
Financial
Business
Market
capital
Specific factors
offer
with
C1:
C2:
C3:
C4:
C5:
C6:
F22 – Effectiveness of informational
and decision-making processes in
0.654 0.185 -0.097 0.180 0.376 0.178
companies and knowledge
generation
F23 – Shaping the relevant industry
system (by supporting and related 0.260 0.428 0.437 0.118 0.155 0.335
industries)
F24 – Socio-economic policy
0.178 0.113 0.084 0.095 -0.001 0.851
of the government
F25 – Possibility of the company's
0.132 0.235 0.419 0.170 0.202 0.639
impact on its market environment
Method of extracting factors – principal components. Rotation method – Varimax with Kaiser’s
normalization. Rotation reached convergence in 7 iterations.
Table 7. Six main components of the Enterprise Competitiveness Strengthening

Complexity Index (N=150)
Defined Cumulated
Compone Name Weight
% of variance % of variance
nt of component for ECSCI
after rotation after rotation
C1 Intellectual capital 20.110 20.110 29%
Manufacturing
C2 13.039 33.148 19%
processes
C3 Financial relationships 11.806 44.954 17%
Business relationships
C4 10.775 55.729 15%
and innovations
C5 Market offer 6.990 62.720 10%
Relationships with the
C6 6.825 69.545 10%
environment
The distribution of ECSCI values is characterized by quite weak left-sided skewness,

which means that the majority of values were above average (Table 8). Considering the
fact that each of the twenty-five factors included in the ECSCI structure was assessed on
a 10-point scale ("1" means occasional use of the action, and "10" very frequent use), the
average value of the indicator of 7.19 indicates that the average complexity of
strengthening the competitive position is at a relatively high level throughout the
sample. Moreover, the dominant value is at the level of 10.00, as well as the coefficient
of variation is moderate – 22% (Table 8).
The "limit" (median) value in the 10-point scale is 5.5. Generally, it can be assumed that
the low level of complexity of strengthening the competitive position is for the ECSCI
values in the range <1; 4), the average level in the range <4; 7>, and high in the range
(7 ; 10>. However, this is a contractual and standardized division, because a precise
indication of the level of complexity of strengthening the competitive position requires
the identification of the needs and capabilities of the given company in this respect.
202 Strategica 2020
Table 8. Descriptive statistics for the Enterprise Competitiveness Strengthening

Complexity Index (N=150)
Descriptive statistics Value
Mean 7.19
Median 7.28
Dominant 10.00
Standard deviation 1.55192
Variance 2.408
Coefficient of variation 22%
Skew -0.709
Minimum value 1.14
Maximum value 10.00
Based on the above analysis, Hypothesis no. 2, which states that strengthening the
competitive position of high-tech enterprises has a high level of complexity, can
be positively verified (i.e. confirmed).
Taking into account the fact that the average level of complexity of strengthening the
competitive position of high-tech enterprises in the whole research sample is at a
relatively high level, it can be carried out a stratification of the surveyed companies
(N=150) into three clusters: (1) low level of ECSCI, (2) average level of ECSCI, as well as
(3) high level of ECSCI. For this purpose, the k-means analysis (including the ECSCI
variable's standardization) has been applied. The study has also used the hierarchical
cluster analysis – agglomerative method (tree diagram, Ward method, Euclidean
distance) and has distinguished three clusters of enterprises (based on Hartigan, &
Wong, 1979; Pietrzykowski, & Kobus, 2006; StatSoft, 2006; Kajstura, 2019). The
multiplicity of each of the three clusters is contained in Table 9. It is worth noting, that
the most numerous is the cluster of enterprises with an average level of ECSCI (81
enterprises), and the least numerous is the cluster of entities with a low level of ECSCI
(11 enterprises).
Table 9. Three clusters of enterprises according to the value of ECSCI (N=150)

Clusters
1: Low level 2: Average level 3: High level
of ECSCI of ECSCI of ECSCI
Number of enterprises 11 81 58
Stand(ECSCI) -2.20311 -0.36831 0.93220
Figure 4 presents the basic characteristics of enterprises for all three clusters of ECSCI.
All three clusters are dominated by micro and small enterprises with the annual
turnovers of up to 10 million PLN – what is rather due to the structure of the companies
in the research sample. In addition, each cluster (and especially medium- and high-
leveled ECSCI clusters) is dominated by entities characterized by either national or
European or International scale of operation – what may indicate that the high-tech
companies surveyed are focused on expanding their activities and are not "limited" to
local or regional scale.
Each of the three clusters is dominated by "relatively old" enterprises. That is rather
evident in the "average level of ECSCI" and "high level of ECSCI" clusters, because
"mature" and developed players on the market are geared towards systematically
increasing the complexity of their competitive position. On the other hand, the
significant dominance of "relatively old" enterprises in the "low level of ECSCI" cluster
may be puzzling. It would seem that this cluster should be dominated by "relatively
young" enterprises with a weak competitive position and only "building" their "market
power". However, the dominance of "relatively old" enterprises in this cluster suggests
that it is made up of players with weak market power, while at the same time being
oriented towards implementing cost reduction strategies and narrowing the scale of
development activities. The "high level of ECSCI" cluster is dominated by entities
involved in the production of films, videos, TV programs, sound, and music recordings,
research and development, software and computer sciences, as well as the IT
consultancy activities. A similar situation can be noted in the "average level of ECSCI"
cluster, with the difference that in this case the activities related to telecommunications
and information services are at the forefront. This shows that such high-tech activities
are associated with a relatively strong competition in the market and entrepreneurship
is even forced to take the broad-based activities to strengthen competitive position.
The analysis of enterprises’ clusters in terms of the complexity of strengthening the

competitive position should also be extended by an attribute of the impact of risk
management on business activities (Figure 4). This is mainly important because
increasing the complexity of business competitiveness activities involves risks (e.g. in
terms of market, human resources, information, finance, etc.), as well as competitive
positioning, should be aimed at reducing negative risk factors in the business
environment. In the following study (N=150), respondents assessed on a 10-point scale
the potential impact of risk management on the development of their businesses. A value
of "1" meant a very weak impact (or even no impact), and value of "10" was treated as a
very strong impact. In the "low level of ECSCI" cluster, it can be observed that
respondents assess the impact of risk management on the development of their
businesses at a relatively low level. On the other hand, the "high level of ECSCI" cluster
is the opposite– respondents' ratings are relatively high. This situation may indicate that
companies that assess the potential impact of risk management on the development of
the company at a higher level, take broader actions to strengthen their competitive
position on the market. This may be because, on the one hand, this category of
enterprises wants to reduce the negative impact of risk factors on the state of their
businesses and, on the other hand, by increasing the complexity of improvement actions,
they seek to create factors of opportunity for development.
204 Strategica 2020
Figure 4. Characteristics of enterprises for all three clusters of ECSCI (N=150)
On the basis of the above analyses, it can be concluded that each of the three clusters is
composed of a variety of enterprises. Nevertheless, it can be assumed that a higher level
of the ECSCI is mainly characterized by the longer-term market players, focused on
relatively large-scale activities, with a higher annual turnover, as well as perceiving the
potential for risk management (Figure 4).
Discussion and conclusions
Strengthening the competitive position of today's companies – especially in high-tech

industries – is not a simple and unambiguous action. It is linked to the need for these
companies to "keep up" with changes in the environment and to take action reflecting
the requirements and potential of that environment. Moreover, strengthening the
competitive position should take the form of systemic/holistic actions.
Conducted studies have shown that factors related i.e. to development of intellectual
capital, quality, innovations, knowledge, and know-how, as well as competencies of
employees, play a key role in strengthening competitive position in the surveyed
companies. This is consistent with the results of the researches carried out e.g. by
Vargas-Hernández and Noruzi (2010), Hamel (2012), Kianto, Andreeva and Pavlov
(2013), Jones, Balle, Chaize and Fiume (2019), as well as Kozielski, Olsztyński and
Sroczyński (2018) – suggesting that e.g. intangible resources, knowledge and human
potential significantly increase the competitive potential of contemporary enterprises.
The much less "interest" in companies "enjoys" the area of production and financial
management – e.g. on the contrary to the researches of Gunasekaran, Rai and Griffin
(2011), López Salazar, Contreras Soto and Espinosa Mosqueda (2012), as well as
Ahmedova (2015), indicating that financial resources (and also production capacities)
can, in a high level, manage the competitiveness of enterprises.
Moreover, the average complexity of strengthening the competitive position of high-

-tech enterprises are at a relatively high level throughout the research sample – which
is consistent with the researches of Cristelli, Gabrielli, Tacchella, Caldarelli, and
Pietronero (2013), as well as Tacchella, Cristelli, Caldarelli, Gabrielli, and Pietronero
(2013), suggesting that shaping the competitiveness of economic units (also
enterprises) is a highly complex and multi-faceted action. This can be satisfactory and
shows that the surveyed high-tech companies use a rather "modern" approach to
shaping competitive advantage and are aimed at systematically increasing their market
position (by increasing the complexity of strengthening the competitive position).
At this point, however, it should be noted, that in the literature, there is exposed – in
terms of strengthening the competitive position of high-tech enterprises – an approach
aimed mainly at the managing of financial resources and shaping of manufacturing
processes (see e.g. López Salazar, Contreras Soto, & Espinosa Mosqueda, 2012) – what
seems to be important for the implementation of innovative processes. Moreover,
contemporary shaping of the competitive position of innovative entities is combined
with the development and requirements of the Revolution 4.0, mainly related to the
wide use of modern ICTs in management (see e.g. Kelly, 2017; Niedzwiedskaja, 2019;
Ilin, 2019). However, no such situation was reported in the companies surveyed. This
may come as a surprise, but it is mainly because the majority of the entities examined
operate in the broadly understood IT area (Table 1) – and thus the processes related to
the development and application of ICTs are treated as a core business activity and not
an action "specifically" responsible for strengthening the competitive position.
The study carried out can give practical implications – mainly in terms of specification
of the list of simple guidance for managers in planning, implementation, and evaluation
of activities aimed at shaping and strengthening the competitive position of high-tech
companies (both in Poland and in other countries). The study indicates which types of
activities companies should focus on, and what are the "secondary activities". Such
knowledge can provide a basis for optimizing operations aimed at shaping the
competitiveness of high-tech units in a dynamic environment, as well as for specifying a
simplified catalog of management methods and techniques in this area.
The research limitations of the following study are also presented. First of all, the sample
is relatively small and the surveyed enterprises have been located only in Poland – so
206 Strategica 2020
this study can be regarded as a pilot study and merely a substantive and methodological
basis for further studies. Therefore, the results obtained cannot be extended to the
whole population, neither can they constitute a basis for constructing complex "best
practices" in shaping the expected level of complexity of strengthening the competitive
position of high-tech enterprises. It is also worth remembering that high-tech
enterprises are diverse (subjectively, thematically, and spatially) set of enterprises.
These are dynamic, rapidly changing innovative enterprises – so it is difficult to specify
complex "best practices" for strengthening the competitive position of high-tech
enterprises. Furthermore, only respondents’ opinions were examined, which may have
had an impact on distorting the actual state of the situation (respondents may have
shown a tendency to inflate responses in favor of a good image of the company). The
study also focused solely on selected aspects of strengthening the competitive position
of high-tech enterprises, mainly due to research costs. Thus, the results’ analysis may
seem selective and substantively narrow.
In conclusion, an attempt can be made to outline further research recommendations in

the area of strengthening the competitive position of high-tech enterprises. The leading
direction of research should be identifying and analyzing the basic barriers associated
with strengthening the competitive position. An important research issue could also
include the identification of cause and effect relationships between individual activities
determining the level of complexity of strengthening the competitive position of high-
tech enterprises.
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SPECIFIC MACHINE LEARNING ALGORITHMS AS EFFICIENT

SOLUTIONS FOR COMPLEX BUSINESS PROCESSES
Marian Sorin IONESCU, Olivia NEGOITA
FAIMA, University POLITEHNICA Bucharest,
Splaiul Independenței 313, București 060042, RO
marian.ionescu@man.ase.ro
Abstract
This paper presents and critically investigates some unsupervised and supervised algorithms specific
to machine learning, which are particularly suited for business processes and their high dynamical
evolution. We particularly highlight the general merits of machine learning and mathematical
foundation in the big data era and its importance for applications to industrial and business
processes, in the context of well- defined economic problems, with their variables and, especially, the
predictive functions to be solved. Then, the paper discusses some existing algorithms and their
mathematical formulations and merits, based on existing literature and recent usage in various
economic applications. Such machine learning algorithms form today a calculation distribution
framework, available in open-source software for storing data and running applications such as
Handoop. We also reveal the importance of robustness and of data quality, as many of the business
ecosystems are currently filled with dirty and useless data, Finally, we suggest that for precisely
observing, quantifying and predicting the performance progress of organizational management,
transparency for the users of machine learning is required, as opposed to traditional rather opaque
machine learning processes. Finally, the proposed algorithms overview and discussion is helpful to
provide first steps in learning how to apply machine learning to make your business more efficient,
more effective and more profitable.
Keywords
Machine Learning, Business Process, Algorithms, Optimization, Transparency.
Introduction
Big data mining and analytics are playing an important role in knowledge discovery and
decision making in the process industry and economics (Ge et al, 2019, p.20590). The
modern business problems are today positioned in complex ecosystems characterized
by high dynamics and challenges. Some of the emerging engineering scientific fields
concern progress in computational engines applied to big data analytics in production
and economics: statistical learning (Hastie, Tibshirani, & Friedman, 2001), compressed
sensing (Donoho, 2006, p. 1289) machine learning (Shanga & You 2019, p.1010), deep
learning (Anthony, M. & Barlet, P. 1999) and Artificial Intelligence (MacKay, 2003), are
today applied to a large variety of domains, including the complex business processes.
In this late case, the decisional problems within different business models adopted by
the top organizational management, based on the information and unique data, are
confronted with an operational experience that may be practically unrepeatable. In this
paper, we investigate the variables and equivalent economic performance factors that
are defined in an economic organization to be optimized and/or predicted with various
machine learning that is subsequently discussed.
210 Strategica 2020
The identification at the level of the final target for the subsequent transposition of the
common tasks in operationality for the business problems is an improving decisional
factor. There is also the possibility of segmenting the organizational activity by
intermediate targets, which are mandatory to be reached until the final target. These
should be broken down into intermediate sub-targets, which are easier to be reached,
monitored, the global understanding of the problem being a simpler process.
In this work, the main research objective is to present some of the machine learning
(ML) algorithms suitable for complex business processes and critically discuss their
advantages and vulnerabilities, reflecting their status.
In Figure 1 we summarize the current state of the art of various existing ML algorithms,
classified in unsupervised and supervised machine learning and their relation and impact
on dimensionality reduction, data classification, process diagnosis, quality estimation
and prediction of key process performance. For instance, unsupervised ML requires no
human intervention and training and it would allow applications that get customized for
specific uses and for individual people on the spot, without pre-learned parameters.
The methodology used in this paper is encompassing (i) first, an investigation of the
variables needed to formulate economic problems, the importance of the used big data
in economic and business, as well as their mathematical formulations, (ii) the
presentation of a series of selected algorithms that are currently used in complex
business processes and their mathematical background, easiness of use, advantages and
vulnerabilities.
Unsupervised learning: Key performance index prediction

Process monitoring and diagnosis
PCA, ICA, Gaussian, Manifold learning,

Kernel density, k-means cluster, self
Dimmensionality reduction
organizing map, support vector data
Machine Semi-supervised data classification Data mining

Quality estimation
Data classification
learning and regression and

algorithms analytics
Supervised learning:
PCR, Fischer, ANN, Nearest Neighbor,
Decision tree, Partial least square,
Linear regression, support vector,
Gaussain, Random forrest
•
•
•
•
•
Figure 1. Machine learning algorithms in unsupervised and supervised learning and their
relation to certain desired features of data mining and analytics.
Variables and economic problems: fundamental mathematical formulations for

unsupervised and supervised Machine Learning
By strategically approaching the problem and business model implemented at the

economic organization’s level, one should first identify the variables playing a
significant role in the behavior of the final customers. Below, we list the main factors
necessary to be considered for the economic performance of the organization.
(i) The estimation of the probability that a final customer may belong to a certain
set or population for the targeted hierarchy.
(ii) The estimated value or “regression” makes an individual prediction of the
numerical values and characteristic variables, classification predicts whether a
certain event takes place - such regression shows the amplitude of the
probability that this thing will happen;
(iii) Data providing identification similarities for people in a limited number of
attempts, similar resemblances identify similar entities, features, and behavior;
(iv) Grouping events, coincidences, frequent analysis of items, associated
operationality rules, analysis specific to the basket-market portfolio,
correlation of the performed transactions;
(v) Behavioral description of the consumer, final customer, “profiling;
(vi) The prediction connection is the one forecasting the connections between data
flows specific to the used items (entities), there is also the possibility of
describing the “strength” of these connections;
(vii) The data flows restructuring by replacement of certain overwhelming sets of
data with subsets of much smaller cardinality where information with a
significant degree of relevance are conserved, by operationalizing them, the top
organizational management has an increased speed of elaborating the decision
and construction of the related strategies;
(viii) The “Casual Modelling” concept is involved in the decision making process in
understanding which economic events or management actions are inter-
influential.
It is worth noting that main aim here is a “predictive analysis” of the economic
organization’s operational activity, which means the anticipation of the evolution of the
strategic vectors within the competitive ecosystem for obtaining a competitive advantage.
Today, analyzing big data using machine learning algorithms is a crucial method to help
organizations to forecast future trends in the market, adapt and be more efficient. For
manufacturing company such type of ML applied to big data may analyze the demands
for the next year with the goal to predict future sales as profile and as amount and adapt
the production. This requires collection of big valid and timely data and select data
models incorporate predicting key parameters concerning the customers, the
competition, and anticipating the demand for the products existing in the market. Such
analysis of big data is expected to improve both the company strategy and decision-
making process of the businesses in a very competitive global economy.
In this context the machine learning framework represents a proactive and appropriate
science-based response for all the challenges faced by an economic organization. For
instance, one can quote a few representative examples of relevant economic problems
for machine learning algorithms:
(i) Detecting the behavior of the end consumer for a certain portfolio of products
and services;
(ii) Detecting fraudulent financial operations in the virtual environment;
(iii) Anticipating costs for the transformation of an online commerce website
according to the number of views;
(iv) Evaluating the insolvency risk for certain customers, scoring functions
estimated in real-time;
(v) Predicting the interruption of a trade contract from the current operational
activity.
212 Strategica 2020
Predictive analysis values all the opportunities of these technologies, having as

innovative part is the vector leading to the accelerated development of the targeted
features. In the world of business models and maximizing organizational profits, we
identify two great challenges of this new type of algorithmic approach, as follows:
(i) Hardly predictable human behavior, which exceeds the totality of
deterministic predictions;
(ii) In most of the real situations, the identification of a descriptive, explicative
model should be relinquished, correlations between observations and data
and information identification are identifiable, they may originate from the
economic history of the studied organization;
In practice, the goal is to translate this process into mathematical specific variables,
categorized as below:
(i) Predictive variables, attributes or parameters specific to economic
organizations and their history, 𝑝 variables that are predictive and associated
with observation are components of a vector 𝑥 = (𝑥1 , … , 𝑥𝑝 ) with 𝑝
components, an assembly with 𝑁 observations is consisting of the vectors
𝑥 (1) , … , 𝑥 (𝑁) .
(ii) Target variables that should be reached, at this value events that take place
in the business macro-environment are observable, generally noted with 𝑦
with the same significance for indices as well as for the vector 𝑥.
Here, we consider that the observed value 𝑦 of the target variable is an implicit result
of the superposition of the two contributions:
(i) A function 𝑭(𝒙) of the predictive variables, a fully determined contribution
of the variables 𝑥 that belongs to the observation process (the equivalent of a
signal that should be highlighted);
(ii) A random noise 𝜺(𝒙), which incorporates the combined effects of a large
number of parameters that must be taken into account in the implementation
of business models;
It should be noted that both 𝐹 as well as 𝜀 remain unknown but the objective specific to
machine learning are to elaborate an approximation of the Function 𝐹 starting from a set
of observations, this approximation, noted with 𝑓 is designated “predictive function”.
In practice, the elaboration of the economic organizational decision is very important,
the evaluation of a value of a signal in relation to a noise, the probability that a certain
effect might be randomly generated, statistical experiences show that a level of 5%
indicates the fact that the observation is 20% generated by hazard.
Therefore, the Machine Learning (ML) approach mathematically represents a set of
statistical and geometrical facilities correlated with procedures and information
algorithms that allow the generation of an automation process ended with the definition
of a predictive function 𝑓, the entire process is initiated by a set of observations called
learning set.
The ML is finally a hybrid approach that takes over the advantages and facilities of the
statistical analysis, Artificial Intelligence, Intelligent Business. In this context, a Machine
Learning Strategic Operational Model is a specific algorithmic systemic structure that
defines a predictive function 𝑓 starting from a set of data specific to learning processes.
The elaboration of this function 𝑓 practically defines the learning process or training of
the built model, the prediction itself is actually an evaluation of the function 𝑓(𝑥) of the
function 𝑓 with predictable variables of an observation 𝑥. It should be emphasized that

ML allows the elaboration of systems that define and learn the own functioning rules,
the identification of a program within which we find the predictive function 𝑓 starting
from data sampling and interpretation and finally, ML modelling allows data association
and analysis.
In case of economic applications, we identify a particularity of the ML applications,

namely the occurrence of the “over-learning” phenomena, which is operationally a
situation in which the ML model overlaying the adopted business model reproduces
with a high precision the data flow used in the learning process but does not allow
subsequent extrapolations. We thus identify a challenge of this type of paradigm, the one
of separating data into “training data (learning)” used in learning processes and “testing
data”, those evaluating the predictive models’ quality. Operationally, in case of economic
entities, processes of “crossed validation” are developed.
The foundation of this type of approach consists in the random separation of the initial
data, in 𝑘 parts of equal dimensions, for each of them a model is implemented for the
data sets except for those that are used to predict the main business model agreed by
the economic organization. At the end of the 𝑘 ML approaches, the prediction process
for each part is compared to the values obtained from the already-completed
operational practice, a moderate value on a set of data is sampled from the estimated
observations.
The careful analysis leads us to the primary observation that the volumes specific to “Big
Data” may be symbolically characterized by "𝑉 = 𝐴𝑐𝑟𝑜𝑛𝑦𝑚 𝑉𝑜𝑙𝑢𝑚𝑒 𝑉𝑉𝑉".
It is also identifiable the difficulty of the organizational entities of information

technology to implement and systemically operate structures of storage and parallel
treatment of the information. Another analysis suggests that "𝑉" is the symbol for an
overwhelming "𝑉𝑎𝑟𝑖𝑒𝑡𝑦" (enormous dimensionality) is the set of parameters p
characterizing each economic observation (status).
Statistically evaluating these situations, one can observe some important features of
data, observations, and parameter dimensionality that should be considered:
(i) Dimensionality vulnerability is the one showing that each observation of a
sampling used in the process of learning by machine, computer, sequencer,
involves the use of a set of "𝑝" parameters, statistically representative samples
for an evaluated population, we assume it may have the dimensionality 10,
implicitly in the elaboration of the top organizational decision, 10𝑝
observations are necessary so it may have an important relevance degree.
(ii) Technologies used in the modern operationality are generically aiming at a
dimensionality reduction, the information used is compressed and non-
relevant or redundant parameters are eliminated from the systemic processes;
(iii) Fictional correlations in terms of images, views, set with high dimensionalities
specific to Big Data show that is it highly possible that random phenomena may
induce a higher degree of decisional influence;
(iv) The parallelization of algorithms is necessary because computer procedures
face enormous quantities of observations and data.
214 Strategica 2020
The treatment of data representative for the economic organization involves the
development of parallel IT architectures of the type provided by Handoop or MapReduce
facilities, facilitating the selection, filtering, conversion, normalization and detection of
a potential incoherence of the data flows. A significant principle of the paradigms
specific to Big Data is the one showing that the optimum economic performance is
generated due to the less sophisticated algorithms but with the capacity to
operationalize large quantities of data. We do not consider that there is an objective
choice for the interpretation of statistical data for the problems specific to business
models, a subjectivity degree is always present and the simplest explanation is generally
the most plausible in the economic phenomenology.
In the field of ML applied to industrial processes and operational business, two

fundamental types of learning processes called Supervised and Unsupervised Learning
(see Fig. 1) are used together with their corresponding algorithms:
(i) Supervised learning is the form most used by the applications of Machine
Learning type, it is made on the supposition that the deciding top management
has a limited set of examples characterized by predictive variables 𝑥 (1) , … , 𝑥 (𝑁)
for which target variables 𝑥 (1) , … , 𝑥 (𝑁) are known, the target in this learning step
is to extrapolate the association between the explicative variable and target
variable for the definition of a predictive function "𝑓", the most used
applications by this type for the business models are linear regressions and
machines of support vectors;
(ii) Unsupervised learning (or "𝑐𝑙𝑢𝑠𝑡𝑒𝑟𝑖𝑛𝑔") does not involve the existence of any
previous labeling of learning data, the target is that the system is guided by itself
and regrouping into categories of examples (𝑘 − 𝑚𝑒𝑎𝑛 algorithm belongs to
this category).
Key algorithms specific to Machine Learning: basics and discussions
In general, it is acknowledged that no ML algorithm has an exhaustive applicability. In

practice, the decisional head-office is responsible for having in its staff experts in
mathematical statistics that may develop an anticipative intuitive side, complementary
to the Machine Learning mechanisms and procedures. In the following we describe and
discuss some of the most used algorithms in ML.
Linear regression
This is one of the simplest approaches applicable and operational for certain business
models. The mathematical formalism involves the use of a predictive function 𝑓 bonding
specific variables 𝑥1 , … , 𝑥𝑝 to the target variables, in the form of the convolution:
𝑝
𝑓(𝑥) = ∑𝑖=1 𝑎𝑖 𝑝𝑖 + 𝑏 = 𝑎 × 𝑥 + 𝑏,
In operational practice, 𝑏 is replaced by 𝑎0 𝑥0 , where 𝑥0 = 1.
Learning with this type of ML model in the algebraic calculation of all the coefficients
𝑎, 𝑏 that are involved in minimizing errors and defining that the sum of the squares
predictive values 𝑓(𝑥 𝑖 ) and observable values 𝑦 𝑖 , Linear Regression is also known as the
Method of the Smallest Squares. It is often used in the prediction of organizational
models for marketing policies and also in the elaboration of econometric models.
The main advantage of the approach using Linear Regression is that the automatic
learning process is practically the inversion of the matrix built on learning data, we thus
identify an explicit mathematical formalism, easy to be numerically evaluated.
Identifiable vulnerabilities occur from the possibility that the linear dependency does
not exist, the model may induce sometimes irrational values of learning data. Also, a big
limitation is that the linear character of the model neglects all interactions between
predictive variables.
The method of the nearest "𝒌" neighbors
The method of the nearest "𝑘" neighbors known as K Nearest Neighbours(K.N.N.) is a

standard algorithm of supra-target classification, non-parametric, very well adapted to
the problems of modern business models. The concepts and fundamental paradigm
consist in the assumption that observation is similar to all the observations made near
it, the assumption is that each observation made for a set of training is represented by a
geometrical point in a space with several dimensions, "𝑦" is symbolically the
representation of predictive variables (Figure 2). The hypothesis is also made that there
is a conceptual definition of distance in this space, the closest points "𝑘" are searched in
relation to the one for which the classification is required, the set of target variables is
the majority among the closest points "𝑘".The defined algorithm covers several variants,
each of the "𝑘" observations are interpreted depending on their distance to a new
observation, the observations at the greatest distance are irrelevant operationally.
Figure 2. Illustration of a kNN classification model;

k has a strong effect on the performance
As an example of using this type of algorithm, we quote the case of the economic
organization 𝑁𝑒𝑡𝐹𝑙𝑖𝑥 for the provision of the score granted by a film fan to a movie found
in its portfolio, subsequently, there is the possibility of developing an appropriate
portfolio-offer. Like other applications, Li and Zhang (2014) developed used k-
neighbors rule technique for semiconductor manufacturing process fault detection and
this was also used for the performance of fault diagnosis in batch processes, Ge at al.,
(2017).
Among the advantages provided by the method of the nearest "𝑘" neighbors, we identify
that at the data level assumptions should not be made regarding the distribution type
used, a concept existing, the proximity (vicinity) one between similar entities that are
grouped.
At the same time, we identify as vulnerabilities the sensitivity of the procedures and
algorithms specific to noise, the fact that the operationally transposed learning
216 Strategica 2020
processes have a strict local character, it could not be subject to strategic developments
in wide ranges of time. In the case in which the deciding top management faces a high
number of variables (for instance, > 10 distance) the calculation becomes one with high
allocated costs, so the use of the dimensionality reduction is needed.
Naïve Bayes Classification
This approach involves the elaboration of a specific supra-target algorithm of

classification with a high-performance degree and a lot of simplicity in its transposition
into operation. To understand its operation mode, we evaluate an anti-spam informatics
filter, for each message, the filter performs a predictive activity for dual messages, one
of “non-spam” type and the other of “spam” type, the frequency of the analyzed words is
the one sending messages in one of the two classes. Having representative samples of
messages, the estimation processes for these messages are relatively simple to be made,
without inducing other additional hypotheses.
The analysis of this type of approach is focused on the occurrence frequency of the
independent words, which is sending the messages arrived in the two sets, spam and
non-spam. Positioning ourselves on the criteria of independence of such systemic
operationalities, we find that they are false, which is why the adjective "naive" is used
for this type of approach.
Naïve Bayes Classification is extrapolable in situations in which relations of conditioned

dependence have a relevant complexity degree, their associated models are designated
as Bayesian type of networks. The advantages of this type of approach are simplicity and
flexibility of the algorithm in case of the independent hypotheses. Among vulnerabilities,
we identify that the probabilistic predictive processes for different sets induce errors
when the conditional independent hypotheses are not true.
Logistic regression
This is an algorithm of linear classification using the mathematical model of linear

regression in cases when the target variable "𝑦" has only two binary values " 0, 1", we
recommend the use of a function designated "𝐹𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑆𝑐𝑜𝑟𝑒, 𝑆" for predictive
variables, expressed by the mathematical formalism:
𝑝
𝑆(𝑥) = ∑ 𝑎𝑖 𝑥𝑖
𝑖=1
A searching and analysis process of the coefficients 𝑎1 , … , 𝑎𝑝 so the scoring function 𝑆(𝑥)
is positive in case the appartenance probability at the first set is high or negative in case
the appartenance probability to the second set is high, between the two an appartenance
probability 𝑃1 (𝑥) to the first group is included, a function of logistic interpolation with
the explicit form:
𝑙𝑜𝑔𝑖𝑡(𝑆) = 1/[1 + exp(−𝑆)]
We consider it is the most appropriate mathematical formalism to be used in this

situation in which the predictive variables 𝑥1 , … , 𝑥𝑝 are normally distributed, disjoint for
each set.
The parametric probabilistic model is represented by the mathematical formalism:

𝑃(𝑦 = 1|𝑥) = 𝑙𝑖𝑡(𝑆(𝑥)
The search for optimum parameters 𝑎1 , … , 𝑎𝑝 is performed by numerical methods,

totally different from the linear regression, without explicit calculation algorithms.
Among the method’s advantages, we indicate a new observation to be quickly

emphasized is the evaluation of a function of linear score 𝑆, the algorithm is eligible for
processes of over-learning, the interpretation of 𝑎𝑖 coefficients are very facile, the
appurtenance probability to a certain set is also easy to predict in the business models
chosen by economic organizations. Among vulnerabilities, the use of the linearity
hypothesis, blocking the interactions between variables, thus leading to a process of
recalculating the already-defined variables, the learning phase may take longer, along
with the numerical operations for optimizing coefficients, the algorithm shows
limitations of the binary targeted variables.
k-mean specific algorithm
k-means specific algorithm is the only one selected here from the set of unsupervised
algorithms. Starting from an assembly of "𝑁" observations 𝑥 1 , … , 𝑥 𝑁 each described by
𝑝 variables, this algorithm creates a partitioning in 𝑘 sets or homogeneous clusters, each
observation having a correspondent point in a space with 𝑝 dimensions. The algorithm
finally aims to identify the partition of the 𝑁 points in 𝑘 clusters in which the sum of the
squares of the distances between points in the group’s center of gravity has minimal
value (See Figure 3).
Poor Excellent
Arbitrary units (a.u.)
Arbitrary units (a.u.)
Arbitrary units (a.u.) Arbitrary units (a.u.)
(a) (b)
Figure 3. Illustration of K-means sensitivity to the initialization of the mean points. So, if a
centroid is initialized to be a “far-off” point, it might end up with no points associated, and
more than one cluster might end up linked with a single centroid
We notice the very high degree of complexity of this type of mathematical approach, the
only possibility is a heuristic algorithm providing solutions with a certain
approximation degree, after a prototype with 𝑘 points is initially chosen, the algorithm
is operationalized with a successive iterative structure.
We distinguish the following series of advantages for this type of algorithm: fast
operability for economic organizations, the possibility of multiple launchings of the
algorithm for the verification of the elaborated partition’s correctness. Also, the
218 Strategica 2020
algorithm shows the facility in processing large volumes of data, cases specific to the
problems of the business ecosystem, correlated with other algorithms of the same type,
facilitates the discovery of auxiliary data categories that may influence future
observations involved in the elaboration of organizational strategies.
Among vulnerabilities we mention that the selection of the 𝑘 sets represents the user’s
choice, an optimum way is not identifiable, there are negative influences in this regard,
the obtained solution depends on the rule of the 𝑘 points chosen at the beginning.
Decision trees
The decision trees are typical models of supra-target and non-parametric ML, used in
the classification and regression processes specific to the systemic approach of the
economic processes. No type of probabilistic model is used in this type of approach, the
method being purely algorithmic. The fundamental idea consists in the classification of
an observation based on a sequence of questions, operationality also designated
"𝑆𝑒𝑔𝑚𝑒𝑛𝑡𝑎𝑡𝑖𝑜𝑛 𝑐𝑟𝑖𝑡𝑒𝑟𝑖𝑜𝑛", which involves the predictable variables 𝑥𝑖 , of the
observation, each question represents a knot in the decisional tree.
The set of target variables is determined by a finality process represented by a final tree
knot, where the final observation gets after the set of questions. The learning step
consists of finding correct questions addressed for a set 𝑥 1 , … , 𝑥 𝑁 , of the observations 𝑁
covered by labels 𝑦1 , … , 𝑦 𝑁 . Finding an optimal tree in the meaning that minimizes the
number of addressed questions is a difficult mission in the meaning of the highest
complexity degree, the processes of dimensionality reduction must be therefore
initiated, thus generating the occurrence of a heuristic method. The target is that the
“leaves” of the tree are so homogeneous that they will ideally contain only 𝑥 𝑖
observations from a single set 𝑦 𝑘 .
The developed strategies consist of the association of the knots with well-defined
criteria of segmentation, generating a cascade decision process with progressive
growth.
Hereinafter we present a synthetic table of the business activity of an economic

organization, the learning ML process of the decisional trees, the type is evaluated and
structured during a calendar year, in which four predictive variables and one target
variable, considered to be representative, are chosen.
Table 1. Example of a decision tree.

No. Forecast Sales Advertising/Marketing Ecosystem Activity
1 Average Average Normal Negative Operational
performance influences
2 Average Average Normal Without Operational
3 High High Aggressive Without Operational
4 High High Normal Positive Operational

11 High High Aggressive Positive Operational
12 High High Aggressive Positive Operational
The advantages induced by this approach for systemic economic processes are that
explicative variables are perfectly possible both qualitative as well as quantitative, data
preparation step has a reduced dimensionality if the interactions between variables are
considered linearity hypotheses is no longer necessary.
Among the vulnerabilities identified for this method, we shall indicate the over-learning
risk, in case of an incorrectly elaborated tree, the segmentation criterion negatively
influences the entire predictive process, thus data are erroneously interpreted,
generating false organizational strategic conclusions.
Random forest algorithm
This type of algorithm (Breiman, 2001) has in its structure most of the advantages
generated by the approach using decision trees. The vulnerabilities induced by over-
learning phenomena and high complexity are eliminated. This approach is built on three
basic ideas (see also Figure 4), as follows:
(i) Starting from an initial sampling 𝑁 of the observations 𝑥 1 , … , 𝑥 𝑁 in which each
is described by the predictive 𝑝 variables, a new 𝐵 sampling is created, with
the same 𝑁 dimensionality, this is known in the operational practice of the
organizational business models under the name of "𝑏𝑜𝑜𝑜𝑡𝑠𝑡𝑟𝑎𝑝", we identify
"𝐵" different decision trees;
(ii) Among the 𝑝 predictive variables in case of segmentation processes associated
to the knot of a tree, in operation only a randomly chosen number 𝑚 < 𝑝 is
used, this selection aims the performance of the best segmentation possible;
(iii) The algorithm is practically a mix of weaker operational algorithms, 𝐵
decision trees are generated, for the classification of a new observation 𝑥 a
process for running the 𝐵 trees is initiated, the finality resulting from the
selection of the majority set between the 𝐵 predictions, we consider that is a
typical example of the general method.
By comparing to the algorithms specific to previously described ML algorithms, the

random forest brings information with a high degree of accuracy and innovation, as
follows:
(i) Estimation of the prediction error;
(ii) Estimation of the importance of the variables in a non-linear framework;
(iii) Defining a proximity formalism between observations;
220 Strategica 2020
We also identify the advantages provided by this approach, probably one of the most
efficient available algorithms, provided by the current technical-scientific development
for the high predictive degree of the operationalities and organizational strategies for
business models. It should also be noted that this type of algorithm does not face the
problem of over-learning, it is easily transposable into operation, with increased power
in predictive strategies. One of the identified vulnerabilities is that the operational
implementation of the algorithm is difficult due to its complexity, hardly intelligible
character for the deciding decision trees.
Data set
...
Majority voting/averaging
Figure 4. Illustration of a random forest algorithm
Support vector machines
Support vector machines (SVM) are also known as 𝑊𝑖𝑑𝑒 𝐸𝑑𝑔𝑒 𝑆𝑒𝑝𝑎𝑟𝑎𝑡𝑜𝑟𝑠. These are
considered very powerful non-linear binary classification algorithms, in certain
circumstances they are the perfect replacement for neuronal learning networks,
inducing relatively higher costs (Tian, Shi & Liu, 2013). 𝑇ℎ𝑒 𝑆𝑉𝑀 principle consists in
the elaboration of a separating non-linear band with a maximum width that separates
two observation groups and uses them for issuing predictions.
A non-linear 𝜑 transformation is used, that sends the points 𝑥 1 , … , 𝑥 𝑁 from the original
space with 𝑝 dimensions, the number of predictive variables, to the new points,
𝜑(𝑥 1 ), … , 𝜑(𝑥 𝑁 )in a space with a dimensionality larger than 𝑝, where the separation is
simpler, the identification of a "𝑆𝑒𝑝𝑎𝑟𝑎𝑡𝑖𝑛𝑔 𝐿𝑖𝑛𝑒𝑎𝑟 𝐵𝑎𝑛𝑑" is aimed, that with the help of
this type of approach is a target easier to reach so the problem that initially seemed
relatively complex is replaced with a simpler problem with reduced costs.
The advantages generated by such an approach consist in the efficient treatment of

problems with a high number of dimensions, exactly as the problems faced by modern
economic organizations. Support vector machines represent an alternative to neuronal
systems more are cheaper and easier to train. One of the vulnerabilities is the difficulty
to define the Function K(𝑘𝑒𝑟𝑛𝑒𝑙 𝑡𝑟𝑖𝑐𝑘), the increased complexity of the algorithm, most
of the time, the final generated performance is below the one of the approaches using
the Random Forests.
Algorithms for dimensionality reduction
In the operational activity of the deciding organizational top management, the reduction
of the number of explicative variables in several observations is a priority task, being
justified by:
(i) The reduction of the execution time of a learning algorithm which is directly
dependent on the size 𝑁 of the learning algorithm and number of 𝑝 variables;
(ii) Dimension 𝑁 of a significant sample, containing the number of variables;
(iii) The development of a predictive model with an optimum number of variables
that are easy to interpret, flexible and with increased visibility.
The reduction of the variables number is a permanent aim (Sarveziani, 2014),

depending on the chosen organizational business, but retaining the final predictive
target of the original variables, we identify three strategic directions for actions:
(i) "𝐹𝑎𝑐𝑡𝑜𝑟𝑖𝑎𝑙 𝐴𝑛𝑎𝑙𝑦𝑠𝑖𝑠", explains the 𝑝 variables observed 𝑥1 , … , 𝑥𝑝 , for 𝑘 < 𝑝 for
the factors 𝑓1 , … 𝑓𝑝 designated "𝐿𝑎𝑡𝑒𝑛𝑡 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑠", operational practice
determines the expression of each 𝑥𝑖 as a linear combination of 𝑓𝑖 ;
(ii) The analysis of the main components is the inverse principle of the
𝐹𝑎𝑐𝑡𝑜𝑟𝑖𝑎𝑙 𝐴𝑛𝑎𝑙𝑦𝑠𝑖𝑠, it consists of searching a restrained number of linear
combinations between the original variables 𝑥1 , … , 𝑥𝑝 to create non-correlated
components that explain the variables’ essential compared to the original
variables, the results obtained are very close to the one obtained following the
factorial analysis;
(iii) "𝐹𝑜𝑟𝑤𝑎𝑟𝑑 𝑆𝑒𝑙𝑒𝑐𝑡𝑖𝑜𝑛" modeling consists in the introduction one by one of the
predictive variables in the chosen model, each step uses the non-used variables,
the most correlated with the target variables, the process is stopped when the
correlation level decreases below a previously set level according to the
purpose and aimed accuracy degree.
Conclusions
Business modeling and optimization in economic organizations by paradigms specific to

ML provides a very strong facility, flexible and adapted for the elaboration of optimal
decisions by the top management. Without claiming to be a panacea for the top
managerial decision, we consider that the procedures and algorithms specific to ML are
an efficient alternative in this new field of human knowledge and research.
We have presented a discussion of algorithms for machine learning applied to business

models of economic organizations and their challenges. Our analysis suggests that
applying such ML to concrete industrial and business cases in existing complex
ecosystems, results in some concrete and specific features that certainly contribute to a
more efficient, more effective, and more profitable business:
(i) Capability to achieve transposition into operationality: intelligent solutions with
a high complexity degree cannot reach levels of high efficiency if they are not
transposable to a distribution framework;
(ii) Capability to detect and use only the very useful data for the economic
organization and, at the same time, detect and eliminate dirty data with a high
incoherence risk;
222 Strategica 2020
(iii) Achieve transparency as a characteristic to functionalities specific to Machine

Learning, a feature for the improvement of the organizational performance, the
learning process having a progressive growth;
(iv) Leverage on appropriate competences, specific to the implementation and
optimization of ML paradigms;
(v) Improved Proportionality reflecting the quantity of energy and resources
invested in the improvement and optimization of algorithms specific to the
economic models in relation to the total revenue obtained at the economic
organization’s level.
Among the future trends and perspectives in the field, on top of the discussed
algorithms, we would like to mention the following two ones: (a) confronted with the
problem of huge amounts of Big Data, many not useful, ML can be deployed and used for
filtering the data as per its significance and providing only the useful and functional data
to gain time and efficiency, (b) use of ML for to address cybersecurity issues, which will
require new classes of algorithms capable to serve as multiple layers of protection by
automating complex tasks and detecting cyber-attacks on its own, automating
responses to cyber-attacks without any human intervention.
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224 Strategica 2020
LEADERSHIP IN THE ARTIFICIAL INTELLIGENCE ERA

Elsy SARKIS
Geneva Business School
School of International Businesses
elsysarkis.k@gmail.com
Vincenzo PALLOTTA
University of Applied Sciences of Western Switzerland HES-SO
School of Business and Engineering of Canton Vaud HEIG-VD
vincenzo.pallotta@heig-vd.ch
Abstract
Technological advances are growing at a very accelerated pace, particularly Artificial Intelligence
(AI), which has led to a surge of commercial interest in automation and robotics. “Technology is now
at the point of taking us into a magical age,” Alphabet (Google) chairman Eric Schmidt quoted in
January 2017. Bolstered by the fourth industrial revolution, robotics is used by many industries in
order to perform a wide range of tasks, while AI is now able to assist in making complex decisions in
an increasing array of applications. The concept of Artificial Intelligence implies the potential for
better efficiency and enhanced consistency. Using simulated artificial neurons and algorithms, AI
systems are being incrementally adopted by many industries for their improved performance over
their human counterparts. However, according to many researchers, the increased use of AI is
resulting in a proportionate decrease in human labor while creating gaps at different levels within
the organization. Consequently, accommodating this evolutionary transformation and managing the
transformational balance between humans and robots, or the huros 1 workforce, has become a
0F
mounting challenge on today’s leadership. This paper outlines the major challenges that
management leaders must face while adopting Artificial Intelligence technology in their
organizations. As result of a qualitative research study, we identify critical areas of focus in the
transition towards the management in the AI era.
Keywords
Leadership; artificial intelligence; management; governance; digital transition; industry 4.0.
Introduction
According to the father of Artificial Intelligence, John McCarthy, it is “The science and
engineering of making intelligent machines, especially intelligent computer programs.”
(Childs, 2011). Artificial Intelligence is the development of computer systems that can
perform tasks reflecting human intelligence generated from the idea of “Can computers
think?” It refers to machines with the ability to exhibit intelligence and perform
cognitive functions ascribed to humans. Despite McCarthy’s explanation, there is no
specific standard definition of AI that has been agreed upon; it is hard to be defined since
human intelligence cannot be fully understood (Nilsson, 2009). It is a branch of
Computer Science that aims at making a computer, a computer-controlled robot, or a
software think intelligently, and similarly to human’s intelligence and thinking methods.
1*Huros: a term created by the researcher to refer to robots performing human jobs at the
workplace.
The most basic form of AI uses data while performing rule-based calculations or learning
algorithms in order to make decisions or predict outcomes.
The concept of what defines AI has changed over time, but the fundamental objective
has always been to build machines which can think like humans. It can be thought of as
simulating the capacity for abstract, creative, deductive thought, and particularly the
ability to learn. It is as well, a machine that can perceive its environment and take actions
autonomously that maximize its chances of success at some specific goals (El Homsi,
2018).
AI is empowered by some new technologies that are considered the catalysts or the
backbone of Industry 4.0 (Schwab 2017). Some of these are: The Internet of Things
(IoT), Cloud Computing (CC), and Big Data (BD).
 Internet of Things (IoT): It is a technology that connects objects together at any
time and any location. It uses the internet and special sensors in order to
communicate and drive actions involving machine-to-machine and machine-to-
human interfaces. IoT creates value and simplify the management of
information.
 Cloud Computing (CC): It is a centralized web-based computing system to store
data resources. Cloud computing services can be offered by a service provider
who would maintain the infrastructure; it works without a specific location and
on demand basis, delivered by information technology (IT) resources. It enables
users to manage and process their data at lower costs.
 Big Data (BD): It is the huge and complex electronic datasets that are difficult to
be managed by means of traditional software and hardware. These can take
various forms such as virtual, physical or a combination of both.
Leadership is the catalyst of every organization; it is responsible to provide vision,

strategy and clear direction. However, due to advances in technology, leadership of this
era is facing difficult and complex challenges, and many leaders feel ill-prepared to
tackle the various types of obstacles. The most intricate factor is the accelerated pace of
change, which is intense and difficult to cope with (Gentry, Eckert, Stawiski, & Zhao,
2016). Added to that, is the complication of the new technology that requires a constant
updating of knowledge and skill enhancement. Moreover, there is a need for developing
leaders who can effectively deal with people and AI, since the current trends are heading
more towards human / machine groups that have proven to be more efficient and
productive than groups comprised by only one or the other; consequently, giving shape
to a new business model and structure.
Literature review
A research project by MIT Sloan (MIT Sloan Review 2018) was conducted over five years
(2013-2018) and surveyed 27,300 respondents in 161 countries from 28 industries,
including 150 interviews with executives. It determined that AI is a very tempting trend;
however, it is up to every organization to conduct a needs-analysis in order to decide
which technology best fits the organizational needs. Some organizations might not need
AI, whereas implementing AI might require reorganizing the company to be more agile,
risk tolerant and experimental. The biggest challenges impacting the company's ability
226 Strategica 2020
to compete in a digital environment are multifaceted. Challenges pertaining to working

in a constantly changing and ambiguous environment, getting people to take risks, and
acquiring the right technology are considered very difficult. The study pinpointed a
huge gap between learning and development as a major obstacle. For developing
organizations, technology is changing the nature of the work that people normally do.
Learning is very important, but the need to update skillsets is a greater challenge since
traditional ways of training such as on-line courses and training programs would not
help to instill behavioral change. In this case, on-the-job training would be more
practical than traditional training. However, digitally maturing organizations create an
environment for learning through experimentation, feedback, and iteration. They are
better at sharing results of failures, encouraging new ideas, and experimenting so all the
involved parties can learn.
The 21st century is marked by a plethora of emerging technologies that are not only
creating change but also disruption to every industry (Manyika et al., 2017). These are
incrementally becoming integrated into every aspect of the individual and business lives
with no exception. AI, as specified in a report for the Greenpeace Environmental Trust,
is one of few emerging technologies that might offer “hope for the betterment of the
human conditions” (Arnall, n.d.). The advancements of AI technologies have greatly
flourished and propagated into various fields and can be subdivided into several types.
According to the World Economic Forum 2016 (World Economic Forum, 2016),
digitalization is an essential factor of the 4 th industrial revolution; therefore, it is
becoming very eminent that every organization seeks for the appropriate smart
technologies that best fit its needs.
Applying AI technologies seems easy and attainable, however, due to the availability of
a wide variety of different relevant technologies make this objective more complex and
costly (Schwab, 2017). Add to that, the pace of change is very dynamic and difficult to
cope with; it creates challenges at the macro and the micro levels of the organization and
brings about changes in economies, societies and demographics. Despite these facts,
business leaders opt to experiencing this transformational era due to the fears of being
left behind.
The pathway to reaching the full potential of these promising technologies is full of
challenges, risks and most likely uncertainties (Eder, 2017) that leadership has to
address. Added to that, is the ever-growing need to update skillsets since technology is
changing the nature of the work that people normally do. However, when applied
accurately, AI can support and augment human capabilities so that to perform at
optimum aptitudes. It enables for new business models where leaders must reimagine
their various business processes in order to integrate the smart technology while
building organic teams associating human with AI systems (Daugherty & Wilson, 2018).
Spurred by all these notions, it is greatly noticeable that leadership is at the heart of all
decisions and changes that are taking place. Therefore, leaders of those organizations
are responsible to formulate the appropriate strategies to bridge the gaps while assuring
smooth transitions and most importantly to be aligned with the management strategies.
Leaders must set the right objectives and plan the best tactics in order to implement
these while taking into consideration all the factors including the unknown.
Research goals
The goal of this paper is to outline the major challenges that management leaders must
face while adopting Artificial Intelligence technology in their organizations. Several
scholars, researchers and authors wrote about the leadership of the digital age and gave
suggestions on how it should be and perform (Walsh, 2019; Daugherty & Wilson, 2018;
Walsh, 2015; Eder, 2017; Jakubik & Berazhny, 2017; Herold, 2016; Roose, 2019);
however, the gap is still to learn about the effect of adopting these technologies on the
leadership style. Therefore, the research question is:
What would be the impact of a novel and emergent technology such as, Artificial
Intelligence software / applications on leadership?
Moreover, the aim of this research is to understand the impact of AI technologies on the
leader as a person.
Data and methodology
This research is about the Leadership Challenges in the Artificial Intelligence Age, and the
qualitative study that has been conducted tackles two important parameters that are
relevant to the research; AI and leadership. The collected data have been analyzed and
the most relevant finding are presented.
Modern technologies are prevailing due to the various advantages they can offer
whether in terms of shortening distances and simplifying the communication process;
therefore, we have taken advantage of the technology and addressed our research
questions through a semi-structured skype-call interviews that has been conducted
based on a pre-arranged and agreed upon date and time.
Process: Prior to the skype interview, the interviewee receives an email with all the
details relevant to the purpose of the project and the list of questions that I intend to ask.
As well a copy of the “participant consent form” that they need to sign and resend via e-
mail. The process is flexible in terms of whether obtaining the answers written beside
the interview or not since some may state clearly that they are limited in time and cannot
provide the answers written. All interviews must be captured on a voice recorder, for
further review and analysis.
Variables: In order to investigate the main research question and have answers, several
variables should be taken into consideration. In this quest, it is noticeable that AI as new
technology would have an impact by causing disruptions and change; thus, the variables
that need to be measured at the leadership level could be change, new skills,
competencies, personal characteristics, traditional leader, contemporary leader. Here
after the list of questions prepared to be used in every interview:
1. Do you think that change causes disruption at the organization? How?
2. How leaders can manage to overcome the periods of continuous change?
3. How does the transition to AI affect leaders on the personal level? Does this
contribute to developing new leadership characteristics?
4. What are the skills and competencies that contemporary leaders should
develop?
5. In which ways are leaders of this era different from the traditional leaders?
228 Strategica 2020
Interviewees: for the purpose of this research, the interviewees should fit into two
categories of leaders who are willing to share their own personal and professional
experiences. The designated leaders should be, CTO, CEO, CIO and business owners who
are related or specialized in AI.
1. Leaders who are experiencing a transition to AI technologies.
2. Consultants who experienced working with other leaders who are
transitioning into AI.
Data Analysis: the data collected from 6 interviews has been analyzed following both
the step-by-step and iterative approaches. Then data has been organized by similar and
dissimilar categories or themes in order to be labeled / coded. Therefore, the basic
approach to be used is the conventional one where codes are derived from data. Table 1
provides a more precise description of the dataset in terms of the specificity of the
interviewees’ profiles and roles in their organizations.
Table 1. Interviewees’ profiles
Title Country Profile summary
CTO at Munich, Ph.D. in Particle Physics and several years of

Volkswagen Bavaria, experience in scientific research in large international
Data: Lab Germany collaborations. Member of the ATLAS experiment at
CERN.
Data Analytics and Machine Learning for production
use cases, in partnership with AWS.
Member of the Senior Platform Team implementing
the platform; contributing to data architecture, data
management and standards for data modeling.
Works at the Volkswagen Data: Lab in Munich and
focuses on different aspects of data science.
Main areas of expertise:
Data analytics
Machine learning
Applied AI and the technical challenges behind their
industrial implementation.
Co-founder Chief Austin, Texas Specialties:

Executive Officer US • Design and Innovation
at OGMA • Artificial Intelligence
Communication • Machine Learning / Deep Learning (CNN, RNN)
Co. Technology executive with hands-on experience in
Artificial Intelligence, Product Development, and
process Improvement. Leader with strong analytical
skills seeking to create value for organizations. I am
the originator of the CREŌ problem solving model and
the author of five books: “Harmonization”, “A Business
Carol”, “Corporate Sigma”, and “TPS-Lean Six Sigma”,
and the latest is Artificial Intelligence: A leader's Guide
to Building the Future.
Co-Founder of London, UK Specialties include:

Bluemanifold • C-suite advisory
Former CTO & • Emerging technologies & the 4th Industrial
Professor, now Revolution - Help stakeholders navigate the
focused on technology landscape, and the impact that such
Causality & technologies may have upon a given domain or
Complex organization
Systems
Director | Calgary, A seasoned, energetic and innovative leader that can
Leadership | Alberta, direct an organization in the visioning of a market
Vision | Strategy Canada strategy, development of an economic business case
| Technology | and execution of an aggressive project plan.
Digital Proven track record building and motivating dynamic
Transformation | cross functional teams to achieve business goals.
Portfolio | IoT | Technology visionary who creates innovative solutions
Cloud | Edge | based on cloud & edge computing, machine learning &
AI/ML AI and other new IoT technologies that enable game-
changing outcomes.
Results driven, entrepreneurial and focused on
company and employee growth.
Head of Systems San Diego, Head of Systems & Software QA Engineering for
& SW QA California, Autonomous Mobile Robotics(AMR), Autonomous
Engineering at US systems and Cloud technologies.
Brain Working together with a world class team at Brain for
Corporation Autonomous Mobile Robotics for QA Engineering
|Robotics efforts, end to end Testing & Validation, Automation
|Autonomous development, Scaling and Commercialization support.
Systems
|AI|Cloud|
Senior Human Switzerland Driven Senior Human Resources Executive with sound
Resources experience in consumer goods, health technologies,
Executive biopharmaceutical and services industries. Combine
pragmatism and leadership with a high level of
integrity and dedication. Achieve tangible results by
providing vision and operational partnership to the
business, with a strong focus on organization
effectiveness, people development and change
management.
Findings
In this section we review for each of the above listed research question the themes that
have emerged during the interview. We summarize them with some diagrams.
Question 1: Do you think that change causes disruption at the organization? How?
230 Strategica 2020
Figure 1. Theme 1: Challenges of change and disruption
The main theme (Figure 1) for this answer is change that causes disruption, and here
‘challenge’s is an emerging theme that is created due to the disruption that is cause by
change but in particular due to the continuous and accelerated pace of change. The
challenges are faced at various levels of the organization; these are the sub-themes. The
organization’s challenges are due to the disruption caused by the availability of a
plethora of technologies and inventions that promise to solve organizational problems.
However, the organization must be conscious of the fact that adopting AI technologies
requires a change in the mindset and change in the culture which is hard to deal with.
Technology adoption will not be successful unless all employees involved understand
why change is necessary and how it will impact them. Otherwise, this will create fears
from being laid off due to new technologies, and resistance to cooperate. This for certain
would lead to management distrust, unrest and anxiety. Therefore, new strategies must
be put in place and need be aligned with the new perspectives. This responsibility would
be for the leaders who must formulate the best strategies and tactics in order to
implement change management. It is challenging especially if the company operates in
traditional ways and is not as flexible to adapt to new technologies.
Question 2: How leaders can manage to overcome the periods of continuous change?
Figure 2. Theme 2: Management of Continuous Change
The main three themes for managing and overcoming the continuous change (Figure 2)
are relevant to the leaders’ abilities to adapt his behavior, plans and actions. Each theme
has its sub-themes that are substantial for smooth transition. The leader must work on
his own behavior by shifting to a mindset of openness, where communication
connectedness and listening to others are crucial for change. Planning for clear strategy
pertaining to the AI system must be implemented with clear deliverables in terms of the
obstacles and the benefits generated from this new technology; as well as bringing up
collaboration within teams to support the learning and reskilling needed by employees.
The challenges theme emerges from the two main themes ‘plans and acts’ that show
some roadblocks as sub-themes to be taken into consideration. Some of these are the
wrong perception about what are the real benefits and challenges of a certain system;
other difficulties emerge during the implementation stage, and this is due to quality of
the data and its resolution. The process creates huge transformation at many levels that
requires changes in infrastructure that is time consuming, costly and encompasses
adaptation. Therefore, partnering with expert who can bring the right knowledge and
expertise could be a solution.
Question 3: How does the transition to AI affect leaders on the personal level? Does
this contribute to developing new leadership characteristics?
232 Strategica 2020
Figure 3. Theme 3: Impact of the transition to AI
The impact of the transition to AI on leaders generated two main themes (Figure 3) that
are the negative impacts of AI on leaders and the positive impact. The negative impact
has four sub-themes by which they discuss a subset of themes called challenges. Fear of
the unknown, lack of trust, differentiate AI hype from reality and resistance are the main
sub-themes for the negative impact that generate a subset of challenges depicting the
impact. However, these will lead to the positive impact of the transition and the
emergence of a new theme where leaders develop new characteristics as sub-theme, due
to the challenges they face through the transition to AI.
Question 4: What are the skills and competencies that contemporary leaders should
develop (with regard to AI technologies)?
Figure 4. Theme 4: Skills for new leadership
There are two main themes to answer this question (Figure 4), these are divided by the
skills as one theme and the competencies. The leadership skills theme has three main
sub-themes that are the conceptual, technical and interpersonal skills that the
contemporary leaders should develop. Every sub-them has a relevant subset of codes.
The competencies theme has a list of sub-themes that discuss the competencies of the
contemporary leaders.
Question 5: In which ways are leaders of this era different from the traditional
leaders?
234 Strategica 2020
Figure 5. Theme 5: Traditional vs Contemporary Leaders
There are two main themes that are related to this question (Figure 5), the traditional
leader and the contemporary leader. Every theme has various sub-themes that were
mentioned and discussed by the interviewees. All interviewees agreed that there are
new and contemporary attributes to the contemporary leaders that were not available
in the traditional leaders. For sure there would be some commonalities between the two
styles, but the focus was on these two only.
Discussion of the findings
This research was conducted aiming to have better understanding of the impact of AI
technologies on leadership and exploring the ways that leaders have adopted in order
to manage disruptions. Six leaders from different European and North American
countries participated in this study; they are involved in the transition to AI and or have
had the experience to work with leaders who went through this transformation. The
participating leaders generously answered all the questions asked, discussed the
challenges they are facing due to the accelerated pace of change and adoption of new AI
technologies, and most importantly, they transparently shared the impact of this
transformation on their persona. The main findings of this study suggested that there
are several challenges that leaders commonly share even though they are in different
parts of the world.
Continuous change is causing disruptions at various levels of the organization and that
requires consistent attention and responsiveness from stakeholders. This could be
materialized by changing behaviors, plans and actions to accommodate the change.
Adopting AI is not an easy process, yet it is iterative and entails total commitment and
involvement. The process is accompanied with uncertainties that sometimes
necessitates in some cases to push the project to fail. The old ways of leading do not
work in the digital era, command and control styles became obsolete in such
environment; empathy and servant leadership styles are taking place. The pressures
and the challenges created by continuous change are shaping the new leadership that is
very cooperative, open minded to connect with others and create cross-functional teams
who can solve problems, tech-savvy, and equipped with calibrated attributes to mentor
and nurture while keeping the momentum of learning steady.
All participants confirmed that this era is marked by the continuous and accelerated
pace of change that is causing disruption to every aspect of the individual and business
life. This phenomenon is triggered by the availability of new advanced AI technologies
that are offering various solutions to industries, such as increased productivity and
enhanced efficiency. These factors are creating an enticing environment for industries
where the transformation / transition to AI became a necessity. However, this
disruption creates numerous challenges at the levels of the organization, leaders and
employees. Whilst adopting the most efficient and cost-effective technology remains a
difficult decision in view of the availability of a plethora of AI technologies and
applications. Therefore, the organization must formulate a strategy that is aligned with
the required changes taking into consideration the implementation of the new
technology. It is a huge transformation to the industry, and it requires a mindset change
that can incorporate all the necessary changes patiently as it is an iterative process
where the results are not guaranteed. The organization must work on its cultural change
by means of communicating why the change is necessary, and the impact of the change
on stakeholders including the benefits of adopting the AI technology. Leaders are at the
heart of the organization where they must implement the change management
considering the organization’s strategy and the employees’ needs. These are likely to be
resistant to the new initiatives as they fear that the new technology will replace their
jobs. This challenging situation would lead to employee’s anxiety, unrest and distrust
that the leader must manage as well.
Continuous change is synonymous to uncertainty; thus, in order to manage such change,

leaders should be flexible to come up with appropriate solutions to problems. The
findings suggested three dimensions to managing continuous change; the behaviors, the
plans and the actions.
 Behaviors: The leaders ought to behave in a proactive way, adapt very fast to
new requirements, go the extra mile to support their units, have clear
understanding of the core business values. Building cross-functional teams is
crucial as it promotes learning and encourages team problem-solving. Leaders
must keep consistent and open communications with their teams, listen to their
suggestions and incorporate their feedback in the strategy.
236 Strategica 2020
 Plans: The plans should include a clear strategy with clear deliverables, support
internal collaboration and use the resources from within the organization.
Hiring Data Scientists is not often the right decision, simply because they are
from outside the company, they lack any understanding of the core business.
 Actions: re-skilling and training employees are integral as they alleviate anxiety
and distrust. Leaders must instill a learning environment where people are
welcome to share knowledge and learn from each other. Accepting that the new
norm is not a pre-defined job description and a clear list of responsibilities;
there will be a shift on the types of jobs and knowledge required to execute
those jobs. Hence, adaptation is as important as finding ways to keep employees
busy by acquiring new tasks and responsibilities.
The transformation is a huge process that requires collective efforts; the AI

implementation could be very challenging due to various obstacles related to the
infrastructure that is time consuming and costly, for instance, the insufficient amount of
data, its quality and resolution can slow the process. Added to that, the difficulty to
contextualize the classifications of the AI models to the business process. Therefore,
partnering with experts who can bring the expertise along with the required knowledge
in technology, could be the right solution.
The high involvement of leadership in the transition to AI has several impacts that can
affect him on the professional and the personal levels. These impacts could be negative
which create lots of challenges, and positive that would support the creation and
molding new leadership characteristics. The fear of the unknown that the leaders may
face could be transferred to their teams, which may lead to loosing trust. The leaders’
challenge is to transfer this fear to opportunity, keep up the open communication by
sharing those feelings and being as honest and transparent as possible and build the
strength to grow away from fear by discussing possible solutions with the teams and
empower them to contribute in the decision making. The hype around AI technology is
high and sometimes expectations are built accordingly; thus, it is very important for
leaders to be knowledgeable, tech-savvy and capable to differentiate between hype and
reality. Understanding AI concepts, jargons, and the necessary steps to implement AI
prevent leaders from being resistant to this technology. AI is not a magic box, it is an
iterative process that requires tremendous efforts prior to, through and post
implementation. Added to that, it is hard to define the quality measures of AI products
and in some cases, the software tool might fail. Leaders who manage to overcome
challenges would build an immune personality that is able to manage uncertainty,
navigate options and find ways to land from failures and learn, search for answers by
learning, protect their teams and most importantly develop a less ego-centric character.
The leadership of the digital / artificial intelligence era must develop very sophisticated
skills and competencies in order to be compatible with the requirements complexity of
the technology. The participating leaders confirmed that besides the re-skilling and the
various trainings they are going through, they have developed new skills and
competencies in order to manage the different obstacles they faced through the process
of transitioning to AI.
The skills are divided into three layers: the conceptual, the technical and the
interpersonal.
1. The conceptual skills are relevant to making decisions based on findings.

Building cross-functional teams who can adopt agile scenarios, this is a new
concept developed by leaders in order to have different perspectives for solving
a specific problem. Patience to factor in failures and give more room for
experiments and accept results. Have intellectual curiosity and interest in new
developments in the field. Foster continuous education and critical thinker to
analyze situations from various perspectives.
2. The capability to define success criteria for AI product as a technical skill and
to be an AI technology savvy in order not to be fooled by the hype around it
beside other criteria that were mentioned earlier.
3. The interpersonal skill of the contemporary leaders is very crucial as they
include, creating teams rich in diversity and highly interconnected, listening to
suggestions, creating self-confidence and commitment in the team / employees,
removing boundaries and exploiting all synergies available within the
organization, adopting the servant leader model, communicating relevant
information with transparency, having an open mind to foster collaboration. In
terms of the contemporary competencies, the participating leaders emphasized
on several criteria that they needed to develop and enhance. Some of these are:
to have emotional intelligence and manage employees not only from the
professional perspective but also be cognizant of their personal drives, this new
concept of leading is a competency as it is not meant for any leader, learn and
adjust leadership style as needed, have the courage to face and push failure,
failures are not covered up and ashamed from, but learned from, to empower
teams to take decisions, to be able to solve the team’s argument, have the ability
to communicate with stakeholders and experts who are involved in the
transition to AI, embrace creativity knowing that system can never replace the
man in terms of decision making, have global mindset, live new perspectives,
exchange mixed cultures, travel, seek opportunities and take risks.
These competencies are very interesting as they represent the courageous leader who
possesses a competitive style that fits the 21st century and ready to lead the 4th industrial
revolution. Unlike the contemporary leader the traditional leader cannot survive in the
digital era since it is marked by agility and new concepts of thinking. For instance,
command and control is replaced by servant style, ego centric by less ego-centered,
make decisions and tell people what to do is replaced by involve people and integrate
their feedback into the strategy, empowering instead of micro-managing and so on. The
traditional leader was depicted as an “endangered species!”
Conclusions and future work
It can be said that the main objectives of this research were successfully achieved, and
the questions were answered with a generous amount of information obtained from the
participating leaders. However, some limitations were faced especially with the last
question that was about the difference between the traditional and the contemporary
leaders. The interview questions were more focused on the change and how leaders are
managing to overcome the periods of change, and then the impacts of the changes by
means of implementing the new AI technology, so through these discussions, the
attributes of the contemporary leaders versus the traditional leaders were discussed
238 Strategica 2020
limitedly. Thus, when the last question was asked, the interviewee felt like this has been
discussed during the interview. It is worth to mention that the interview experience with
those leaders from different parts of the world highlighted and confirmed some of the
research readings of the project.
The main implication of this study is that by identifying the critical areas of struggle of
real managers, we can already frame the compelling issues and steer the research
towards the most promising directions for providing them with relevant support.
Although continuous change has always been central in period of transition, combined
with the disruptive power of AI, existing practices could not be enough or well-adapted
such as mere re-training or acquiring technical skills. It seems that AI transition might
affect deeply the organization in its global structure and the staff’s mindset. Therefore,
current practices dealing with continuous change need to be reconsidered to face the
specific challenges outlined in our research.
Future work includes to deepening the research in order to elicit more insights about
the digital transition in the enterprise due to the spread of Artificial Intelligence
technology. We aim at understanding the specificity of different industries such as the
IT/Services sector, the BioTech/MedTech sector and the Manufacturing sector.
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240 Strategica 2020
THE MEDIATOR ROLE OF TRANSFORMATIONAL LEADERSHIP

BETWEEN ASSERTIVENESS AND JOB PERFORMANCE
Marius C. ROMAȘCANU
30A Expozitiei Blvd., 012104 Bucharest, RO
marius.romascanu@comunicare.ro
Dan F. STĂNESCU
dan.stanescu@comunicare.ro
Abstract
Assertive relationships are those in which the underlying attitude is one of “I’m OK: You’re OK” – there
is mutual respect and regard, a curiosity about differences, and a willingness to work together in
overcoming setbacks. In such organizations, people feel that they matter, others matter and that
everyone is part of achieving business success through engagement with each other and with what
they are doing. Especially in this type of organization leadership style represent an important factor
that affects the enhancement of organizational performance and employee’s job performance, and
what objectives they should pursue. Literature reviews on transformational leadership show its
positive association with performance outcomes, particularly in private companies. A great deal of
research has examined the significant impact of transformational leadership on work outcomes such
as work performance and employee reactions and demonstrated that leaders who adopt the
transformational leadership approach are better able to motivate employees to perform beyond
expectations. The current research aims at exploring the relationship between assertiveness and
employee job performance (task and contextual), additionally examining the mediating effect of
transformational leadership. The study is based on a cross-sectional design, data is collected from
138 employees through the following structured questionnaires: MLQ – Multifactor Leadership
Questionnaire, Job Performance Scale, and Rathus Assertiveness Schedule. The results of the study
suggest that assertiveness positively predicts job performance. Particularly, the study also finds that
transformational leadership significantly mediated the effect of transformational leadership on job
performance. Specifically, the findings revealed a positive and significant relationship between
assertiveness and both job performance and transformational leadership, as well as the fact
assertiveness through transformational leadership, fosters job performance. Based on these findings,
it can be observed that assertiveness, job performance, and transformational leadership are
important elements that can improve organizational performance. The practical implications of the
recent study are discussed as well as some directions for future research in the area.
Keywords
transformational leadership; assertiveness; job performance; mediation.
Introduction
The present study starts from the observation that effective leadership is a complex
social phenomenon, based entirely on context and dependent on the situation (Zeb,
Ahmad, & Saeed, 2018, p.103). Among the most influential theories of leadership in the
last decades, the theory of transformational leadership highlights the direct impact of
leaders on individual followers (Zwingmann, Wegge, Wolf, Rudolf, Schmidt, & Richter,
2014).
In addition to transformational leadership, viewed in an organizational context,

assertiveness contributes to the development of a positive and open communication
climate, supporting the development of employees' self-esteem and facilitating trust
between leaders and followers. Assertiveness is thus a balance between being
aggressive and submissive, a balance that in turn encourages self-respect, respect for
others, and cooperation (Lange & Jakubowski, 1976). “At work, assertiveness
emphasizes so many of the skills we use in our relationships with others, such as
communication, negotiation, and leadership” (Garner, 2012, p. 13). Starting from those
findings, our first hypothesis is: Assertiveness is positively related to transformational
leadership.
According to Plafman (2017), assertiveness represents also a body of research that has
now studied many disciplines such as health, well-being, sports, and organizational
studies. Also, according to Marie and Ferjan (2010), assertiveness can help boost one’s
power and self-confidence, thus increasing task performance. In a study on student
population, Prakash and Devi (2015) stated that assertiveness is an important behavior
that every student must have for them to achieve more in their academic performance.
Therefore, our second hypothesis is: Assertiveness is positively related to professional
performance.
Transformational leadership is defined as “generating enthusiasm for a vision,” a high

level of individualized consideration, creating opportunities for employee development,
setting high expectations for performance, and acting as a role model to gain employee
respect, admiration, and trust” (Lewis, Yarker, & Donaldson-Feilder, 2012, p.220).
Transformational leadership empowers and motivates individuals to improve their
potential, develop skills, and improve self-efficacy and self-esteem (Kovjanic et al.,
2013). Moreover, transformational leadership shapes the behavior of followers by
motivating them to achieve performance beyond expectations by transforming their
attitudes, beliefs, and values (Rafferty & Griffin, 2004). Because transformational
leaders “provide constructive feedback to their followers, encourage them to think
creatively about problems, and show the ability to convince them to exert effort, their
subordinates should generally benefit from such influence and more easily achieve
higher levels of formal performance” (Cavazotte, Moreno, & Bernardo, 2012, p. 494).
Therefore, our third hypothesis is: Transformational leadership is positively related to
professional performance.
According to one of the first conceptualization (Bass, 1998), transformational leadership

covers four major components: idealized influence, inspirational motivation, intellectual
stimulation, and individualized consideration (Avolio, 1999; Bass, 1998). Later on, the
idealized influence was further divided into idealized influence – attributed and
idealized influence – behavior (Bass & Riggio, 2010; Luthans, 2005). Transformational
leadership has an essential impact on organizational performance, as well as on the
employees’ attitude and emotional encouragement (Bass & Riggio, 2010; Northhouse,
2010). In an exploratory approach, the forth hypothesis is: Transformational leadership
mediates the relationship between assertiveness and professional performance.
242 Strategica 2020
Methods
In this study, we aim to determine the effects of assertiveness on work performance and
transformational leadership; as well as to investigate the mediating role of the
transformational leadership between assertiveness and work performance.
Transformational
Leadership
Assertiveness Work performance
Figure 1. Conceptual framework
Figure 1 illustrates the theoretical framework proposed for the present study. It can be
seen from the diagram that the study aims at firstly examining the relations between
assertiveness, transformational leadership, and work performance; and, secondly, at
investigating the mediating role of the transformational leadership between the
assertiveness and work performance.
The sample consisted of 138 employees (men = 31, women = 107). The age range of the
participants was from 18 to 59 years (M = 23.54, SD = 7.46). For data collection, a
purposive convenience sampling technique was used. A self-reported data collection
technique was employed. Before completion, the purpose of the study was briefly
explained to the participants and informed consent was obtained. All participants were
ensured about the confidentiality of the data and that it would be only used for research
purposes. They were invited to fill in a set of questionnaires compiling the following
measures:
a) Multifactor Leadership Questionnaire (Form 5X) - Multifactor Leadership

Questionnaire, is a structured, verbal, omnibus measure of leadership styles. The
questionnaire consists of 45 items, covering what is known as the ''full-range''
leadership model (Bass & Avolio, 1990). The full range model of leadership assumes the
existence of differences in the effectiveness of leadership styles, based on the
active/passive distinction. Broad categories of leadership and MLQ scales range from
Passive / Avoidant Leadership (Laissez-Faire), through the classical model of
Transactional Leadership and up to Transformational Leadership. Ratings were
completed on a five-point Likert-type scale ranging from 0 (not at all) to 4 (frequently).
Dhammika, Fais, & Thi Lip (2014) reported good internal consistency coefficients for all
transformational leadership components: 0.70 for idealized influence (attributed), 0.80
for intellectual stimulation, 0.86 for individual appreciation, 0.87 for inspirational
motivation, and 0.89 for idealized influence (behaviors) (Dhammika et al., 2014).
b) Job Performance Scale, developed by S.A. Goodman and D.J. Svyantek (1999), consists
of sixteen items, covering two dimensions of performance in the workplace. The odd
items are related to Contextual Performance, while the remaining even items are related
to Performance tasks. The answers are distributed on a four-options Likert scale from 1
(Strongly Disagree) to 4 (Strongly Agree). In a study by Yusoff, Ali, and Khan (2014), the
internal consistency coefficient (Cronbach’s Alpha) of this test was 0.82 (Yusoff et al.,
2014).
c) The RAS – Rathus Assertiveness Schedule, was developed in 1973 by Spencer Rathus
as a scale designed to measure a person’s level of assertiveness (Rathus, 1973). The
scale contains 30 items in total, with items scored from very characteristic of me to very
uncharacteristic. A total score is obtained by adding numerical responses for each item,
after changing the signs of reversed items. Gustafson (1992) found that the original scale
was reliable (Cronbach’s alpha = .82).
Results
After collection, the data were analyzed using SPSS 22.0 version software, including the
PROCESS macro for SPSS version 3.2.02 developed by Andrew Hayes. Finally, we carried
out a Sobel test (quantpsy.org/sobel/sobel.htm) to probe the mediation effect (Preacher
& Hayes, 2004).
Hypothesis 1. Assertiveness is positively related to transformational leadership.
To test this hypothesis, the Pearson intercorrelation coefficients were calculated, both
between the assertiveness and the composite transformational leadership score, and
between assertiveness and the five sub-scales of transformational leadership. The
results presented in Table1 and Table 2 highlight the existence of significant positive
relationships, both at the composite score (r = 0.259, p <0.01) and for all five dimensions
of transformational leadership, according to the Full Range Leadership Model.
Table 1. Transformational Leadership and Assertiveness intercorrelations (N=138)

Transformational
Leadership
Assertiveness Pearson Correl. .259**
Sig. (2-tailed) .002
The in-depth analysis highlights the strongest correlation between assertiveness and
the individualized consideration scale of transformational leadership (r = 0.241, p
<0.01). In other words, the higher the level of assertiveness, the higher the individual
appreciation. People with high scores on the Individual Appreciation scale pay attention
to the achievement and development needs of each individual, acting as a mentor or a
coach, allocating time, effort, and individual resources to help those around them to
grow, to develop (Avolio & Bass, 2004, p.6).
Although the correlations between assertiveness and intellectual stimulation (r = 0.216,

p <0.05) and between assertiveness and idealized influence (behavior) (r = 0.189, p
<0.05) are smaller, they highlight significant intercorrelations, of lower intensity.
Therefore, leaders with high scores on the intellectual stimulation scale identify the
people who stimulate and cultivate the innovation and creativity of those around them.
This type of leader avoids mocking or publicly criticizing the mistakes of team members,
244 Strategica 2020
thus encouraging them to experiment and be creative. These leaders constantly ask their
subordinates to find new ideas and creative solutions to common problems, being
continuously involved in the resolution process (Avolio & Bass, 2004, p. 6). Moreover,
Ames (2009), found that a certain level of assertiveness seems essential for
interpersonal and organizational effectiveness.
Table 2. Transformational Leadership scales and Assertiveness intercorrelations (N=138)

Idealized Idealized
Influence Influence
(Attributed) (Behavior)
Assertiveness Pearson Correl. .225** .189*
Sig. (2-tailed) .008 .026
Inspirational Intellectual Individualized

Motivation Stimulation Consideration
Assertiveness Pearson
.222** .216* .241**
Correl.
Sig. (2-
.009 .011 .004
tailed)
Significant positive correlations were also observed between assertiveness and

idealized influence (attributed) (r = 0.225, p<0.01), respectively between assertiveness
and inspirational motivation (r = 0.222, p<0.01). Thus, the higher the level of
assertiveness, the higher the level of influence (attributed). The scale of idealized
influence (attributed) detects through its high scores a person's ability to exert
influence, inspiring power, arousing pride among his "followers", ensuring and offering
trust, overcoming individual "interests" in favor of the group, and serving as a reference
model for those who follow them (Avolio & Bass, 2004, p. 5).
We also note that the higher the level of assertiveness, the higher the level of
inspirational motivation. According to Avolio & Bass (2004) leaders with high scores on
this scale behave innovatively, stimulating both the individual and the team spirit,
increasing the enthusiasm and optimism among the team members. These leaders speak
optimistically about the future, have a confident vision of the future, express confidence
in the fact that the goals will be achieved, emphasizing the importance of each individual
in achieving them (Avolio & Bass, 2004, p.6).
Hypothesis 2. Assertiveness is positively related to professional performance.
The distinction between task performance and contextual performance is accepted by

an increasing number of authors (Conway, 1999; McManus & Kelly, 1999; Van Scotter &
Motowidlo, 1996). The term "task performance" refers to the main technical behaviors
and activities involved in the work. "Contextual performance" refers to behaviors and
activities that contribute to the social and psychological core of the organization, thus
contributing to the task (Borman & Motowidlo, 1997). Common examples of contextual
performance behaviors include peer support, task volunteering, and advocacy (Borman
& Motowidlo, 1993). These behaviors are important for achieving organizational results
and especially for sustaining their long-term success (Allen & Rush, 1998; Ostroff, 1992).
The results showed in Table 3 highlight the existence of a significant positive correlation
between assertiveness and the total performance score (r = 0.245, p <0.01), which leads
to the confirmation of the previously stated hypothesis. In other words, the higher the
level of assertiveness, the higher the professional performance.
Table 3. Assertiveness and Performance intercorrelations

Total Contextual Task
perform. perform. perform.
Assertiveness Pearson
.245** .191* .240**
Correl.
Sig. (2-
.004 .025 .005
tailed)
Moving further with the analysis, we have observed also significant positive correlations
with both task performance (r = 0.240, p<0.01), and with contextual performance (r =
0.191, p<0.05). In previous studies that highlighted correlations between assertiveness
and professional performance, the authors observed that both attitude-based training
and competency-based training improved attitudes toward team members'
assertiveness which in turn was essential in creating behavioral changes (Smith-Jentsch,
Salas, & Baker, 1996).
Hypothesis 3. Transformational leadership is positively related to professional

performance.
Table 4 shows the transformational leadership style to be positively correlated with the
composite score of work performance (r = .320, p < .01), thus confirming the hypothesis.
The same significant results were also identified for the correlations between the
transformational leadership and all the job performance scales (table 6), thus providing
additional evidence for the expected relation. Hence, all correlations ended up to be
positive and significant at a .01 level, starting with Contextual performance (r = .286, p
< .01) and Task performance (r = .282, p < .01).
Table 4. Transformational Leadership and Performance intercorrelations

Transformational Pearson
.320** .286** .282**
Leadership Correl.
Sig. (2-
.000 .001 .001
tailed)
In previous studies that have highlighted correlations between transformational

leadership and professional performance, the results indicate that leadership
246 Strategica 2020
satisfaction mediates the relationship between transformational leadership and

professional performance (Jyoti & Bahu, 2015). Also, in a recent study (2019), the
authors stated that transformational leadership positively and completely predicts
professional performance. In particular, the study finds that CSR (Corporate Social
Responsibility) significantly mediated the effect of transformational leadership on
professional performance (Manzoor et al., 2019). Also, in another recent study, the
results showed that engagement mediates the relationship between transformational
leadership and Organizational Citizenship Behavior (OCB), while engagement partially
mediates the link between transformational leadership and professional performance
(Buil, Martinez, & Matute, 2019).
In an exploratory approach, we have also analyzed the correlations between the five
dimensions of transformational leadership and professional performance. Table 5
shows significant positive correlations between all five dimensions of transformational
leadership and professional performance (p <0.01 for all five dimensions of
transformational leadership), as well as between the five dimensions of
transformational leadership and contextual performance, respectively task
performance.
Table 5. Transformational Leadership scales and Performance intercorrelations (N=138)

Idealized Pearson
.275** .244** .244**
Influence Correl.
(Attributed)
Sig. (2-tailed) .001 .004 .004
Idealized Pearson
.299** .258** .271**
Influence Correl.
(Behavior)
Sig. (2-tailed) .000 .002 .001
Inspirational Pearson
.288** .257** .253**
Motivation Correl.
Sig. (2-tailed) .001 .002 .003
Intellectual Pearson
.263** .251** .217*
Stimulation Correl.
Sig. (2-tailed) .002 .003 .011
Individualized Pearson
.240** .207* .218*
Consideration Correl.
Sig. (2-tailed) .005 .015 .010
Hypothesis 4. Transformational leadership mediates the relationship between

assertiveness and professional performance.
To test the proposed mediation model, the PROCESS (Hayes, 2012) macro for SPSS was
used (version 3.2.02). In this regression analysis, assertiveness was used as a predictor,
transformational leadership as a mediator, and job performance as an outcome variable.
In Step 1 of the mediation model, the regression of the assertiveness on the work
performance, ignoring the mediator, was significant, F(1,138) = 8,67, p<0,01, R2 = 0,06,
b = 0,08, t(138) = 2,94, p<0,01.
Step 2 showed that the regression of the assertiveness on the mediator,
transformational leadership, was also significant, F(1,138) = 9,74, p<0,01, R2 = 0,06, b =
0,19, t(138) = 3,13, p<0,01.
Step 3 of the mediation process showed that the mediator (transformational
leadership), controlling for assertiveness, was significant, F(2,137) = 10,15, p<0,01, R2
= 0,13, b = 0,13, t(137) = 3,31, p<0,01.
Step 4 of the analyses revealed that controlling for the mediator - transformational
leadership, assertiveness was a less significant predictor of work performance, b = 0,06,
t(137) = 2,09, p<0,05.
As suggested in Baron and Kenny (1986), the Aroian version of the Sobel test was
conducted and it was found that transformational leadership mediated the relationship
between assertiveness and the work performance (z = 2,27, p = 0,023).
Conclusions
Data analysis showed a strong positive relationship between assertiveness and

transformational leadership, and the in-depth analysis highlights the strongest
correlation between assertiveness and the individualized consideration dimension of
transformational leadership. Another important conclusion that emerges from the data
analysis is that the higher the level of assertiveness, the higher the professional
performance. Moreover, the mediation analysis revealed that transformational
leadership mediated the relation between assertiveness and work performance.
One of the main weaknesses of this study was the use of a cross-sectional design, which
does not allow for an assessment of the cause-effect relation. Also, another limitation,
common to many studies, is related to the fact the questionnaires were self-reported,
and the tendency is to investigate and report attitudes, rather than behaviors (Hughes,
Lee, Tian, Newman, & Legood, 2018). Another issue to be considered when evaluating
the results is the small sample, which makes the results difficult to generalize.
Future research directions offer the opportunity to expand the topics addressed in this
study by adding new subjects of discussion that represent current concern in the field
of organizational sciences in general and leadership sciences in particular. Thus, topics
of interest in the sense of future research directions may be represented by variables
such as psychological empowerment, organizational communication climate,
psychological empowerment, organizational trust, or innovative work behavior.
In recent decades, as evidenced by research (Conger & Kanungo, 1988; Thomas &
Velthouse, 1990; Spreitzer, 1995), the concept of psychological empowerment has
received increasing attention in the field of organizational studies. Thomas and
Velthouse (1990) defined empowerment as encompassing the delegation of authority
and sharing of the resources, together with enabling means of motivation through
enhancing self-efficiency (Thomas & Velthouse, 1990). Arnold, Arad, Rhoades, and
Dragsow (2000) and Conger and Kanungo (1988) highlight a direct link between
leadership behaviors and psychological empowerment.
248 Strategica 2020
Scott and Bruce (1994) stated that, for the long-term survival of organizations in today's
economic and social environment, one of the most important concepts is represented by
the innovative work behavior (Scott & Bruce, 1994). Innovative work behavior was
defined by De Jong and Den Hartog (2008) as that specific behavior of a person aimed at
the initiation and intentional introduction of new and useful ideas, processes, products
or procedures, as well as the implementation of these ideas (De Jong & Den Hartog,
2008).
Another perspective on innovative work behavior is provided by Faraz, Yanxia, Ahmed,

Estifo, and Raza (2018), who stated that innovative work behavior (IWB) is a process
that contains four dimensions “exploring ideas, generating ideas, promoting ideas and
implementing ideas” (Faraz et al., 2018, p. 54). In the present ever more complex
globalized context, organizations are required to show increasing flexibility to adapt to
this context, being conditioned by the need to be more innovative than ever (Agarwal,
2014). Therefore, the identification of factors that can predict and increase the
innovative work behavior of employees has become an increasingly important concern
of many organizations (Agarwal, 2014; Scott & Bruce, 1994).
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252 Strategica 2020
THE INFLUENCE OF ORGANIZATIONAL CULTURE

ON TYPES OF INNOVATION
Mafalda de CASTRO
School of Economics and Management, University of Porto
Rua Dr. Roberto Frias, s/n, 4200-464 Porto, PT
mafalda.castropereira@gmail.com
Raquel MENESES
School of Economics and Management, University of Porto
Rua Dr. Roberto Frias, s/n, 4200-464 Porto, PT
raquelm@fep.up.pt
Abstract
The importance of innovation in the successful performance of companies has been defended and
analyzed since the 20th century. Essentially, due to the adaptability, it provides to companies in an
increasingly uncertain world, looks at the turmoil in business that the current Covid-19 pandemic
has caused. Many are the determining factors for the innovative strategy of organizations. One of the
most important is the organizational culture. The purpose of this article is to analyze the influence
of cultural traits in promoting or inhibiting the adoption of innovations. The investigation uses a
sample of 100 Portuguese companies to examine the preponderance of organizational culture in the
adoption of specific types of innovation. The results confirm two of the four hypotheses raised and
concluded that organizational culture is a clear predictor of innovation. Namely, cultures of
adhocracy adopt product innovations and market cultures, process innovations. The main
contribution of this article is to analyze, test, and draw significant conclusions about the influence of
dominant cultures, as a whole, on the types of innovation.
Keywords
Adhocracy; Competitive values framework; Innovation adoption; Market orientation; Portuguese
companies; Rational culture
Introduction
Companies face ever-changing environments. Innovation emerges to respond efficiently

to demand, making the most of organizational resources. “Innovation constitutes part of
the system that produces it.” (Lam, 2004, p. 3), cause and effect, becomes the engine of
change both inside and outside the organizations and, according to Ahmed (1998)
organizational culture is its main determinant.
Believing in the preponderant role of organizational culture in innovation, it remains to

effectively perceive this connection. Valencia et al. (2011) suggest the need for different
organizational cultures according to the innovation strategy. When analyzing how the
innovation strategy was affected by each dimension of the culture, they concluded that
not all dimensions of an only culture have the same effect in driving innovation, leaving
the door open for the possibility of, even more, formal cultures, having innovation-
oriented strategies, balancing formal rules and procedures and other dominant
characteristics.
It seems agreed that the organizational culture is preponderant for the innovative
orientation of organizations (Ahmed, 1998; Carmeli, 2005; Büschgens et al., 2013).
Nevertheless, Valencia et al. (2019, p.56) claim that “empirical research remains
somewhat limited”, insofar as existing investigations don't approach the dominant
organizational culture of institutions but focus on some cultural characteristics. The
main objective of this investigation is to discover if each dimension of an organizational
culture induces innovation.
Theoretical framework
Innovation implies transforming new ideas into renewed sources of value. The nature
of innovation is changing in response to society's challenges (Hekkert et al., 2020).
Climate change, digitalization, the sharing economy, sustainability, and, more recently,
a global pandemic, require companies to take a broader view of innovation than the
traditional creation of new products and technologies.
Innovation Radar helps organizations to open the perception of innovation to any area
of the business and, thus, better compare your strategy to that of your competitors.
“Using that information, the company could then identify opportunities and prioritize
on which dimensions to focus its efforts” (Sawhney et al., 2006, p. 81), and thereby
create a new substantial or radical value for customers, changing one or more
dimensions of the existing business system.
From this perspective, innovation is a new business design challenge. To innovate, it's
necessary to guarantee the businesses, activities, processes, brands, customer
experience, etc., necessary to effectively put this work on the market and, to this end,
organizations need to look at the new offer they are trying to bring to the market and,
intentionally and in advance, make significant changes to the supply chain for
innovation to work successfully. The four quadrants of Innovation Radar, which are key
dimensions, focus on process, product, organizational, and marketing.
Product innovations are new goods or services, introduced to the market, to respond to
a specific need of users, while process innovations correspond to the introduction of
differentiated elements in an organization's production or service operations. And,
according to its definition, a product innovation occurs when a good or service is
idealized, produced, and used, and process innovation is completed only after its
operationalization (Knight, 1967). Organizational innovation concerns the
parameterization of tasks or workflow mechanisms. Its exact definition is complex, since
it is influenced by structures, processes, and practices and, as such, can be seen from
only one of these three perspectives. However, in a global view of all these,
organizational innovation is made up of management actions aimed at renovating and
improving structures, adding processes, and implementing new practical management
concepts, to promote the achievement of the organization's objectives (Prasad and
Junni, 2016). Marketing innovation is directly related to the organization's integrated
response to create a better total customer experience. It consists of implementing new
strategies to interact with the customer at each point of contact, including the
implementation of significant changes in the design or packaging of the product offered,
in the market positioning, and/or in the organization's sales channels (Harel et al.,
2020).
254 Strategica 2020
Despite the importance of innovation, its effect on the performance of organizations

varies depending on the strategic orientation (Valencia et al., 2011) which, in turn, is
influenced by organizational culture. According to Cameron (1988), the definition of
organizational culture isn't consensual, it goes so far as to state eighteen different
definitions, by various authors, to express its ambiguity. It concludes, however, that all
definitions have “the view that culture is something the organization has (not is)”
(Cameron, 1988, p. 9) given that organizational culture is made up of lasting attributes,
centered on values, assumptions, and beliefs shared by its members.
Quinn e Rohrbaugh (1983) Competing Values Framework (CVF) provides significant

organizational support for the identity aspects of organizational culture, allowing an
analysis focused on cultural aspects and evaluation of the relationship with innovation.
The structure is divided into four quadrants arranged by two pairs of opposite values,
flexibility versus control, and internal versus external focus, where cultures are classified
according to their two main dimensions. The first dimension of value is related to the
organizational focus, which may have an internal emphasis on the well-being and
development of the members of the organization or an external emphasis on the well-
being and development of the organization itself. The second dimension refers to the
organizational structure, with opposite poles in the stability/control or flexibility
(Figure 1).
Figure 1. Competing Values Framework

(Quinn & Rohrbaugh, 1983, p.369)
In the scheme, it is also possible to denote the third dimension of value, regarding
organizational means and ends. The four organizational culture traits described by the
model are Adhocracy, Clan Culture, Market Culture, and Hierarchy.
The hierarchy is characterized by privileging a stable environment, highly coordinated

and integrated tasks, and clear lines of authority for decision making, with standardized
rules and procedures (Cameron & Quinn, 2011). However, as time progresses, new tools
for managing and organizing the workplace emerge, which can alter the ideal form of
organization of institutions. Chen and Chang (2012) even show that formal structures
increase the adoption of organizational innovations through their effects on absorption
capacity and speed of decision. So, it is expected that:
H1: Hierarchical cultures are predictors of the adoption of organizational innovations.
Market culture values competence and achievement. It’s characterized by planning,

clear definition of objectives, and centralized control, with the main objective of
increasing productivity and, consequently, profitability (Cameron & Quinn, 2011). This
preference for productivity and efficiency isn’t directly related to the intention to create
something new but to foster innovative efforts through the development of continuous
improvement capabilities (Büschgens et al.,2013). Process innovations serve, precisely,
as a means to achieve results, and are not an objective in themselves (Crossan &
Apaydin, 2010), as follows:
H2: Market cultures are predictors of the adoption of process innovations
The clan culture is concerned with the development of human resources and customer
satisfaction. On the one hand, creating and maintaining knowledge of the workforce, the
primary objective of this culture is a predictor of generation and adoption of innovations
(Boothby et al., 2010). On the other hand, these organizations believe that trusting and
committing to their members improves open communication (Cameron & Quinn, 2011).
Open communication fosters the ability to respond to customer needs and desires
(Zaltman et al., 1973) and, according to Naidoo (2010), it facilitates the response to
market demands through marketing innovations. As such, it is expected that:
H3: Clan cultures are predictors of the adoption of marketing innovations.
Adhocracy is characterized by a focus on developing new products and services and

preparing for the future. Focused on external positioning with a high degree of
flexibility, these organizations believe that change facilitates obtaining new resources
and that flexibility promotes risk-taking (Hammond et al., 2011). An important
challenge for these organizations is to produce innovative products and services and
adapt quickly to new opportunities. “The emphasis is on being at the leading edge of new
knowledge, products, and services.” (Cameron & Quinn, 2011, p.51), including Prajogo e
McDermott (2011) found a positive relationship between this trait of culture and
product innovation. Therefore,
H4: Adhocratic cultures are predictors of adopting product innovations.

256 Strategica 2020
Methodology
The empirical study uses a quantitative method to test the hypotheses presented above.
Applies the most updated revised version of the Organizational Culture Assessment
Instrument (OCAI), developed by Cameron and Quinn (2006), to classify, identify, and
measure cultural traits. And it uses the Oslo Manual published by the Organization for
Economic Cooperation and Development (2005), to classify and interpret innovation
activities and uses the standard questionnaire developed by Eurostat to categorize these
same activities.
Data were collected through an online questionnaire, based on the Likert scale, which is
widely used in research related to behavioral sciences (Bermudes et al., 2016). The
survey was divided into three segments, the first of which includes questions about the
organization's characteristics, such as size and longevity, considered control variables
for the investigation. The second addresses the innovation activities carried out by
organizations to identify the most adopted type of innovation. The third is a single
question with 24 alternatives to assess the organization's cultural trait. The
questionnaire referred to innovations and innovation activities adopted during the
three years from 2017 to 2019, inclusive. As in the original survey, we assumed that the
companies' response should consider the innovations adopted by them, even if
originally developed and/or already used by other companies, only if they were
required to be new or significantly improved by the adopting company.
The population under analysis included 4269 companies, registered in 2018, of the
three most exporting Portuguese sectors. 2130 firms were contacted, having obtained
104 responses (response rate of 4.88%, in line with works of this kind), 100 responses
were considered valid.
The Structural Equations Model (SEM) was applied with Partial Least Squares (PLS), a
smooth approach to SEM, with no assumptions about data distribution (Vinzi et al.,
2010), in a two-step process: validation of the measurement model and study of the
structural model.
The starting model includes all cultural traits, types of innovation, investments in
innovation capacity, and market introduction of innovations (Figure 2).
Figure 2. The first model tested

Results
Validating the measurement model
Organizational culture is an unobservable variable (construct), what is visible in the

organization are its effects. For organizational cultures to have internal consistency
between the measured values of the cultural manifestations, the Cronbach alpha, and
Composite Reliability indicators must be greater than 0.70 (Hair, et. al, 2019). Refers to
convergent validity, which occurs when the Average Extracted Variance (AVE) is greater
than 50% (Nunnaly, et al., 1994). Finally, to determine whether the measured
organizational cultures were truly different from each other, discriminant validity was
tested. Tables 1 and 2 show that the latent variables with reflective indicators obey all
the criteria mentioned above (the measured models had to be refined by removing some
indicators: Dominant characteristics and Management of Employees).
Table 1. Reliability and convergent validity of constructs

Culture trait Cronbach's alfa Composite Reliability AVE
Adhocracy 0.861 0.906 0.706
Clan culture 0.828 0.888 0.668
Hierarchy 0.859 0.904 0.703
Market culture 0.849 0.899 0.691
Table 2. Discriminant validity

Culture trait Adhocracy Clan culture Hierarchy Market culture
Adhocracy 0.840
Clan culture 0.789 0.817
Hierarchy 0.647 0.716 0.838
Market culture 0.817 0.778 0.798 0.832
For formative constructs, both types of innovation and investments in innovation

capacity, the risk of multicollinearity of the measures was tested, to understand how
much indicators overlap, being desirable to overlap the minimum. The maximum value
of the variation inflation factor (VIF) was 1.344 (less than 3), which suggests that
multicollinearity is not a threat in this data set (Hair et al., 2019). The weights of the
indicators and the factor loadings were also analyzed to assess their significance, despite
the small sample size. Values of the weight of the indicators close to zero suggest a weak
relationship and close to 1 indicate a strong relationship (Hair et al., 2019).
The values of the analysis of the measures previously exposed are explained in table 3,
and only the indicator "New media or techniques for product promotion" was removed
from the model because both the values "weight" and "loading" are below the
recommended limits. Table 4 shows the analysis of the formative latent variable
Marketing Innovation formed only by the remaining indicators.
258 Strategica 2020
Table 3. Collinearity statistics, significance, and relevance of the indicators
Latent
Indicator VIF Loading Weight
Variable
Training for innovative activities 1.015 0.826 0.758
Training
and Acquisition of existing knowledge from
Education other enterprises or organizations 1.015 0.659 0.567
External R&D 1.152 0.647 0.378

External Acquisition of machinery, equipment,
1.113 0.790 0.587
Innovative software, and buildings
Capacity Other contracted out innovation
1.199 0.711 0.410
activities
Internal In-house R&D 1.041 0.705 0.561
Capacity Design 1.041 0.835 0.724
Product Goods innovations 1.101 0.826 0.646
innovations Service innovations 1.101 0.788 0.592
New or significantly improved methods
of manufacturing or producing goods or 1.203 0.930 0.765
services
Process New or significantly improved logistics,

innovation delivery, or distribution methods for 1.294 0.595 0.245
your inputs, goods, or services
New or significantly improved
supporting activities for your processes 1.344 0.622 0.229
New business practices for organizing

procedures 1.310 0.771 0.416
Organisati- New methods of organizing work

onal responsibilities and decision making 1.326 0.788 0.436
innovation New methods of organizing external
relations with other firms or public 1.310 0.779 0.430
institutions
Significant changes to the aesthetic
design or packaging of a good or service 1.285 0.765 0.469
New media or techniques for product
Marketing promotion 1.294 0.582 0.149
innovation New methods for product placement or
1.247 0.753 0.436
sales channels
New methods of pricing goods or
1.213 0.666 0.339
services
Table 4. New statistics for the latent variable Marketing Innovation

Latent
Indicator VIF Loading Weight
Variable
Significant changes to the aesthetic
design or packaging of a good or service 1.157 0.672 0.379
Marketing
New methods for product placement or
innovation 1.218 0.814 0.543
sales channels
New methods of pricing goods or services 1.177 0.716 0.423
Structural model
The size and significance of the model path coefficient were analyzed, using the
“Bootstrapping” model and, again, accepting a p-value <0.1.
The internal model suggests that the Market Culture directly affects the adoption of
Process Innovations and that the Adhocratic Culture directly influences the adoption of
Product Innovations and the investment in External Innovative Capacity and Training
and Education (table 5).
Table 5. PLS-SEM results of the final model

Path Coefficients
Sample T Statistics P Values
External Innovative Capacity 0.353 3.535 0.000
Adhocracy Training and Education 0.182 1.997 0.046
Product Innovation 0.174 2.037 0.042
Market
0.197 2.631 0.009
Culture Process Innovation
External Process Innovation 0.218 1.779 0.076
Innovative
Capacity Product Innovation 0.457 4.472 0.000
Marketing Innovation 0.375 4.032 0.000
Training and Organizational Innovation
0.512 6.697 0.000
Education
Process Innovation 0.425 4.357 0.000
Process Market introduction of
0.202 2.049 0.041
Innovation innovations
Product Market introduction of
0.455 4.312 0.000
Innovation innovations
The hypothetical path relationship between Market and Process Innovation is

statistically significant, as is the path relationship between Adhocracy and Product
Innovation. Thus, it can be concluded that Market Culture is a strong predictor of the
adoption of process innovations, just as Adhocracy is of product innovations.
Conclusions
This study is an empirical investigation, carried out with primary data, to determine the
effects of organizational culture on the innovation of companies in Portuguese strategic
export sectors. In the four hypotheses raised, we propose that the organizational culture
is a predictor of innovation. To test these hypotheses, the four organizational culture
traits were inserted into the model.
As predicted, the culture of adhocracy is positively related to the adoption of product

innovations and the market culture with the adoption of process innovations, which
provides support for H2 and H4 (Table 5). To further study the relationship between
these two cultural traits and the adoption of innovation, additional analyzes were
carried out on the effect of investments in innovation. An interesting conclusion was
derived from this analysis: the culture of adhocracy is positively related to the
260 Strategica 2020
innovative orientation. This trait of culture does not directly predict the adoption of
process, organizational or marketing innovations. However, although this hypothetical
relationship of the path is not statistically significant, the adhocratic culture indirectly
predicts the adoption of these types of innovation by investing in innovation, namely in
Training and Education and in External Innovative Capacity.
In relation to the market culture, investments in innovation were not very relevant as to
the type of innovation adopted by organizations. However, they proved to be
preponderant for the introduction of innovations in the market. The findings indicate
that, regardless of organizational culture, the adoption of product and process
innovation types and investments in education and training and external innovation
capacity will have a positive effect on the introduction of innovations in the market.
However, contrary to expectations, hierarchical and team cultures do not show to have
a positive effect on the adoption of innovations. In line with these conclusions, it appears
that the external orientation of organizations can promote the adoption and subsequent
introduction of innovations in the market.
Considering the conclusions of this study, it would be interesting to analyze not only the
perception of organizations on organizational and marketing innovations, which may
eventually be underestimated by companies but also to understand how organizations
with an internal focus can improve their innovative capacity. Future research should
still analyze the effect on the performance of adopting a specific innovation type. One
thing is certain, the appetite of adhocratic cultures for innovation is almost indisputable.
The main contribution of this study is to link the adoption of different types of
innovation to the dominant organizational culture. Specifically, adhocratic and market
cultures prove to be impacting on various types of innovation. In common, they have an
external orientation, towards the market. According to Udriyah et al. (2019), if market
orientation increases, innovation will also increase. Affirming that “Market orientation
and innovation partially have positive and significant influences on business
performance, both directly and indirectly” Thus, we can conclude that companies
wishing to see their performances improved should rethink the importance given to the
signals emitted by the market and their influence on their decision making.
The second implication evident in the conclusions of the data analysis is the relevance
of the training and education of the members of the organization. The organization's
capacity to absorb and generate innovations is positively related to the knowledge of
the people who compose it (Bittencourt et al, 2019). Consistently, investing in the
development of the members of the organization will certainly bring you advantages in
terms of competitiveness and innovation. The importance of this contribution is
underlined by the fact that companies that adopt innovations and simultaneously invest
in the training of human resources obtain greater productivity gains (Boothby et al.,
2010).
In short, market orientation and investment in skills are predictors of innovation and,
consequently, enhancers of competitive advantages.
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PREPARING TODAY’S LEADERS FOR VUCA ENVIRONMENTS

Paul TUDORACHE
“Nicolae Bălcescu” Land Forces Academy
3-5 Revoluției St., 550170 Sibiu, RO
tudorache.paul@armyacademy.ro
Lucian ISPAS
ispas.lucian@armyacademy.ro
Ghiță BÂRSAN
gbarsan@armyacademy.ro
Abstract
Nowadays the entire world is changing so fast that it is quite difficult to realize what is happening.
This world’s constantly changing physiognomy determines the need to rethink the current strategies
of understanding and handling with its most important challenges specific to different decision-
making environments such as regional security crisis, economic degradation, global pandemic,
climate change, huge population moves, deadly infectious diseases, lack of resources and so on. From
this perspective, taking into consideration the high rate of changes characterizing all these decision-
making environments, it is necessary that all level leaders, no matter their fields, to have the
necessary abilities to adapt in the most volatile, uncertain, complex, and ambiguous (VUCA) current
and future environments to visualize and make sound decisions. So, for grappling with VUCA
environments, leaders must be able to find answers to the following questions: How can they survive
in environments where it is quite difficult to understand what is happening?; How can they prepare
for acquiring success in future environments?; How should they adapt to reach the desired end-
states? Furthermore, having these research questions in the loop, we will try to shape a leader model
whose application gives him the ability to be flexible and agile in any VUCA environment. Also, our
research will continue with identifying some strategies used by leaders so that they can cope with
the most challenging decision making contexts that may be encountered in the future. Also,
developing artificial intelligence (AI) as an enabler to support leaders in the decision-making process
and enhancing organizational flexibility, building their agility to be flexible no matter the contexts,
or setting up necessary conditions to form an expeditionary mindset for leaders are more than
necessary. Having high-quality abilities, leaders will be able not only to understand current decision-
making environments but also to visualize those that arise in the future, no matter their
physiognomies.
Keywords
VUCA environment; JIIM approach; strategic thinking; organizational flexibility; leader’s agility.
Introduction
In any organizational context, there must be a strong correlation between the

organization itself and its leadership. If leadership is applied to make dynamic decisions
and design a common actionable direction for all its members, the organization must
ensure different strategies for monitoring and assessing situations, as well as providing
264 Strategica 2020
the necessary support for decisions’ making. In this context, the leader is central because
he is the one who must monitor and, consequently, assume responsibility for all decision
points (DP). From this perspective, further research will be focused on understanding
and applying leadership as a “process of influencing people by providing purpose,
direction, and motivation to accomplish the mission and improve organization” (Wade,
2017, p.1) in any challengeable VUCA environment.
Understanding VUCA environments
Generally speaking, leaders, no matter their fields, have been experienced VUCA
features almost every day. Even so, the alarming frequency of changes is increasingly
transforming the worldwide landscape, overcoming the skills of traditional leadership
and challenging leaders to gain new perspectives in applying leadership.
Referring to the origin of the VUCA concept, it has a military mark, being introduced by
the United States (US) Army to emphasize the characteristics of the theatre of operations
(TO) from Iraq and Afghanistan such as volatility, uncertainty, complexity, and
ambiguity. Later, this concept and principle have been borrowed by strategic leaders in
other fields, such as business leaders, to emphasize the “chaotic, turbulent, and rapidly
changing business environment that has become new normal” (Kirk, 2013, p.3). In this
regard, some examples could be the financial crisis of 2008-2009, or, more appropriate,
the COVID-19 pandemic which has impacted all world economies according to the
evolution cycle of death and preventive or protective measures taken by national
authorities.
On the other hand, for this article, in Table 1, each variable of the VUCA concept is
defined to understand its real meaning no matter the environment.
Table 1. VUCA variables for all types of environments

Variable Description/Implications
“where things change fast but not in a predictable trend or
repeatable pattern” (Sullivan, 2012); it is most often
associated with turbulence whose factors are defined by
volatility
“digitization, connectivity, trade liberalization, global
competition, business model innovation” (Reeves, Love, &
Mathur, 2012, p. 3).
“the lack of predictability, the prospects for surprise, and the

sense of awareness and understanding of issues and events”
uncertainty (Kinsinger & Walch, 2012); it makes difficult to anticipate
future events using past issues; from this perspective it is
quite challengeable for leaders in decision making process.
shaped by “… numerous difficult-to-understand causes and

mitigating factors involved in a problem” (Sullivan, 2012); in
complexity connection with turbulence of changes, it creates huge
difficulties for all level leaders in taking bold decisions in any
situational environment.
“inability to accurately conceptualize threats and

opportunities before they become lethal” (Kail, 2010) or “…
the causes and the "who, what, where, how, and why" behind
the things that are happening are unclear and hard to
ambiguity
ascertain” (Sullivan, 2012); broadly, it is manifested by the
lack of clarity in understanding the situational contexts,
affecting implicitly, the decision-making process (Tudorache,
2020, p.18).
As we have seen, each variable from the VUCA concept presents unique challenges, and
their correlation generates, simultaneously, a “change tidal wave” that threatens to
overwhelm the leaders for today and, especially, those for tomorrow. Furthermore, as
highlighted in figure 1, VUCA variables generate a strong impact on the organization’s
members and, especially, on leaders when they face with exceeding DP.
Figure 1. The impact of VUCA variables on leaders

(Authors analysis based on data provided by Kinsinger & Walch, 2012)
All these variables (volatility, uncertainty, complexity, and ambiguity) are inherent
features of all today’s decision-making environments, being a reality that profoundly
changes not only the organizational strategies used to operate but also leaders’
adaptation to impose necessary organizational change. Consequently, the coherent
understanding of VUCA environments is the first elementary step in the awareness of
the needs for organizational adaptation. Also, outlined as a precondition for achieving
effectiveness and efficiency in future activities/actions, visualizing the VUCA
environments involves a holistic approach, involving the understanding of specific
concepts, established analysis tools, specific geometry, and especially the definition of
specific VUCA factors and characteristics, respectively estimating possible
physiognomy.
Strategies for leaders to gain organizational flexibility
Having as a starting point in the previous description of VUCA environments, further

research will be focused on identifying some strategies (key success factors) that can be
used so tomorrow’s leaders can react effectively and efficiently to the challenges of such
environments. According to Fails Management Institute (FMI) the strategies required to
gain organizational flexibility are (FMI Corporation, 2012, p.3):
266 Strategica 2020
 build independent thinkers – having inside organization people who think

independently and make their own decisions, in accordance with their levels of
responsibility, at sensitive moments, may facilitate the way the organization itself
operates; moreover, an independent thinker, manifesting a high level of initiative,
assumes his responsibility for acting in high stressful situations;
 keep the big picture – it is closely connected with the continuous flow of
information and the exploitation of intelligence products; on the other hand, it
represents the primary condition to respond in a timely and accurate manner to
ever-changing scenarios, maintaining a balanced emotional intelligence as well as
a clear judgment; it is the most important prerequisite for making sound
decisions;
 create an open space to think regularly – it is about not trying to be focused on
immediate personal needs, but rather on planning on behalf of the organizational
requirements;
 promote people rather than a hierarchy – by doing so, people will be highly
motivated to fulfill specific tasks and create necessary effects which ultimately
competes to attain the organization’s desired end state; to do so, leaders, by
encouraging cooperation and dialogue among their structures and people, will be
able to allow them to think critically and creatively to share valuable opinions and
recommendations without any hesitation;
 promote bold decisions – regardless of the environment’s degree of uncertainty,
leaders should promote audacity to make decisions but with prudent risk-
assuming; in all situations, leaders must balance the results of decisions that could
be obtained with the risks taken;
 keep an eye on future organization’s development –to improve organization,
leaders must design and support, unconditionally, a red line for future
organizational development; to have this continuously enhanced, using lessons
learned from previous experiences, becomes more than mandatory;
 inform and influence target audiences – if information enables involved leaders
at all organizational levels to make informed decisions on the best way to apply
leadership, influencing others, using the power of knowledge and gained
experience during the time, is a prerequisite in attaining the desired end state;
 promote concise direction – all level leaders must visualize and express the
direction to follow for all members of the organization; it can be coagulated by
sharing a clear intent, setting up achievable objectives, and issuing coherent tasks
to all members inside the organization.
As can be seen, these strategies can be applied to ensure prompt reactions to VUCA
environments. It is difficult to estimate that by performing them completely, all
challenges arising from all these contexts will be overcome. What is quite evident is the
fact that leaders need a new strategic thinking mindset to grapple with VUCA decisional
situations.
Strategic thinking mindset – leader’s model for VUCA environments
Having as main argument the continuous change of environment’s physiognomy,

modern countries have been looking for solutions that can be applied in the medium and
long term, in relation to leaders’ adaptation to the VUCA contexts. In this regard, as is
stated in Joint Concept Note (JCN), the leaders’ education and training from the VUCA
perspective must focus on building “the ability to adapt, combined with the agility to do
so with relative ease” (JCN 1/17, 2017, p.6). Generating change (Figure 2), adaptability
does not refer only to “adjusting to new external conditions … It is also about our ability
to respond to internal stimuli to change and to seek opportunities for advantage …” (JCN
1/17, 2017, p.6).
Figure 2. The model of change regarding adaptation to VUCA environments

(JCN 1/17, 2017, p. 7)
The model of change represented in the figure above emphasizes that in some situations
adaptation is not enough and needs to be supported by innovation and agility to
maintain the advantage in unfamiliar situations. If innovation, by questioning the
routines/systems that support core competencies and leading to large-scale changes in
principles, structure, and technology (JCN 1/17, 2017, p.6), the agility provides leaders
the ability to respond quickly to unknown situations, remaining effective in difficult
conditions and being flexible in overcoming the unforeseen.
Having defined the adaptability framework, further analysis continues with designing a
leader’s model based on building strategic thinking which can be done through practice,
discipline, and reflection. The model developed by FMI’s Center for Strategic Leadership
is shown in figure 3. As can be seen, the core of the strategic thinking model is a vision
that correlates an organization’s initiatives with a leader’s thinking and decision-making
at a strategic level. Having a strategic mind, understood as “the ability to successfully
deal with change and ambiguity trough creating common purpose, buy-in, and
alignment with workgroups supported by sound strategy formulation and
implementation” (Kelly, Livorsi, & Magnus, 2015, p.11), it will be much easier for leaders
to overcome obstacles (DP) that can be encountered at lower levels (operational,
tactical). Other elements that shape a leader’s strategic thinking are mental flexibility,
intellectual curiosity, creativity, intuition, analysis, systems thinking, information
gathering, and decision making (Kelly et al, 2015, p. 13). The first four are internal traits
which are natural abilities and can be developed in time. The last four are abilities
related to intuition and insight which can be built on facts, logic, and reasoning.
268 Strategica 2020
Figure 3. The model of leader – strategic thinking mindset

(FMI Corporation, 2012, p.4)
The correlation of these elements facilitates the leaders’ capacity to visualize and
become aware of the threats and opportunities facing their organizations. For a better
understanding, a brief description of specific elements is required (Kelly et al, 2015, p.
13):
 mental flexibility – the ability to shift/adopt a course of action (COA) in relation
to situational or decision making changes; it is useful, especially when the initial
plan has been changed due to the environmental circumstances;
 intellectual curiosity – an internal impulse used to trade time and effort for
learning and thinking; it is the most important in being updated with the last piece
of information in the field;
 creativity – providing unique strategies and solutions which impacts positively
challenges and opportunities; in high difficult situations, it represents the catalyst
for adjusting decisions;
 intuition – the capacity to inspire and use it in directing the decision-making
process, especially in overcoming DPs; it is directly proportional to the level of
experience;
 information gathering – the ability to identify, collect and collocate necessary data
to obtain desired intelligence products whose purpose consists in generating the
big picture of the environment;
 analysis – the method used to interpret collected data/information to draw
valuable conclusions based on facts and logic;
 system thinking – facilitates the awareness of how decisions made and actions are
taken shape and influence target audiences (own organization’s members,
members from other organizations);
 decision making – the ability to overcome DPs in decisive situations; it is closely
connected with a leader’s experience/intuition, as well as with the staff’s
expertise for advising in high intensely emotional situations.
With these elements that build a strategic mindset, leaders will not only be thinkers, as
we would be tempted to argue, but they will also be able to exercise their leadership
more effectively in the context of VUCA environments.
Another reference leader’s model for strategic mindset, developed in the military field
(table 2) is the one formalized in the United States (US) Army which is based on the
principle according to which “attributes shape how an individual behaves and learns in
their environment” (Wade, 2017, pp.1-18). Attributes as right character, firm presence,
and sharp intellect, may facilitate a leader’s competencies that must be performed more
effectively and efficiently. Moreover, if the character covers a leader’s identity and value
system, presence is closely associated with outward appearance, actions taken, and
situational behavior. The last attribute, intellect, is manifested through the way of
leading based on mental and social faculties (Wade, 2017, pp.1-18).
Table 2. US Army leader model – VUCA environments

Attributes Significance
character
principles/standards/qualities vital for leaders such as

organizational values integrity, loyalty, respect, duty, selfless service, personal
courage, honor;
ability to identify with and enter into other person’s feelings

empathy
and emotions;
internal shared beliefs/attitudes that objectify the
service ethos
organizational spirit;
control of one’s behavior in accordance with organizational
discipline
values.
presence
professional bearing promoting professional authority’s image;
demonstrating strength and endurance to sustain abilities

fitness
under continuous stress;
demonstrating self-control to be extended over others’
confidence
emotions;
ability to recover in a very short time from demanding

resilience situations (shock, stress) while maintaining organizational
focus.
intellect
anticipating/adapting to unfamiliar or ever-changing
mental agility
situations;
a tendency to form sound opinions, make decisive decisions
sound judgment
to act wisely in difficult situations;
ability to introduce new ideas based on
innovation
opportunities/challenges;
interpersonal act capacity to understand interactions with others;
possessing facts/beliefs/logic and understanding in key

expertise
areas.
Source: Wade, 2017, pp. 1-18 – 1-19
270 Strategica 2020
Of all these attributes, special attention must be paid to mental agility. Understood as
the ability to deal with the unknown or the “ability to think flexibly” (ADP 6-22, 2019, p.
4-1), according to Leader Development Improvement Guide (LDIG), mental agility
allows leaders to “anticipate changing situations and think through second and third-
order effects” (LDIG, 2018, p.169). As shown in figure 4, learning agility is driven by the
need to develop a high capacity for leaders to respond to their motivation and ability to
improve, enabling them to apply prior learning in unfamiliar environments to facilitate
exploration, task performance, and reflection using a prudent attitude in taking risks
(Reed, 2012, p.6).
Figure 4. The model of learning agility – US Army

(Reed, 2012, p.7)
It can be noticed that the adjustment of the relationship between learning agility and
developing the ability to react is done through organizational culture.
The presented models are just a few examples of best practices in adapting leaders to
the requirements of VUCA environments. Certainly, along with the constituent elements,
the leaders’ disciplined emotional intelligence and their experience will make a
difference in solving unique situations.
Strategic thinking – knowledge, skills, abilities
The leaders’ strategic thinking is promoted in all fields. For instance, specific to the
military field, a strategic mindset involves a joint, interagency, intergovernmental, and
multinational (Joint, Interagency, Intergovernmental, and Multinational – JIIM)
approach to cope with the most uncommon challenges specific to current and future
VUCA environments. For a better understanding of JIIM domains, some theoretical
clarifications are required as follows (Wade et al., 2011, p.4):
 joint – activities involving structures within the same agency;
 interagency – activities involving structures within two or more agencies to reach
a mutual end state;
 intergovernmental – activities designed to enhance efforts between own agency
and local, regional, and state authorities;
 multinational – activities involving national organizations and those belonging to

other nations.
Returning to the purpose of this research, as it is highlighted in Table 3, a positive

manifestation of strategic mindset implies a set of requirements for building and
developing specific knowledge (graded “K”), skills (graded “S”), and abilities (graded
“A”).
Table 3. Knowledge, skills, abilities – strategic thinking (JIIM approach)

Domain K/S/A
- specific doctrine and joint capabilities (K);
- joint processes and organization (K);
- strategic issues (K);
joint - other services’ capabilities, culture, and processes (K);
- joint planning processes and system (S);
- financial resources management (S);
- originality (A).
- other governmental agencies’ capabilities, processes, and culture
(K);
- cultural metaknowledge (K);
interagency - governmental policy and strategy (K);
- governmental policy, law, and processes for resource provision
(K).
- management of financial resources (S);
- statutory, regulatory and policy environment for securing the
intergovernmental national territory (K);
- national crisis management system (K).
- regional expertise: geography, history, culture (K);
- friendly nations’ capabilities, culture, and processes (K);
- governmental and nongovernmental organizations’ capabilities,
culture, and processes (K);
- instructing (S);
- active/self-initiated learning (S);
- change management and project management (S);
multinational - management and personnel resources (S);
- employing organizational capabilities (S);
- judgment and decision-making (S);
- training management (S);
- comfort with VUCA/adaptability (A);
- conscientiousness, integrity, determination (A);
- flexibility (A);
- deductive, inductive argumentation (A).
Source: Wade et al., 2011, p. 26
Analyzing information from table 3, it can be stated that for the joint domain the most
important leaders require to understand thoroughly the organization itself and its
specific processes correlated with figuring out other services’ capabilities, culture, and
processes. Different from the joint domain, where the focus was on understanding other
services’ capabilities, culture, and processes, for the interagency domain, leaders must
be able to understand capabilities, processes, and culture belonging to other
governmental agencies. Speaking about the intergovernmental domain, besides the
272 Strategica 2020
necessity to understand statutory, regulatory, and policy environment for securing

national territory, building and maintaining personal relationships has the same
importance. Obviously, for the multinational domain, leaders must be able to envision
their ability to lead multinational teams, having sufficient knowledge about friendly
nations, as well as regarding their capabilities and cultures.
Conclusions
Taking into consideration the viewpoints highlighted, it becomes easily understandable

that strategic leaders will grapple with current and future VUCA environments, using
dedicated principles such as understanding and visualizing them, shaping target
audiences, countering organizational threats, and exploiting opportunities, as well as
consolidating the end state attained. Within this algorithm, environments’
understanding and visualizing become essential, because both facilitate the completion
of the big picture, which in turn, enhances interest audiences through constructive
actions.
To have these principles settled, leaders should be educated and trained to think and act
strategically, which assumes building a strategic mindset through intellectual curiosity,
mental flexibility, intuition, creativity, analysis, information gathering, systems thinking,
and decision making. All these elements should gravitate around an organizational
vision that guides strategic thinking. On the other hand, the leaders’ requirements for
approaching VUCA environments consist of attributes of character, presence, and
intellect, giving them the possibility to ‘’be’’, ‘’know’’ and ‘’do’’ in all different situational
contexts. For this reason, attributes as organizational values, empathy, service ethos,
professional bearing, discipline, fitness, confidence, mental agility, resilience, sound
judgment, innovation, interpersonal act, and expertise are required.
Moreover, strategic thinking leaders should have multi-domain (JIIM) knowledge, skills,
and abilities (KSAs). The principle is quite simple: the more diversified the KSAs, the
higher the probability of countering VUCA features. This principle may work with the
same performance at lower organizational levels such as tactical and operational. As was
emphasized during our research, the experience represents a vital factor for a successful
leader in any decision making context. Each experience gained contributes to the
development of the leader’s reference horizon, practically diminishing the uncertainty
and ambiguity of decision-making situations.
Another key element for a leader in his fight with VUCA features is gaining flexibility
within his organization. This can be done using strategies as building independent
thinkers, promoting people rather than hierarchy, keeping the big picture, promoting
bold decisions, creating an open space to think regularly, informing and influencing
interest audiences, promoting concise direction, and focusing on further organization’s
development.
On the other hand, when facing difficult decision-making situations, today’s leader and
especially the one for tomorrow must demonstrate a high degree of agility. In turn,
agility should be supported by high-quality standards such as AI integration, developing
organizational flexibility, designing modular organizational structures able to sustain
the versatility of organic structures and dedicated staff, and, last but not least, building
an expeditionary mentality of the organization’s staff necessary to facilitate the

coagulation of cohesive multinational work teams.
Consequently, as time goes on, the leader should be more and more effective and
efficient, respecting the principle: “day by day better”. As a result, tomorrow’s leader,
with abilities that today’s leader does not have, should be able to act, react, or counteract
in totally unknown situations, making decisions and triggering actions that today’s
leader cannot imagine. To come to an end, the leader must be more and more prepared
when facing the unknown.
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planning. Retrieved from https://www.ere.net/vuca-the-new-normal-for-
talent-management-and-workforce-planning/.
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acțiunii în medii VUCA și JIIM (Adapting military structures form Land Forces
to the requirements of VUCA and JIIM environments). Sibiu, RO: “Nicolae
Bălcescu”Land Forces Academy Publishing House.
Wade, M.N. (2017). TLS 5: The Leader’s SMART book. Leadership & Training in a
Complex World (5th ed.). Lakeland, FL: The Lightning Press.
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Interagency, Intergovernmental and Multinational Environments. California:
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MG990.pdf.
CORRECTIONS AND CORRECTIVE ACTIONS –

INSTRUMENTS FOR THE CONTINUOUS IMPROVEMENT OF A
MANAGEMENT SYSTEM
Valentina Irena TUDORAN (NICULIȚĂ)
6 Piața Romană, 1st district, 010374 Bucharest, RO
irena_niculita@yahoo.com
Corina Aurora MARIN (BARBU)

coribarbu@yahoo.com
Elena CONDREA
Ovidius University of Constanta
1 Aleea Universitatii, 900577 Constanta, RO
elenacondrea2003@yahoo.com
Abstract
Any private organization is created to bring profit to investors, and the effective implementation of
the integrated management systems aims to develop long-term business and increase the overall
performance of the organization. Achieving the intended results, knowing the external and internal
threats, preventing or reducing unwanted effects, and reaping the desired effects determine a safe
and solid long-term development of the organization by consistently offering quality products and
services with an efficient and low consumption of resources, without affecting the quality of the
environment or the health of the consumers. Food industry organizations that have implemented
management systems (quality, food safety, environmental or integrated) must determine their
opportunities for improvement and the necessary actions to ensure and increase the safety and
quality of products and services, respectively the protection of the environment. These actions also
include corrections and corrective actions aimed at removing, preventing, or reducing unwanted
effects, improving the performance of the organization. The corrections and corrective actions, to be
effective, must be appropriate to the effects of the identified non-conformities. The paper aims to
highlight the role that the corrections and corrective actions have in the process of continuous
improvement of the management system of food safety, quality, or the environment in food industry
organizations, identifying the benefits of implementing these management tools and, especially,
contributing to the goal of a sustainable and circular bioeconomy in Europe. In this sense, we
analyzed how the implementation of the Integrated Quality Management System - Food Safety -
Environment is perceived and achieved or, in some situations, the individual implementation of the
management systems mentioned above (EN ISO 9001:2015, EN ISO 22000:2018, EN ISO
14001:2015), by the management of the companies concerned. The case studies presented in the
paper are, in fact, a synthesis of data and information accumulated in the external audit process
performed in organizations where certified management systems are implemented or in the process
of certification according to the requirements of the standards mentioned above. The intended
results established for each category of corrections and corrective actions represent their
interpretations regarding their contribution to improving the performance of management systems.
Keywords
Corrections; corrective actions; management system; quality; environment; food safety.
276 Strategica 2020
Introduction
Given the development of a sustainable economy, the quality of life and the environment
are a global priority. We cannot talk about the quality of life and the environment
without talking about the quality of products and services, about food safety and
security, about environmental protection policies and actions. In this regard, numerous
regulations on food processing, packaging, labeling, transport, and keeping/storage
(Banu, 2007) of food products, as well as directives and regulations on environmental
protection, have been issued and applied internationally. Significant for our study are
the standards issued by the International Organization for Standardization (ISO),
respectively: EN ISO 9001:2015, EN ISO 22000:2018, EN ISO 14001:2015, HACCP Guide
(HACCP.a), but also the Guide GMP - Good Manufacturing Practices promulgated by the
American Administration of Food Products and Medicine (US Food and Drug
Administration).
Currently, it is not possible to talk about the management of the organization without
addressing the quality of products and services offered by the organization, the quality
policy, and the quality management system implemented (Olaru, 2004).
Food industry organizations that have implemented management systems such as those
based on quality management, food safety, environmental (or integrated) management
must identify opportunities for improvement and actions needed to ensure and increase
the safety and quality of products and services (Ștețca et al., 2012), respectively the
protection of the environment. These actions also include corrections and corrective
actions aimed at removing, preventing, or reducing unwanted effects, improving the
performance of the organization. The corrections and corrective actions, to be effective,
must be appropriate to the effects of the identified non-conformities.
Theoretical aspects regarding management systems quality - food safety -

environment
ISO 9001 is based on several quality management principles, including a strong focus on
customers, top management motivation and involvement, the process approach, and
continuous improvement.
In addition to the 2008 edition (SUN CERT, 2020a), the ISO 9001:2015 standard sets out
explicit requirements for taking into account the risks and opportunities associated with
the organizational context and the objectives set up by the organization for long-term
business development and achieving the goal of sustainable development, promotes
risk-based thinking to plan and implement the processes of the quality management
system so that to determine the extent of documented information. Moreover, risk-
based thinking adopted by ISO 9001:2015 allows reducing regulatory requirements and
replacing them with performance-based requirements, greater flexibility in process
requirements, documented information, and organizational responsibilities.
ISO 9001:2015 contributes significantly to the production of high-quality products

and/or services and, implicitly, to the increase of customer and business partners’
satisfaction, of all those interested in this issue; allows the management of the company
to adopt a development strategy based on clear principles, relatively easy to implement

(Olaru, 2004);
ISO 22000:2015 sets out the requirements for a food safety management system, being
a combination of the ISO 9001 quality standard with the HACCP principles (SUN CERT,
2020b; HACCP.b). The food safety management system implemented and certified by
the requirements of this standard means a commitment of the organization to
implement the food hygiene system, as well as confidence in the company's ability to
provide "safe" food (Condrea et al., 2015).
The implementation and certification of ISO 22000:2018 at the level of a company cause
customers to have confidence in the quality and safety of the food and services provided
by it. At the same time, this standard helps policymakers to improve risk management
in food safety processes.
"ISO 22000:2018 provides dynamic control of food safety hazards, combining:

interactive communication, systems management, prior programs (PRPs) and
principles of risk analysis and critical control points (HACCP)" (ASRO, 2018).
EN ISO 14001:2015 specifies the requirements of an environmental management

system for organizations wishing to establish, implement, maintain and continuously
improve a way of working to manage its environmental responsibilities in a way that
contributes to " the “environmental pillar” of sustainable development. The expected
results of an environmental management system provide value to the environment, the
organization, and stakeholders.
In the ISO 14001 standard, the notion of “continuous improvement” is defined as

representing “the process of developing the environmental management system to
obtain the improvement of the global performance in the field of environment, in
accordance with the environmental policy of the organization”.
"ISO 14001:2015 focuses on achieving the desired for sustainable development through
the efficient use of natural resources, efficient waste management, attention to climate
change, degradation of ecosystems, use of the product lifecycle concept" (SUN CERT,
2020c).
EN ISO 14000:2015 standards help organizations to improve their environmental

performances and achieve their established environmental protection objectives
(Enesco, 2016); facilitates established relationships between top management and
stakeholders; contribute to the promotion of the organization among those who are
concerned about ensuring the quality of life and the environment.
The case studies presented in the next section are, in fact, a synthesis of data and
information accumulated in the external audit process performed in organizations with
certified management systems or the process of certification.
278 Strategica 2020
In the first part of the research, we identified some non-conformities with the
requirements of the standard EN ISO 9001:2015, respectively EN ISO 22000:2018 and
EN ISO 14001:2015, as well as the corrections and implicitly the corrective actions
proposed by the management of the audited organizations. The intended results
established for each category of corrections and corrective actions represent their
interpretations regarding their contribution to improving the performance of the
management systems.
To present the following as accurately as possible, we consider it necessary to reproduce

some concepts as they are included in the reference standard EN ISO 9001:2015; as
follows:
- non-compliance - failure to meet a requirement;
- correction - the action of eliminating a detected nonconformity;
- corrective action - action to eliminate the cause of non-compliance and prevent
recurrence;
- continuous improvement - repeated activity to increase performance;
- performance - measurable result;
- management system - set of correlated or interacting elements of an
organization through which policies and objectives are established, as well as
the processes through which those objectives are achieved.
Results of the research
We structured the results of our research in three directions, specific to the analyzed
management systems, as follows:
A. Quality management systems.
Audited field of activity: restaurant

Audited areas: food block, serving space
Inadequate situations found at the time of the audit:
1. The ceiling in the raw material storage area (refrigerator and freezer area) showed
traces of infiltration.
2. The raw material elevator was not sanitized. Storage conditions for products with
hygroscopic potential (flour, semolina, sugar, etc.) were not monitored.
3. The filter locker room does not have all smooth/washable surfaces and is not
properly compartmentalized for separating work equipment and street clothes.
4. The vanilla and chocolate toppings were not kept under the specified conditions by
the manufacturer ("after opening, store in the refrigerator").
5. The restaurant menu did not refer to the presence of allergens in food products.
6. Some thermometers used in the food block were not identified and it was not
possible to prove the metrological verification of the metal rod thermometer used in
the kitchen.
For the situations presented, the following non-compliances with the requirements of
the standard EN ISO 9001:2015 (SR EN ISO 9001:2015) are identified and formulated:
Requirement 7.1.3 - Infrastructure

1. The ceiling in the raw material storage area (refrigerator and freezer area) does not
meet the appropriate conditions to avoid physical contamination of the products.
2. The filter locker room does not have all smooth/washable surfaces and is not
properly compartmentalized for separating work equipment and street clothes.
The improvement actions proposed by the audited organization are:
- The correction:
a. Repairment of the ventilation system, the ceiling in the raw material area, and the
locker room surfaces.
b. Proper compartmentalization of the filter locker room to separate the work
equipment from the street equipment.
- Corrective actions:
a. Allocation of resources needed to carry out repairs and compartmentalization of
the locker room.
b. Training of the process manager with the requirements established by the
organization to avoid physical contamination of the products and with the
requirement 6.3 of the reference standard.
Intended results: The appropriate infrastructure will reduce the risk of physical and /
or biological contamination of products, will ensure the level of quality and food safety
of culinary products offered to consumers.
Requirement 8.5.4 - Storage

Some products used in the preparation process (vanilla topping and dessert sauce) were
not kept, at the time of the audit, under the conditions specified by the manufacturer
("after opening, stored in the refrigerator").
- Correction: Store all products and ingredients according to the suppliers'
specifications.
- Corrective actions: Training of production site personnel on storage conditions for
products and raw materials according to product specifications.
Intended results: Proper storage of raw materials, products, and ingredients will reduce
the risk of non-compliant products, will ensure production with optimized costs, will
ensure the quality level of culinary products offered to consumers.
Requirement 7.1.4 - Process operation environment

1. No documented information shall be kept on monitoring the storage conditions of
products with hygroscopic potential (flour, semolina, sugar, spices, etc.).
2. The cleaning and sanitation program does not refer also to the elevator for raw
materials.
- Correction:
a. Recording the monitored temperature and humidity in the storage area of the
grocery products following the internal procedure.
b. Revision of the cleaning and sanitation program to include the elevator of the raw
materials.
a. Training of process managers with requirement 7.1.4 of the framework.
b. Training of process managers on the registration of monitored parameters in the
storage space of the grocery products following the internal procedure.
280 Strategica 2020
c. Training of process managers with the revised cleaning and sanitation program
and with the requirements for monitoring the performance of the planned works.
Intended results: The appropriate working environment will reduce the risk of physical
and / or biological contamination of the products, will ensure the quality and food safety
level of the culinary products offered to consumers.
Requirements 8.2.1, 8.2.2 - Communication with the client; determining the requirements
for products and services
No clear way has been established to inform consumers about the presence of allergens
in food products.
- Correction: Revising the menu to supplement with all the ingredients used in the
preparation of each culinary product, including those with a potential allergen.
- Corrective actions: Training the process manager with requirements 8.2.1 and 8.2.2 of
the reference standard.
Intended results: The correct information of consumers regarding the ingredients used
in the preparation of culinary products, including allergens will increase the level of
consumer satisfaction, but also the degree of safety in consumption.
Requirement 7.1.5 - Monitoring and measurement resources

Not all thermometers used are identified and evidence of the metrological verification
of the metal rod thermometer used in the kitchen could not be found.
- Correction: All the R.M.Ms used will be properly identified, the stage of the metrological
verifications will be proved.
- Corrective actions: Training of the process manager with the requirement 7.1.5 of the
reference standard and with the applicable internal procedure.
Intended results: The use of appropriate measurement and monitoring resources will
result in effective measurement or monitoring of the compliance of the products or
services with the customer, legal, or other applicable regulatory requirements.
B. Food safety management systems
I. Audited field of activity: bovines’ slaughterhouse

Audited area: production, cattle slaughter line
1. A bird's nest was observed at the entrance to the slaughterhouse, in the personal
access area.
2. At the entrance to the filter locker, the audit team was offered only protective robes.
3. The saw-knife and the carcasses resulting from evisceration have not been
considered as sanitation sampling areas in the self-control program.
4. 14⁰C were recorded in the semi-carcass cooling/swindling space, above the
maximum level set.
5. No records were found concerning the hygiene of the means of transport for finished
products which are delivered to outlets.
6. No map of drinking water taps or safety records for insecticides and raticides used
were available.
For the situations presented, the following non-conformities in reference to the EN ISO
22000:2018 (SR EN ISO 22000:2019) standard shall be identified and made:
Requirement 8.2 – Preliminary Programs (PRP)

1. Sufficient protection against pests (e.g. bird's nest in the personal access area) is not
provided.
2. On the visit to the slaughterhouse, the visitors' equipment was not complete (lack of
caps, suitable disposable footwear).
3. The location of drinking water taps is not documented.
4. Safety records for insecticides and raticides used in the disinfection, extermination,
and de-ratification process are not available.
- Correction:
a. Pest eradication in the food processing areas.
b. Purchase and equipping visitors with full-use disposable protective equipment.
c. Drawing up the map of the water taps.
d. Procurement of safety records for insecticides and raticides used.
a. Allocating resources necessary for pest protection and the purchase and equipping
of visitors with full-use single-use protective equipment.
b. The training of the staff in charge of applying the "Pest Control" procedure.
c. Training of the food safety Team Leader with measures to prevent cross-
contamination and personal hygiene and with the requirements of 8.2.2 and 8.2.3
of the reference standard.
d. Training of production personnel with safety records for insecticides and raticides
used in the disinfection, extermination, and de-ratification process.
Intended results: Proper implementation of preliminary programs throughout the
production process will reduce the risk of physical, chemical, and/or physiological
contamination of products, food safety requirements.
Requirement 8.5.4.2 – Determination of critical limits and action criteria

Acceptable levels have not been established for all documented PRPOs for pig slaughter
(e.g. knife/saw sterilization, carcass sanitation tests after evisceration).
- Correction: Documentation and completion of PRPO with acceptable levels.
- Corrective actions: Training the food safety team to document and supplement PRPOs
with acceptable levels.
Intended results: The application of appropriate control measures prevents significant
hazards to food safety, effective control of manufacturing processes or products
Requirement 9.1.1; 9.1.2 – Monitoring, measurement, analysis, and evaluation

At the time of the audit, the whole temperature in the semi-carcass cooling/swindling
space exceeds the maximum set level of 10-12⁰C (14⁰C recorded).
- Correction: Correct electronic temperature setting in the semi-carcass
cooling/swindling room.
- Corrective actions: Training of the staff responsible for setting and monitoring the
correct temperature.
Intended results: The use of appropriate methods ensures that valid results are obtained
from the measurement and monitoring process.
282 Strategica 2020
Requirement 7.5.3.2 – Control of documented information

Although the means of transport for the finished products are in the appropriate
condition, documented information as evidence of the hygiene of the respective means
of transport following the specific procedure was not available at the time of the audit.
- Correction: Completion and retention of the hygiene sheets following the specific
internal procedure.
a. Training drivers to keep evidence of the sanitation process of the means of
transport.
b. Training of the staff responsible for verifying the storage of records.
Intended results: The recording and storage of appropriate documented information is
evidence of the conformity of processes or products, as appropriate.
II. Audited field of activity: collection of cow's milk and goat's milk
Areas audited: milk production holdings located on farms, collection center

1. The qualitative reception stage of the milk collected at the production holdings and
the transport up to the collection center has been omitted when drawing up the flow
chart, no hazards have been identified and acceptable limits have not been
established for these two stages of the manufacturing process.
2. The food safety team did not check on the spot the accuracy of the flow chart.
3. No records of the qualitative reception stage carried out at the milk production
holdings were found.
4. In the collection center, in the area of the storage tanks, the ceiling had cracks, the
electrical panel in the storage space was slightly detached from the wall, and the flow
meter preset was not in working order.
5. The sanitation plan did not include the activity of washing tanks and supplier
machines with the WAP installation. Milk transfer hoses were kept on the pavement.
The flykiller wasn't sanitized. The sanitization of the tanks had not been carried out
through sanitation tests.
6. No analysis bulletins of the drinking water were available.
For the situations presented, the following non-conformities to the EN ISO 22000:2018
(SR EN ISO 22000:2019) standard shall be identified and made:
Requirement 8.5.1.5.1 – Elaboration of flow charts

The flow chart does not include the sequence and interaction of all stages, i.e. the
qualitative reception of the milk in milk production holdings and transporting it to the
collection center.
- Correction: Review of the flow chart so that it includes all stages, including the
qualitative reception of the milk in milk production holdings and transporting it to the
collection center.
- Corrective actions: Training of the food safety team staff with the requirement 8.5.1.5.1
of the reference standard.
Intended results: Adequate and complete flow charts provide an appropriate analysis of
the risks to food safety hazards.
Requirement 8.5.1.5.2 – On-the-spot confirmation of the flow charts

The accuracy of the flow chart has not been verified on the spot.
- Correction: Check the accuracy of the flow chart on the spot.
- Corrective actions: Training the food safety team staff with requirement 8.5.1.5.2 of the
reference standard.
Intended results: The accuracy of the flow diagrams confirmed on-site by the food safety
team ensures the effectiveness of the food hazard assessment.
Requirement 8.5.2.2–Identification of hazards and determination of acceptable levels

No hazards have been identified and acceptable levels have not been established for the
reception of the milk at milk production holdings and the transport up to the collection
center.
- Correction: Identification of hazards and establishing acceptable levels for the
qualitative reception of the milk at production holdings and transporting it to the
collection center and the review corresponding to the risk analysis sheet.
a. Training of the food safety team staff regarding the standard requirement 8.5.2.2.
b. Training of the staff involved in the processes of qualitative reception of the milk at
production and transport holdings to the collection center with the revised risk
analysis sheet and established control measures.
Intended results: The identification and documentation of all food safety hazards, for all
stages of the manufacturing process, allows the effective hazard assessment and the
establishment of appropriate control measures.
Requirement 8.5.4.3 – Monitoring systems at the CCP level

No documented information shall be kept as evidence of the qualitative reception of the
milk on production holdings following the specific internal procedures.
- Correction: Completion and retention of records as evidence of the qualitative
reception stage of the milk in the production holdings following specific internal
procedures.
a. Training of the food safety team staff with requirement 8.5.4.3 of the reference
standard.
b. Training of the staff involved in the processes of qualitative milk reception on
production holdings with the specific internal procedure applicable to the process
of qualitative milk reception.
Intended results: The establishment and proper implementation of the method and
frequency of monitoring critical control points ensures the immediate detection of any
failure to meet critical limits to isolate and quickly assess the potentially unsafe product.
Requirement 8.2 – Preliminary Programs (PRP)

Washing of the tanks with the WAP installation was not properly documented and
planned. Milk transfer hoses were kept inappropriately (on the pavement). The flykiller
was unhygienic. No objective evidence was found demonstrating the effectiveness of the
tank sanitation process or the quality of the drinking water.
- Correction:
284 Strategica 2020
a. Review of the sanitation plan to introduce the tank washing phase with the WAP
installation.
b. Making support for transfer hoses.
c. Hygiene of the flykiller according to the sanitization plan.
d. Compliance with the self-control program.
- Corrective actions: Training of the staff with requirement 8.2 of the reference standard
and with specific internal procedures related to the preliminary programs.
Intended results: Proper implementation of preliminary programs throughout the
production process will reduce the risk of physical, chemical and / or physiological
contamination of products, food safety requirements.
C. Environmental management systems
Audited field of activity: processing of pork meat, distribution, and marketing of

pork and pork preparations
Areas audited: carmangery, butcher shop, retail shops

1. The organization has not identified the environmental aspects resulted from the
parking of authorized vans for the transport of meat products and the environmental
aspects resulted from their sanitization process.
2. It was not possible to prove the washing and hygiene of the approved equipment for
the transport of meat products.
3. The collection of animal waste not intended for human consumption is not carried
out uniformly in all locations of the organization.
4. Although procedures have been established for the management of emergencies
with an impact on food safety (interruption of electricity, fire), not all potential
emergencies that may have an impact on the environment have been identified.
5. Wastewater quality monitoring shall not be carried out at the frequency set out in
the environmental authorization.
For the situations presented, the following non-conformities to the EN ISO 9001:2015
(SR EN ISO 9001:2015) standard shall be identified and formulated:
Requirement 6.1.2 – Environmental aspects

The identification and evaluation sheet for direct and indirect environmental aspects
under normal, abnormal and emergency working conditions/01.10.2019 does not
contain all the environmental aspects resulted from the work carried out, according to
the field of activity and from the perspective of the life cycle (e.g. environmental aspects
resulting from the parking/garage activity authorized for the transport of meat products
and their sanitization process).
- Correction: Direct and indirect environmental aspects will be reassessed under
normal, abnormal, and emergency working conditions from a life-cycle perspective,
including for the meat transport process.
- Corrective actions: Training of the process manager in regard to requirement 6.1.2 of
the reference standard; awareness of the organization’s staff with the environmental
aspects and environmental impacts re-evaluated.
Intended results: The identification of all environmental aspects resulting from the
company's activities ensures the establishment of adequate operational control
measures to eliminate, reduce or control the impact of those activities on the

environment, which improves the quality of the environment.
Requirement 8.1 – Operational control

1. It has not been possible to demonstrate the application of operational control for
certain processes carried out in the organization (washing and sanitization of the
vans authorized for the transport of meat products).
2. A defined method for the collection of animal waste not intended for human
consumption has not been established.
- Correction:
a. Application of operational control for all processes carried out in the organization,
including sanitization of the vans authorized for the transport of meat products.
b. Review specific working instructions and defining of a procedural method for the
collection of animal waste generated by the organization.
- Corrective actions: Training the staff of the organization involved in carrying out the
operational control with requirement 8.1 of the reference standard and with the need
to maintain all documented operational control information following internal
procedures.
Intended results: Carrying out effective operational control determines the control of the
environmental aspects with significant impact generated by the organization.
Requirement 8.2 – Emergency preparedness and response capacity

No procedures have been established for the management of all emergencies and
potential accidents that may have an impact on the environment (e.g. earthquake).
- Correction: Establishing and implementing procedures for managing all emergencies
that may have an impact on the environment, including earthquakes.
a. Training the process manager with requirement 8.2 of the reference standard;
b. Training of the staff in the organization with all procedures for emergency
management, including for an earthquake;
c. Periodic testing of the elaborated emergency plans, including earthquakes.
Intended results: The management of all emergencies that may have an impact on the
environment prevents or mitigates the consequences of an emergency.
Requirement 9.1.1 - Monitoring, measurement, analysis, and evaluation; generalities

The frequency of monitoring the quality of wastewater is not always observed.
- Correction: Timely transmission of orders for sampling to determine wastewater
quality.
- Corrective actions: Training the process manager with the requirement 9.1.1 of the
reference standard and with the monitoring chapter of the environmental permit of
the organization.
Intended results: Compliance with the parameter monitoring frequency ensures that
valid results are obtained from the measurement and monitoring process and following
regulatory requirements.
286 Strategica 2020
Conclusions
Through the elimination of unwanted effects, as well as their causes, the corrective
actions make up viable continuous improvement instruments for management systems,
to improve the organization’s general performance, and, implicitly, fulfilling the circular
and sustainable bioeconomy desiderate.
The intended results, identified for each implemented correction/corrective action

contribute to achieving the intended general results, declared in the standards specific
for each management system, namely:
 For the quality management system, in conformity with EN IS 9001:2015:

a. Consistent provision of products or services that meet applicable customer
requirements, legal and regulated;
b. Increasing customer satisfaction through the effective application of SMC;
c. Ensuring compliance with customer requirements, legal and regulated.
 For the food safety management system, in conformity with EN ISO 22000:2018:
a. Consistent provision of safe food and products and services that meet applicable
customer, legal and regulatory requirements;
b. Taking into account the risks and opportunities associated with its context and
objectives;
c. Ensuring compliance with the specified requirements of the SMSA.
 For the environmental management system, in conformity with EN IS 14001:2015:

a. Increase environmental performance;
b. Fulfillment of compliance obligations;
c. Achieving environmental objectives.
References
ASRO (2018). A fost publicată o nouă ediție a standardului ISO 22000 [A new edition of
the ISO 22000 standard has been published], 16 iulie 2018. Retrieved from
https://www.asro.ro/iso-a-publicat-noua-editie-a-standardului-iso-22000/
Banu, C. (2007). Suveranitate, securitate și siguranță alimentară [Sovereignty, Security
and Food Safety], ASIB Publishing House, Bucharest, RO.
Condrea E., Constantinescu G., Stanciu A.C., Constandache M. (2015). Particularities of
FSSC 22000 – Food Safety Management System. Journal of Environmental
Protection and Ecology (JEPE) 16(1), part 2274-279. Retrieved from
http://www.jepe-journal.info/journal-content/vol-16-no-1
EN ISO 14001:2015. Environmental management systems – Requirements with guidance
for use. Retrieved from https://www.iso.org/standard/60857.html.
EN ISO 22000:2018. Food safety management systems — Requirements for any
organization in the food chain. Retrieved from
https://www.iso.org/obp/ui/#iso:std:iso:22000:ed-2:v1:en.
EN ISO 9001:2015. Quality management systems – Requirements. Retrieved from
https://www.iso.org/iso-9001-quality-management.html.
Enescu, M. (2016). Managementul mediului [Environmental Management], Craiova, RO:
Universitaria Publishing House.
HACCPa - HACCP/Hazard Analysis and Critical Control Point. System and Guidelines for
its applications. Retrieved from
http://www.fao.org/3/Y1579E/y1579e03.htm.
HACCPb - HACCP. Principles & Application Guidelines. Retrieved from
https://www.fda.gov/food/hazard-analysis-critical-control-point-
haccp/haccp-principles-application-guidelines.
Olaru, M. (2004). Managementul calității [Quality Management], Bucharest, RO:
Economica Publishing House.
Ștețca, G., Mocuța, N, & Pop, A. (2012). Strategii de management privind calitatea
alimentelor [Management strategies regarding food safety], Cluj-Napoca, RO:
Risoprint Publishing House.
SUN CERT (2020a). ISO 9001:2015. Retrieved from
https://suncert.ro/certificari/managementul-calitatii-iso-90012015/.
SUN CERT (2020b). ISO 22000:2018. Retrieved from
https://suncert.ro/certificari/siguranta-alimentelor/.
SUN CERT (2020c). ISO 14001:2015. Retrieved from
https://suncert.ro/certificari/management-de-mediu-iso-140012015/.
288 Strategica 2020
HIGHER EDUCATION IN THE POST COVID-19 WORLD –

LEADERSHIP AND MANAGEMENT CHALLENGES
Susan TOWNSEND
North Arizona University
Flagstaff, Arizona, US
smc6940burt@gmail.com
Elena NICOLAE
elena.nicolae@rei.ase.ro
Abstract
This paper explores the impact the sanitary crisis has had on education in general and on higher
education in particular all over the world. There is already a large amount of literature
documenting the effects of the COVID-19 crisis on education and it is all freely accessible. This in
itself is a result of this pandemic and part of a growing trend towards open and free access to the
results of research. This paper focuses on higher education issues by attempting to integrate the
literature and data available and making sense of the many issues surfacing. The Boston College
Center for International Higher Education, for example, puts forward figures from the beginning
of April 2020 showing that higher education institutions closed in 170 countries and communities
and that COVID-19 disrupted over 220 million tertiary education students representing 13 % of
the total number of students affected globally. The figures may differ depending on the period,
moment, and measurement methods, but most experts and researchers view the implications for
higher education as mostly negative. The same source considers that the effects of the health crisis
on the higher education sector will amplify the already existing gaps and inequalities between
learners, institutions, and countries. Experts from around the world seem to agree that although
there will be significant variations of any possible such scenarios at a global level, there is a clear
likelihood that universities in developing countries will be more affected than those in developed
economies. Also, the effects on the internationalization of higher education are important both in
terms of universities’ incomes and market shares and, mainly, in terms of students’ satisfaction
and quality of learning. The majority of universities everywhere responded to the crisis with a
quick movement of their programs online. This proved to be a challenge for all the parties
involved: university leadership and management, teaching staff, students, and the rest of the
stakeholders of higher education in the respective communities. The research methodology is
mainly qualitative, analyzing, and integrating sources of literature, academic, professional, and
investigative, as well as the authors’ own experiences in two diverse organizational higher
education contexts. The data used in our research is from available, public sources. The paper aims
not only to raise relevant questions but also to offer some possible suggestions or at least highlight
some issues that might help decision-makers to prepare for the post COVID world.
Keywords
Higher education, COVID-19, higher education internationalization, online education, leadership
challenges, impact on learning.
Introduction
The sanitary crisis that started with the spread and acknowledgment of the Coronavirus
Disease 2019 (COVID-19) between December 2019 and early 2020 has clearly changed
the world. The rapid spread of the disease required formerly unimagined strict
quarantine measures not only in China but in many other parts of the world, though not
everywhere. Those measures influenced and, in some cases, seriously affected the lives
of the people kept in isolation.
The effects of the COVID-19 pandemic have been serious and extended beyond people’s
physical health and lives to provoke a variety of psychological problems, such as panic
disorder, anxiety, and depression (Mazza et al., 2020; Nadolu, 2020). No matter how
tragic and dramatic those effects continue to be, some not even identified and others not
entirely evaluated, the large concerns are those triggered by the economic, social and,
possibly, political effects of the pandemic which have added to the already existing and
increasing turbulence of a world characterized by the World Economic Forum’s The
Global Risks Report 2020 as an “unsettled world” (p. 8) even before the pandemic was
acknowledged for what it was. How does an “unsettled world” look like?“ In the words
of the President of the World Economic Forum, Borge Brende, such a world is
characterized by a polarized political landscape, by dramatic changes in the natural
world and the climate, and by a profound need of the world leadership to repair and
strengthen the world’s systems of cooperation if humanity wants to survive as a species.
This might sound rather dramatic, but there are more credible voices who join those
who believe so (Harari, 2020; Slaughter & Hines, 2020; Human futures, 2019).
The pandemic created a new list of people considered usually most successful both in
terms of public visibility and of incomes. This list shifted from football/baseball players
and other athletes, pop and entertainment artists, not to mention politicians, doctors,
nurses, social workers, and mainly medical researchers who suddenly became essential
to understand and overcome the mechanisms of the virus transmission and treatment.
Suddenly human society is forced to understand which jobs are really important and
which are on the market only to help others make more money and generate more
income which continues to be unequally distributed (Hanauer & Beinhocker, 2015;
Mair, 2020). There is an abundance of information on all aspects and possible impacts
the COVID-19 might have on the large diversity of human activities from the economy
to the environment. However, the authenticity and objectivity of the sources which
provide information are very often difficult to discern. Therefore, the authors decided
to present the data the Organization for Economic Co-operation and Development
(OECD) put together to fight disinformation and help navigate ambiguity during the
crisis. The OECD’s specialized researchers for economic forecasting have put together
two possible scenarios which are presented in Figure 1 and Figure 2 below. Figure 1 is
built around the situation in which the virus continues to drawback and can be
controlled.
290 Strategica 2020
Figure 1. OECD's first scenario is based on the containment and control of the virus.
Source: https://www.oecd.org/economic-outlook/june-2020/
Figure 2 presents a possible scenario in which a second wave of rapid contagion breaks
out in the second part of 2020. The conclusions of the OECD researchers are in both
cases pessimistic showing a severe contraction of the global economy, with unfortunate
effects on the social and political life.
Figure 2. OECD's second scenario is based on a new outbreak and rapid contagion
of the virus.
Source: https://www.oecd.org/economic-outlook/june-2020/
Mair (2020) considers that such a grim economic perspective allows four possible future
scenarios: “a descent into barbarism, robust state capitalism, radical state socialism, and
a transformation into a big society built on mutual aid.” Analyzing all four possibilities,
Mair, a research fellow at the University of Surrey, considers that all of those futures are
possible, but he mostly fears, the “descent from state capitalism into barbarism”. Mair’s
ideal future would be a blend of state socialism and mutual aid, by which he means a
strong and democratic state capable of building stronger and healthier public systems,
of protecting the vulnerable and responding to and enabling its citizens to form mutual
aid groups rather than working meaningless jobs.
At the same time, McKinsey & Company (2020 a) based on a survey of more than 2,000
global executives show the same cautious and grim views on the economy and its
recovery after COVID-19. If this is true in North America and the developing markets,
business leaders in China and India are growing more optimistic. There are many
different evaluations of the COVID-19 crisis and relatively as many possible solutions –
some optimistic, some scary. The most serious ones highlight the critical flaws of our
present systems. Most effective responses to this crisis consider radical social change as
vital and the premises for that change is investing in people through education and
health.
Challenges for education
This paper intends to explore higher education issues by attempting to integrate the
literature and data available and making sense of the many issues surfacing when we
look at the system of education worldwide, with apparently so many differences, but in
essence so similar. The Boston College Center for International Higher Education, for
example, puts forward figures from the beginning of April 2020 showing that higher
education institutions closed in 170 countries and communities and that COVID-19
disrupted over 220 million tertiary education students representing 13 % of the total
number of students affected globally. Based on the UNESCO Institute for Statistics data,
continuously updated, their website gives the latest numbers (UNESCO, 2020a) of
affected learners along the spectrum of all levels of education as 1,184,126,508 affected
learners, 67.6% of total enrolled learners which represent schools totally closed down
in 143 countries. Those numbers had been bigger at the peak of the crisis showing that
almost 1.6 billion learners in more than 190 countries, in other words, 94% of the
world’s student population, had been affected (UNESCO, 2020 b).
The above figures made the UN Secretary-General António Guterres consider that
COVID-19 has created the most severe disruption in the world’s education systems in
history and is threatening a loss of learning that may stretch beyond one generation of
students. Guterres underlined that the educational crisis, mainly a learning crisis, which
in itself is an important discussion however impossible here, had been evident before as
well. And he strongly emphasized that unless national authorities and the international
community collaborate to define education as a priority on the recovery agendas and to
invest in education the world could find itself facing “a generational catastrophe” that
could trigger loss of human potential, undermine decades of progress, and exacerbate
entrenched inequalities. This is even worse in countries like Romania where education
has been a priority only rhetorically in the last three decades (Nicolae 2015, pp.31-33).
292 Strategica 2020
What is also relevant in the UNESCO article for the present discussion is that tertiary
education is likely to register the highest dropout rate and, a rather terrifying thought
for universities all over the world, with the grim consequence of a projected 3.5%
decline in enrolments which means 7.9 million fewer students. Of course, each higher
education system has its specific worries and concerns, but all over the world tertiary
education is mainly apprehensive about the economics of enrolments.
In the US, Canada, the UK, or Australia, to mention only some of the countries in which
international students bring important revenues to the domestic higher education
markets and even to the economy as a whole, this is very evident. As Times Higher
Education (2020) underlines, in the US alone, Chinese students represent 33.7 % of the
international student population, and Indian students make up 18.4 %, in other words,
52.1% of all international students in the US are Asian. In a report of the UK Institute of
International Education (IIE), the author, Mirka Martel, points out the number of
international students expected to enroll in the autumn of 2020 for the next academic
year. We present in Figure 3 some of the data presented by Martel (2020, p.11) based
on a survey of 286 US institutions.
Figure 3. US colleges and universities offered flexible options for admitted international
students to encourage their enrolment.
Source: Martel, 2020, p.11
The institutional flexibility we mention in the title of Figure 3 is particularly significant

if we note that from the above numbers of international students 52.1 % are coming
from Asia and their travel and visa arrangements are uncertain due to the COVID-19
pandemic and to the unpredictable future economic and social realities. This flexibility
means various options for enrolment for admitted international students, either as
shown in Figure 3 with some students planning to begin studies in the fall of 2020 while
others expressed their intention to postpone their studies to a future semester in 2021
or even later. Another option for international students is online registration in classes,
however not without its risks and difficulties for universities. Therefore, higher
education institutions are proactive in approaching students personally and providing
several enrolment alternatives to prevent withdrawals. Martel’s report (2020, p.11)
underlines that most surveyed institutions “are frank in reporting the challenges of
virtual enrolment, including concerns about decreases in enrolment, less student
engagement with faculty and peers, and access and ability to attend online classes”.
As Blankenberger & Williams (2020) observe the COVID-19 disruption of higher

education, which they actually call a catastrophe, may have wide and challenging
impacts on areas such as budget, enrolment and recruiting, research, course delivery,
and accountability and assessment. If we look again at the way the summer operations
of US higher education institutions have been affected, see Figure 4, then we have a
clearer picture of the massive impact of the COVID-19 crisis as surfacing from Martel
(2020, p. 4) and on possible future effects.
Figure 4. Responses by surveyed US colleges and universities to COVID-19 in summer 2020.

Source: Martel, 2020, p.4
Blankenberger and Williams (2020, p.2) emphasize that all those areas they mentioned
and their major effects, some of which are presented in Figure 4, are areas for which the
management and leadership of higher education institutions need to prepare as well as
the relevant policymakers at a macro level in each educational context. Blankenberger
and Williams (2020, p.2) consider that teaching is an important area of reflection and
needs innovation in the shifting to online formats if we want learning to be effective.
They put forward the proposition that the role of higher education for the advancement
of social equity is crucial and, therefore, institutional integrity and accountability will be
essential for institutions in the COVID and post-COVID era for survival and recovery.
However, the way higher education chooses to respond to the challenges underlined is
mainly a political decision and such decisions are the competence of the leaders of
institutions of higher education. The conclusions of Blankenberger and Williams (2020,
p.14) emphasize the interconnectedness of the higher education ecological system
through its “elements—people, place, physical technology, social technology, wishes and
ideas, catastrophe, and personality”. In a trust market, as the market of higher education
is, Blankenberger and Williams firmly state that institutions and people cannot function
without integrity and accountability.
Altbach and De Wit, (2020) rightly consider that being aware of the dangers of
generalizations, particularly in the middle of an unprecedented crisis, we may assume
that the consequences of the pandemic for higher education will be major and mostly
negative. The post-COVID-19 world will be one with increased gaps and inequalities
between learners, institutions, and countries. Altbach and De Wit reckon that although
there will be significant variations across the international higher education scene, the
294 Strategica 2020
most probable scenarios is that universities in the less developed parts of the world will
be affected more severely.
Online education
Online education is not something new or a mode of delivery that higher education has
not been aware of the present pandemic. We can say that most universities in the
developed and even less developed world have an online platform for blended learning.
The technical specifications of those platforms and what staff and students do with them
is another story, the truth being that a large proportion of academics have complained
of being “forced/pushed” online when the COVID-19 crisis was acknowledged for a
pandemic. At the same time, learners/students came to realize that learning in a
complete, forced virtual environment is harder and more demanding than accessing
online courses by choice. And also, that there is a need for special competence
development.
Murphy (2020) argues that there is a clear difference between online education by
choice and “emergency elearning”. When Goldie Blumenstyk (2020) of the “Chronicle of
Higher Education” interviewed the owners of Noodle (a company offering support to
schools and universities to transition to eLearning) about the eLearning transition they
suggested that “these events could prompt colleges to stop distinguishing between
online and classroom programs.” In other words, the administrative choice for online
education, while preserving the existing levels of tuition by using massive online courses
that learners would access by free choice, would change the situation.
Murphy (2020, pp.493-495) using the Copenhagen school securitization theory explains
how a certain topic can be changed into a critical “security issue” through discourse. In
the present discussion, this applies to face-to-face education which was securitized
during the pandemic. By underlining that social distancing is an appropriate response
during the pandemic, Murphy also draws the attention to the dangers of “removing face-
to-face education from the realm of normal discourse” and of talking about “mandatory
eLearning programs as a means of public austerity” that are trying to “normalize
emergency eLearning protocols. Murphy underlines that discussing and reflecting on
the risks of normalizing emergency eLearning is different from denouncing online
learning in general. And he brings to the discussion some positive contributions of
online education such as addressing the digital divide, the possibly increased access to
education in rural communities through the research into the portability of eLearning,
the advantages of asynchronous eLearning for wider access.
Particularly relevant to the present discussion is Murphy’s observation that hybrid or

blended forms of delivering content in traditional higher education institutions could
contribute to the improvement of the quality of face-to-face teaching by moving lectures
online and preserving interaction and mainly questions from learners to instructors to
clarify issues for in-person sessions which traditionally are known as seminars.
Higher education leadership during a pandemic
We already mentioned before the role of leadership in the section about the implications
of the COVID-19 crisis over higher education. Most areas of impact require decisions at
a macro (social) and mezzo (institutional) levels. Those are clearly areas of intervention
for decision-makers at organizational and governmental levels. However, from the

literature studied and from the personal experience of the authors of the present paper,
we claim that a lot of effort was required from the individual academics to move online
with enormous pressure both on the university staff and the students in an
unprecedented context.
QS, Quacquarelli Symonds, who define themselves as the world’s leading provider of
services, analytics, and insights to the global higher education sector, has published a
survey of prospective international students to which approximately 11,000
respondents contributed and another survey of about 400 higher education
professionals in universities across the globe. The results have been published in the QS
White Paper, The Impact of the Coronavirus on Global Higher Education, (2020). The
education professionals have been asked to contribute their thoughts on how their
higher education institutions answered the crisis and the coronavirus problems. Most
answers underlined the following issues: “Online learning; International coordination
and collaboration; Proactive, preventative measures; Strong university leadership;
Flexibility for assessment deadlines and exams; Stricter sanitation initiatives; and Clear
communication from university leadership and administrators” (p.14).
The role of leadership is important and so is the communication among all the
stakeholders in the process of higher education. The QS White Paper quotes one US
professor who says that it is important that universities do not minimize the difficulties
and the risks of the crisis. We find this very important as usually management and
leadership tend to use optimistic discourses to offer a safe and ... picture even if most
decision-makers admitted not knowing what was going on: “Higher education should
lead the way in showing a calm and measured approach to crisis management while
remaining decisive and effective without minimizing or dismissing credible risks.”
Harvard Business School, HBS, (2020) adapted its executive programs immediately to a
world under a pandemic and produced for their alumni, in open access format, a series
of virtual events to help them navigate through the crisis. The HBS faculty rightly point
out that Covid-19 is a medical phenomenon, but the COVID-19 CRISIS goes beyond that
reaching to the deep structures of our entire world. To approach it successfully leaders
have to manage the Covid-19 event as a whole, not look at the various disparate effects.
In the view of the HBS team the elements that leaders have to consider when dealing
with the crisis are: 1) Medical; 2) Financial; 3) Supply Chain; 4) Economic; 5)
Psychological and 6) … unforeseeable elements. Obviously, this is a business approach.
However, since higher education has been pushed for some time now to operate as close
as a business (see Nicolae, 2015, pp.37-39) as possible, particularly in the US and also in
Romania as a wishful project rather than a reality, we can easily replace the “supply
chain” component of the above with the student recruitment and enrolment activity of
universities and get a framework that works for higher education as well. The HBS asks
the simple and honest question that relatively few leaders dare to ask: “What do we do
… when no one knows what to do?” pointing out that this is what is generally referred
to as crisis leadership. Admitting they have no “pre-cooked answers”, the HBS team offer
instead of the “best process” which everyone can apply to their situation. The best
process is simple and clear to understand, but difficult to follow and to apply under
pressure and in conditions of total uncertainty. The best process means that 1. we need
to avoid the temptation of immediate answers as most of them will be proven wrong; 2.
constantly remember and remind others as well that we don’t understand the big
296 Strategica 2020
picture because of its continuous change so we need patience for the process of learning;
and 3. Put in action the best process possible with the best people available.
However, to put into practice, the best process available to us and to use our best people,
it is obvious that we, as a society and as individual institutions, need to have constantly
invested in organizational leadership development on the one hand and personal
growth of our staff on the other. If these requirements have been a constant concern of
our academic environment, then the advice given by Thomas Horan (2020) may be well
understood and applied in our individual contexts. Horan does not specifically mention
the COVID-19 crisis, but his proposal clearly addresses the turbulence through which
leaders in higher education need to go to survive institutionally for the benefit of their
various stakeholders, and mainly students and staff. In Figure 6 we present the
leadership model proposed by Horan under the title “purposeful leadership” (Horan,
2020, p.48).
Figure 6. The Arc of Purposeful Leadership by Thomas Horan (2020)

Source: Horan, 2020, p. 48
The model is based on Peter Drucker’s seminal conceptions on leadership and

management and Horan’s own long and varied experience of diverse international
higher education environments, starting from the individual, going through teams and
organizations until the higher purpose of socially responsible management is reached.
The author warns us that although the model shows a progression from the
“self/individual” through “teams” to “organizations” and finally to “society,” we need to
think of it in dynamic terms, as the many forces at play in society at large also can and
do affect organizations. As in the time of the COVID-19 crisis with yet unforeseeable
consequences. And also, it is important before looking at the large picture, to make sure
that each component is fully developed and mastered. Only then, can we talk about the
synergy or, in Horan’s own words, the alignment across all the four levels. Various
organizations have various strengths – some organizations may have wonderfully
resourceful human resources, but not a clear sense of organizational vision or mission.
Others, on the contrary, may follow a great vision for a good cause, through a strong
organizational strategy but are constantly plagued by an unhealthy work and team
culture.
It is probably appropriate at this point to ask ourselves if our higher education

institutions are aware of their “purpose” in today’s world. This is not a simple rhetorical
question and it has been asked around public conversations quite a lot lately (Nicolae,
2015, pp.94-100; UNESCO, 2020c). This is an important discussion that we only briefly
mention here because its complexity exceeds the scope of our paper. And yet it is an
important one as its answer provides support for the main obligation of a higher
education institution: should it be towards its students, its research projects, towards
society in general or business in particular? It is not easy to answer (Nicolae, 2020,
pp.21- 28). If one looks at the university rankings we can see the complexity of the fields
they take into account, if we listen to the educational management of universities they
want to be as advanced in the rankings with the minimum investments and if we ask the
teaching staff we have various answers. Some are interested in teaching and therefore
students’ concerns are incredibly important to this category, others are interested
mainly in research and consultancy and students’ needs are not relevant for them. And
even if there has been an incredible devaluation of teaching and learning everywhere in
the world (Polyanina, 2020; Popenici, 2013) suddenly during the COVID-19 crisis the
public discourse centered around students, their safety, their needs.
Conclusions
In this study, we have explored the impact the sanitary crisis has had on education in
general and on higher education in particular all over the world. The literature
documenting the effects of the COVID-19 crisis on education is already large and
growing and it is, in general, freely accessible. This in itself is a positive result of the
pandemic as part of a growing trend towards research collaboration through open and
free access to the results of research to everyone.
Most of the literature consulted considers that the effects of the health crisis on the
higher education sector will continue to deepen the already existing gaps and
inequalities between learners, institutions, and countries. Experts from around the
world seem to agree that although there will be significant variations of any possible
such scenarios at a global level, there is a clear likelihood that universities and people in
developing countries will be more affected than those in developed economies. The
effects on the internationalization of higher education are also important not so much
in terms of universities’ incomes and market shares, though they will be diminished, but
mainly, in terms of students’ satisfaction and quality of learning.
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3
Marketing and
Consumer Behavior
Chair
Luminița NICOLESCU
Marketing and Consumer Behaviour 301
ECOTOURISM: TRAVELING AND DISCOVERING NATURE

CONSCIOUSLY CASE OF ATLAS KASBAH – AGADIR – MOROCCO
Ikrame SELKANI
Mohammed V University
10 000 Rabat, Morocco
ikrame.selkani@gmail.com
Abstract
Ecotourism is a type of tourism that involves visiting fragile, and relatively undisturbed natural
areas, intended as a low-impact and often small-scale alternative to standard commercial (mass)
tourism. This type of tourism participates in local economies in its implementation; where it must be
part of the development of the territory. The ecotourist takes the time to discover rather than to
travel thousands of kilometers. In this paper, we will discover more about this concept, the profile of
ecotourist, the impact of ecotourism, and a case study about an ecolodge in Agadir Morocco, and its
experience and the ecotourism world.
Keywords
Ecotourism, Ecotourist, Natural areas, Nature, Tourism; Responsible.
Introduction
Ecotourism is designed to provide tourists with an insight into the human impact on the
environment and to enhance the appreciation of our natural habitats. Since the early
1970s, tourism has been the fastest growing industry worldwide (Boo, 1990). With the
emergence of new social and environmental concerns, it is increasingly faced with the
question of its compatibility with the development of local communities and
environmental protection (McCool, 1995). Ecotourism is therefore often seen as a
miracle solution capable of reconciling economic development, environmental
protection, and community well-being. "Around the world, ecotourism has been hailed
as a panacea: a way to fund conservation and scientific research, to protect pristine and
fragile ecosystems, to benefit rural communities, to promote development in poor
countries, to enhance ecological and cultural awareness, to instill social and
environmental consciousness in the tourism industry, to satisfy and educate tourists
and even, according to some, to build world peace" (Honey, 1999).
Tourism is an enterprise of great global significance from an economic and social point
of view, but also an environmental point of view. Like nature tourism, ecotourism is a
category of tourism practiced by people seeking close interaction with and without
damaging nature. Ecotourism is the vision of a tourist living in the heart of a protected
area with unique and colorful animals. Ecotourism remains tourism of the future, when
implemented and managed by knowledgeable people, it can help the growth of remote
areas more efficiently and in a sustainable manner than any other industry.
In this paper, we will learn more about this concept, the profile of eco-tourists, the
impact of ecotourism, and the case study of the ecolodge in Agadir Morocco, its
experience and the world of ecotourism: Responsible eco-tourism initiatives include
302 Strategica 2020
projects that reduce the negative environmental effects of mainstream tourism and
improve the cultural identity of local communities.
Birth and development of ecotourism
Ecotourism developed in the wake of the environmental movement that took shape in
the early 1970s. Growing public interest in the environment and outdoor travel, coupled
with growing dissatisfaction with mass tourism, showed the tourism industry that there
was a place for ecotourism (Orams, 1995; Weaver, 1998; Honey, 1999). The
understanding and acceptance of the principles of conservation and sustainability by a
growing portion of the population have also contributed to the phenomenal evolution
of the term ecotourism (Orams, 1995).
There is no consensus on the origin of the term ecotourism (Fennell, 1999). According
to some authors, it first appeared in English in an article by Romeril (1985) (Blamey,
2001). However, the Mexican ecologist Ceballos-Lascurain used the Spanish word
‘ecoturismo’ even earlier, when the Canadian National Forest Service was promoting
ecotours along the Trans-Canada Highway as early as 1973 (Fennell, 1999). Recently,
the term was even traced in an article by Hertzer (1965) who used it to explain the
complex relationship between tourists and the environment and the cultures with which
they interact (Fennell, 1999). However, Budowski (1976) is generally cited as the
pioneer of the concept of ecotourism (Blamey, 2001; Orams, 2001; Honey, 1999). In his
article ‘Tourism and Environmental Conservation: Conflict, Coexistence or Symbiosis?’
Budowski acknowledges that the relationship between tourism and the natural
environment tends to be conflictual, but that the potential exists for a relationship based
on mutual benefits. His description of the symbiotic relationship that might follow
resembles the contemporary idea of ecotourism, but without using the term (Blamey,
2001). Table 1 contains a sample of some of the definitions frequently found in the
ecotourism literature.
While a definition such as Ceballos-Lascurain’s (1987) emphasizes the proximity that

tourists seek with nature, more recent definitions have sought to highlight a variety of
principles associated with the concept of sustainable development (Blamey, 2001). In
keeping with this trend, participants at the first World Ecotourism Summit, held in
Quebec City in 2002, recognized that ecotourism encompasses the principles of
sustainable tourism in terms of its impacts on the economy, society, and the
environment and that it also includes the following specific principles that distinguish it
from the broader concept of sustainable tourism (World Tourism Organization (WTO)
and United Nations Environment Programme (UNEP), 2002):
 Ecotourism actively contributes to the protection of natural and cultural
heritage;
 Ecotourism includes local and indigenous communities in its planning,
development, and operation and contributes to their well-being;
 Ecotourism provides visitors with an interpretation of natural and cultural
heritage;
 Ecotourism is best suited to individual travel as well as small group tours.
According to the International Ecotourism Society in 1990: Ecotourism: is defined as

follows: "it is about a responsible trip in the natural areas that preserves the
environment and increases the well-being of the local populations (new travel
formula)". In 1999, the International Union for the Conservation of Nature (IUCN), this
term is newly defined under the following terms: "This environmentally responsible
tourism modality consists in traveling in natural areas to appreciate and enjoy nature
while promoting the preservation, having a minimal visit impact and favoring active
integration that brings socio-economic benefits to local populations. "
The main criteria for ecotourism are defined as follows, among others (Bonilla, 1987;
Wearing et al., 1996; Timothy et al., 2003):
- Have a low impact on the resources of the protected natural area.
- Integrate different actors (individuals, communities, tourism operators, and
government institutions) in the planning, development, implementation, and
monitoring phases.
-Respect local cultures and traditions.
- Generate sustainable and equitable income for local communities and as many
stakeholders as possible, including private tourism operators.
- Producing income that will be used for the preservation of protected areas.
- Educate all committed actors about their role in preservation.
Ecotourism as a form of travel has emerged step by step and has developed over time,
according to several problems encountered (Cater, 1993):
- Originally, mass tourism in LDCs: Least Developed Countries;
- Short term profitability research;
- Generate little income for local people.
From the beginning of the 80s, there was an environmental awareness that has an
impact on tourism. Since then, we have noticed an increase in demand for "responsible"
tourism, and worldwide recognition of the concept of "ecotourism" (2002: International
Year of Ecotourism, annual ecotourism summit). Today, ecotourism is growing rapidly,
(between 10 and 15% per year according to the World Travel and Tourism Council). It
is also developing, mainly in the LDCs (especially Central America, tropical Africa, and
Southeast Asia). In terms of certification and label, we can say that ecotourism benefits
from a certificate under the name of Environmental Management System (ISO 14001,
EMAS)
The creation of a label and certificates "ecotourism" facilitates the task to ensure the
professionalism of the activity (Certification for Sustainable Tourism, Nature and
Ecotourism Accreditation Program, ...)
The evolution of the concept ‘Ecotourism’ through the years is presented in Table 1.
Table 1. Ecotourism definitions

Ecotourism definitions given by researchers
Ziolkowski (1990)
“Low-impact tourism which focuses on experiencing the local culture and what it has to offer on
its unadulterated terms.”
Boo (1991)
“Ecotourism / nature-oriented tourism refers to tourism to relatively undisturbed natural areas
with the specific objective of admiring, studying and enjoying the scenery and its flora and
fauna.”
304 Strategica 2020
Figgis (1992)
“Travel to remote or natural areas which aim to enhance understanding and appreciation of the
natural environment and cultural heritage, avoiding damage or deterioration of the
environment and the experience to others”
McCormick (1994)
“Purposeful travel to natural areas to understand the culture and natural history of the
environment, taking care not to alter the integrity of the ecosystem, while producing economic
opportunities that make the conservation of natural resources beneficial to local people.”
Blamey (1995)
“An ecotourism experience is one in which an individual travels to what he/she considers to be
relatively undisturbed natural area and is more than 40 kms from home, the primary intention
being to study, admire or appreciate the scenery and wild plants and animals as well as
existing cultural manifestations found in the area.”
Brandon (1996)
“Environmentally responsible travel and visitation to relatively undisturbed natural areas, to
enjoy and appreciate nature that promotes conservation, has low negative visitor impact, and
provides for beneficially active socio-economic involvement of local populations.”
Lindberg and McKercher (1997)

“Ecotourism is tourism and recreation which is both nature-based and sustainable. Concepts of
sustainability inevitably involve social, philosophical, and, political and environmental
sustainability.”
Embratur (1999)
“The segment of tourism activity which makes use of natural and cultural heritage sustainably,
promotes its conservation and seeking to establish an environmental conscience through the
understanding of nature, and promoting the well-being of the involved population.”
Weaver (2001)
“Ecotourism is a form of tourism that fosters learning experiences and appreciation of the
natural environment and enhances the cultural resource base of the destination and promotes
the viability of the operation.”
Fennell (2003)
“Ecotourism is a sustainable form of natural resource-based tourism that focuses primarily on
experiencing and learning about nature, and which is ethically managed to be low-impact, non-
consumptive and locally oriented (control, benefits and scale). It typically occurs in natural
areas and should contribute to the preservation of such areas.”
Sâmbotin et al. (2011)

“Ecotourism is a form of tourism developed in natural areas, whose goal is to acknowledge and
to appreciate nature and local culture, which includes conservation measures and ensure an
active involvement, generating benefits for the local population.”
Carrascosa-López et al. (2014)

“Ecotourism must retain its essence which is its model of sustainability, preserving ecosystems
and satisfying local people improving their living conditions.”
Cobbinah (2015)
“Ecotourism principles which are clear and widely promoted include environmental
conservation and education, cultural preservation, experience and economic benefits.”
Source: Chandel and Mishra, 2016

The actors of ecotourism
The aim may be to educate travelers, provide green conservation funding, directly
support the economic growth and political empowerment of local communities, or
promote respect for different cultures and human rights (Scheyvens, 1999; Coria &
Calfucura, 2012). Ecotourism has been seen by environmentalists as a key activity since
the 1980s. Therefore, in addition to evaluating environmental and cultural factors, the
promotion of recycling, energy efficiency, water conservation, and the development of
economic opportunities for local communities are an important part of ecotourism. Of
these reasons, the ecotourism also appeals to environmental and social responsibility
advocates (Irandu, Shah, 2014).
There is a multitude of actors working in the ecotourism sector are multiplying more
and more given the importance of the concept, a classification can be done in this
direction (Nepal; 1997).
- Personal Protected Areas,
- Individuals and community organizations,
- Members of the private sector of industry and tourism,
- Officials from governmental or non-governmental organizations,
- Secondary speakers
Ecotourism is a mode of travel that presents itself as the tourism of tomorrow, it is a

form of tourism that consists of visiting relatively untouched natural areas to study and
admire the landscape of the plants and wild animals that they shelter (Fennell, 2020). It
is a form of responsible travel that contributes to the protection of the environment and
the safeguarding of ecosystems (Stamou & Paraskevopoulos, 2006). Ecotourism
activities are culturally friendly so group activities are often limited to 12 people. It takes
into account the cultural heritage of these destinations it is a new way to develop the
territory is to be a responsible traveler (Fiorello & Bo, 2012). The ecotourist is different
from a visitor in the sense that, in most instances, he or she is mindful of his climate,
contributing to the protection of the ecosystem.
Who is the ecotourist?
Future generations can experience destinations unaffected by human intervention.

Many university programs use this term as a working definition of eco-tourism.
Ecotourism usually deals with living parts of the natural environment. It focuses on
socially responsible travel, personal development, and sustainable environments
(Holden, 2016).
The international ecotourism society developed the following profile for the ecotourism
market in 1998 based on a survey of travelers from the United States (Wood et al., 2001).
Several factors are taken into consideration to have a better profile, which we quote as
follows:
Age: Between 35 and 54, although age varies depending on the activity.
Gender: 50% were women and 50% men, with clear differences depending on the
activities.
306 Strategica 2020
Education: 82% were in possession of a university degree. Interest in ecotourism is

shifting, affecting more and more layers with a lower level of education.
Group Composition: A majority (60%) of experienced ecotourists prefer to travel as a
couple: only 15%, that they will be traveling with their families and 13%, that they
prefer to travel alone.
Duration of the trip: The largest group of experienced ecotourists give preference to
trips of 8 to 14 days.
Expenses: Experienced ecotourists were more willing to spend than mainstream
tourists: The largest (26%) was willing to spend between US $ 1,000 and US $ 1,500 per
trip.
Important elements of the trip: The predominant answers of experienced ecotourists:
Landscapes. Observation of animal life and excursions, hikes. The two main motivations
of ecotourists experiment with their next trip: to enjoy landscapes and nature, to make
new experiences, and to know new sites.
Another study developed ecotourism in Switzerland. For the first time, an attempt was
also made in Switzerland to quantify the value of the landscape for tourism. The benefits
that Swiss tourism derives from its landscapes and its natural resources are not only of
great importance to the Swiss economy but also to the environment. That corresponds
to an added value of CHF 2.5 billion per year, according to Newsletter 14/2002 of
CIPRA's AlpMedia Net service.
By drawing up an outline of the ecotourist visiting the Alps based on various studies 1,
one can establish the following profile he or she:
- would be between 30 and 60 years old, with a high level of education and a regular
income,
- would come from an urban suburb or a big city, and seek relaxation rather than action
on his vacation,
- would especially like to discover (if possible new) landscapes, and spend a pleasant
holiday away from the tourist centers’, with no necessarily save money but without
spending much either,
- would spend a beneficial summer holiday - either relaxing at the sea (sun, sand, sea)
or by choosing a more active holiday in the mountains (hiking),
- would prefer relatively small stations to very well-known and popular areas, and
occasionally allow a (short) stay in a higher class hotel.
Significantly more than half of the respondents (64%) expect their agency to travel
precise information on the ecological aspects of their stay. 71% of them even state that
they would prefer a tour operator that has shown an interest in ecology. In addition,
these travelers have high requirements concerning health and safety standards. In the
future location of their ecotourism stay and expect to be able to carry out hikes and
excursions independently, with good information. Generally speaking, the travelers
interested in ecotourism expect a benefit from an advantageous offer at least in terms of
price-quality ratio, service to be able to taste typical cuisine using local products, and to
be able to be hosted in small hotels run by the local population.
1Lifestyle analysis 1999, Tourist survey in Austria 2000, statistics Austrian 2001, traveler
survey as part of the various studies on the potential for 2001/2002
The impact of ecotourism on the region
Ecotourism is a very important factor that has fundamental results. The latter has an
essential contribution to creating programs of education on the environment and the
local population which will benefit from the advantages of ecotourism. Ecotourism has
an essentially economic meaning, but here it represents an upheaval of the daily life of
the local population since it allows it to generate some benefits from the activities
carried out between AGR, Cooperatives, and guest house. The local population is
decisive in this sense since they must participate actively in decision-making concerning
the planning and management of their activities to develop their resources and continue
to attract ecotourists.
Due to its specific characteristics, ecotourism should have positive effects on the natural
and socio-cultural environment. Under these conditions, the measurement of the
economic, ecological, and social costs and benefits of ecotourism is different from that
of traditional or mass tourism. The usual ratios, especially in terms of economic
profitability, should be able to be assessed in a different context that evaluates the
benefits of ecotourism activity not only in terms of financial profitability but perhaps
more importantly in terms of its impact on the income, activity, and social conditions of
local populations (UNWTO and UNEP, 2002).
Environmental impacts
Tourism is often perceived as being responsible for the degradation of the natural
environment, at least in part (Lequin, 2001). Measuring the ecological costs and benefits
of tourism projects is thus one of the major challenges of ecotourism. Indeed, ecotourism
represents one of the few forms of tourism development that, under certain conditions,
can promote the protection of natural areas thanks to the conservation programs it
generates and can finance (WTO and UNEP, 2002).
The interest of these different indicators is that they allow a real ecological monitoring
of ecotourism products and also provide a global vision of the different products created
in the same geographical area by several operators (UNWTO and UNEP, 2002).
Economic impacts
In any ecotourism project, economic benefits can be of particular importance to local

people. However, examples show that these benefits only become substantial after many
years. Case studies also show that in the short term, revenues from ecotourism are
modest and not sufficient to finance the environmental protection needed to ensure
high-quality ecotourism products (UNWTO and UNEP, 2002). They also reveal that it is
very difficult to ensure the distribution of financial benefits between private and public
sector stakeholders (UNWTO and UNEP, 2002). Furthermore, although ecotourism has
a high potential to generate economic benefits, a large proportion of this money is more
often than not spent at the place of origin of the tourists (e.g. for air tickets) (Wall, 1994,
Page, 2002). Thus, the economic impacts of ecotourism are not always substantial and
may not even be positive at all (Honey, 1999).
308 Strategica 2020
Ecotourism in Morocco
Case of Atlas Kasbah - Agadir – Morocco
The ecotourist differs from a visitor in the sense that, in most cases, he or she is aware
of his or her environment and contributes to the conservation of the ecosystem.
The Atlas Kasbah Agadir ecolodge, is a guest house on a human scale based on the
principles of sustainable development, with a human dimension as a key foundation. Its
objectives are to support local communities by boosting the economy of the area in
which it is located, preserving the environment, and enhancing the value of local
heritage. Staying in it represents awareness and commitment to humans and the planet,
a real willingness to participate in the local development of the region visited, here the
magnificent Argan tree forest that is unique in the world and that is all the more
vulnerable. Traveling as a family and staying in an ecolodge helps the ecotourist to be
aware of the values of respect, ethics, ecology, and the environment in general. It is the
transfer of the concept of sustainable development to future generations, participating
in the development of a solidarity economy to help the local population and especially
women.
Several awards are given to ecological hotels in the world, but the most important one
is the World Trophy of Responsible Tourism that Atlas Kasbah won in London in 2015
as the first French-speaking accommodation in the world to win such a prize in
sustainable tourism. The Atlas Kasbah Agadir ecolodge is an ecological accommodation
that combines the comfort of hotels and the authenticity of the Amazigh (Berber)
heritage to make the stay in Morocco unforgettable. Opened in 2009 and located only 10
minutes from Agadir and 2 hours and a half from the imperial city of Marrakech. From
the ecological construction of master craftsmen with ancestral know-how, specialists in
adobe, stone, wood, to the sustainable philosophy of the eco-lodge, everything is
designed to enhance both the human, its traditions, the heritage of Morocco, and its
unique know-how. There is also a great deal of respect for the environment with natural
materials that contribute to well-being and resourcing and the conservation of nature.
The team is therefore made up of Berbers coming from villages near Agadir. The team's
investment and human qualities have brought authenticity, benevolence, and sincerity
to this unique ecological guest house.
The founder of this unique ecolodge in Morocco, Dr. Hassan Aboutayeb works as a
consultant in sustainable development and business development with high ecological
potential. He has participated in the creation and monitoring of several eco-lodges in
Morocco, riads in Marrakech and Taroudant, hotels in Morocco, and ecotourism projects
in Morocco. He is involved in various regional and international actions to discover the
richness of the natural and cultural heritage of the Agadir region. A pioneer of nature
tourism in Morocco, Dr. Hassan Aboutayeb invests his life in promoting responsible
tourism in Agadir and at the international level, his vocation being to promote
sustainable tourism in Morocco.
Nestled in the heart of an exceptional ecosystem where permaculture gardens, olive

trees, argan trees, palm trees, fruit trees, aromatic and medicinal plants and other crops
coexist, the ecolodge offers a natural heritage of great beauty. The word ecolodge has its
full meaning because it advocates a way of life that respects the human being and the
values that bind him to the earth. It is also an inspiration for future generations. To
participate in the evolution of consciousness and to promote the practice of solidarity
that respects the environment. The choice of raw materials, whether for development,
food, or cleaning, is natural and ecological, with a view to enhancing the value of local
natural resources. The care and beauty products in the rooms and the SPA come from
women's cooperatives and are organic based on noble oils and wild materials from the
Agadir region and Morocco. Participation is fully made in the protection and
enhancement of the natural and socio-cultural heritage of the argan forest. The key
criteria used relate to water, energy, waste, purchasing policy, landscape integration and
environmental awareness, particularly in the neighboring territory of Agadir.
Conclusion
A pioneer of nature tourism in Morocco, Dr. Hassan Aboutayeb is investing his life in
promoting responsible tourism in Agadir and at the international level, to promote
sustainable tourism in Morocco. The Atlas Kasbah Agadir ecolodge has been designed to
privilege, preserve and share with you the local resources of the Souss Massa region and
to promote ecology in Morocco. Ecotourism is an interesting solution because it helps to
reconcile the objectives of preservations with economic and social development. The
beauty and rareness of the surrounding landscapes (the Argan tree being an endemic
species unique in the world), as well as the generosity and benevolence of the local
Amazigh communities, give all their meaning to this concept of holidays in Morocco,
with respect for nature and human beings.
It is a relatively complex sector with which protected area staff and communities need
to become acquainted with form partnerships, whose common denominator between
mass tourism and other types of tourism is to: achieve economic benefits. Ecotourism
brings together all forms of nature-oriented tourism in which the main motivation of the
tourist is to observe and appreciate nature as well as traditional cultures that reign in
natural areas. It fits perfectly into the theme of sustainable development; it is a very
young concept, in development.
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312 Strategica 2020
VINTAGE – ONE FASHION, TWO GENERATIONS.

PURCHASING AND CONSUMPTION BEHAVIOR
OF BABY BOOMERS AND Z GENERATIONS
Cristina LEOVARIDIS, Mădălina Claudia IONIȚĂ, Gabriela POPESCU
30A Expozitiei Blvd., District 1, 012104 Bucharest, RO
cristina.leovaridis@comunicare.ro
Abstract
The overall objective of this paper is to identify the purchase and consumption behavior of vintage
products of the Baby Boomers and Generation Z generations. Although there is a significant
demographic distance between the two generations, they share the same interest – one may call it
even passion or hobby – for vintage products. In the case of the Baby Boomers, it is the nostalgia that
influences their behavior: they are contemporary with those times, they lived the events, knew the
personalities. Generation Z is interested because the old trends have come back, creatively
reinterpreted nowadays. The vintage current expresses certain historical trends and periods of the
past and gains a growing popularity today. The research is conducted in two directions to obtain the
portraits of the Baby Boomers and Generation Z as consumers of vintage products. The first direction
explores the opinions of both generations’ members, and the second direction investigates the
opinions of the sellers and the owners of vintage products stores about their customers. For this,
qualitative research is conducted based on a face-to-face interview, through a semi-structured
interview guide. A specific set of questions are addressed to each category of interviewees. The
specific objectives of the research highlight the characteristics of purchase and consumption of
vintage products for the Baby Boomers and Generation Z (historical periods and favorite trends, the
reason for the purchase, the favorite vintage products, etc.). The conclusions link the research results
with the main aspects presented in the theoretical framework. The results of the research highlight
both the differences as well as the similarities of these two demographic generations in the
purchasing and consumption behavior of vintage products. For Baby Boomers, the quality and
authenticity of vintage products are essential, being the main reason that influences their purchasing
and consumption decisions. In their case, there is a greater feeling of nostalgia for certain periods or
trends in the past. Baby Boomers consumers appreciate the value and the value of the products they
purchase, especially if they have an emotional charge. Instead, for generation Z, the image is a very
important aspect, and vintage products can improve it. They want to differentiate themselves from
others, which is a reason that determines the purchase of products belonging to other historical
periods.
Keywords
Vintage; consumer behavior; Baby Boomers; generation Z; fashion
Introduction. The concept of ”vintage” – conceptual delimitations, influences,

nostalgia
This paper aims to present and analyze the purchasing and consuming behavior of
vintage products, making a comparison between the Baby Boomers generation and the
Z generation. Nowadays, the past trends have returned, being largely adapted by
consumers, especially young people. We have chosen to study the purchasing and
consumption behavior of the Baby Boomer and Z generations, precisely because they
are positioned at the opposite poles: the first lived in the periods representative of the
vintage trend, while the Z generation now adopts past trends and, being the largest
consumer segment of vintage today.
The vintage trend expresses certain trends and historical periods from the past,
growing, and gaining popularity today. In this way, retro and vintage products began to
be dedicated to the masses, and not only to a small audience. This is mainly due to the
cyclicality of fashion, which constantly returns and reinterprets currents and trends,
offering consumers new ways in which they can define their identity. Thus, vintage has
evolved from an anti-fashion movement, as it was considered in the past, to a fashion
landmark, as we may call it.
Clothes represent an intensive and visible form of consumption, with a major role in
building identity. They, clothes, are crucial in self-construction because they provide
relevant information about individuals: they are some kind of a business card (Catalani,
& Chung, 2005, p.2). Fashion manifests itself in several domains: from scientific
discoveries to political doctrines, to body aesthetics or even in everyday life (home
design) (Duduciuc, 2012, p.17). With the mass production of clothes, fashion became a
way of expressing both the social class and the identity of an individual (Guy, 2015,
p.10). These two ideas seem to be opposed because the first is collective, while the
second supports individualism. Simmel explains this double function of fashion: the role
of presentation is closely related to the individual's desire to belong to a certain social
class or to differentiate himself from others (Simmel, 1971, p.297). And within the same
social class, differentiation is extremely important. Simmel's writings on fashion express
the tension between consumption as an indicator of wealth and status within the norms
of society on one hand, and consumption as an exhibition of individuality, on the other
hand. He notes that fashion develops especially in urban areas because it intensifies
social relationships, increases the rate of social mobility, and allows people in the lower
social position to become aware of the styles and modeling of the upper classes
(Paterson, 2017, p. 23).
Veblen states that fashion is an expression of pecuniary culture, which is associated with
ostentatious consumption. This link is supported by the fact that in societies where
ostentatious waste is more urgently required, the dynamics of fashion are more
pronounced. This dynamic is growing at the same time as the rise in mobility and wealth.
However, Veblen's theory of fashion is dependent on the historical period in which it
was developed (Comșa, 2006, p.37). Like Veblen, Blumer argues that fashion
presupposes a mechanism by which the upper social classes adopt everything that is in
the trend until these trends reach the lower classes; fashion is a matter of choice and
does not involve a blind adoption of certain trends. It is for those who want to express
their taste, this applies both to designers who want to be successful and to buyers who
want to adopt everything new and promoted by designers (Blumer, 1969, p.282).
For Baudrillard, fashion is only one of how society can ”hunt” the new and the different,
the goal being that of reproduction. He argues that ”fashion does not actually reflect a
natural need for change: the pleasure of changing clothes, objects, cars, it comes to
psychologically sanction the constraints of another nature, constraints of social
differentiation and prestige” (Baudrillard, 1972, p.37). In today's society, fashion is a
substitute for proposed or promised social mobility, becoming a factor of social inertia,
hiding an aspiration for social and cultural progress. Analyzing the evolution of fashion
314 Strategica 2020
over time, Lipovetsky (cited in Comșa, 2006, p. 40) considers that this is a form of social
change, being characterized by a short temporality. Another characteristic of fashion is
cyclicality, fashion having the ability to return and affect various spheres of collective
life. Lipovetsky's approach counteracts Veblen's and Baudrillard's theories on fashion,
paying more attention to cultural and aesthetic factors. According to Lipovetsky, the
lower classes imitate the manners of the upper classes, and the latter, to maintain a
certain social distance, change their image when it is imitated and taken over by the
lower classes (Comșa, 2006, p. 40).
Mass production and fashion consumption have seen remarkable growth over the last
15-20 years, especially in the post-World War II period when new methods of mass
production and distribution of goods emerged. This has led to strong economic growth
and an improvement in the quality of life, developing new types and levels of
consumption. Thus, these changes in production and consumption have been imposed
(Blue, 2014, p 267).
However, despite this increase, fashion trends last only a few months, until they are
rejected by the community. Thus, the old trend is replaced by a new one. To highlight
this continuous cycle of fashion, an example may be the clothing site Topshop in the UK
which publishes an average of 400 new articles each week (Cline, 2012, p.96). As a result
of this phenomenon, the term "fast fashion" appeared, which represents the production
and rapid distribution over a short period of certain items considered fashionable. This
short period increases the pressure on consumers to buy quickly and on impulse
(Hoskins, 2014, p.70). The result of this fast fashion phenomenon is that most
individuals buy the same clothes from the same places. Shops that sell fast fashion
products are usually found in commercial centers and malls (Kennedy, & Krogman,
2008, p.177).
Generally, research in the field considers the fashion and style in the context of
subcultures. Fashion is conceptualized as the specific orientation of a subcultural group,
which can be understood theoretically by interpreting stylistic signs. This subcultural
approach is also common to the vintage trend, a style based on retro clothing, which
appeared in 1990 (Veenstra, & Kuipers, 2013, p. 355). Vintage communicates and
expresses the desire to have an authentic identity, with a strong sense of nostalgia.
Obviously, vintage distances itself from consumer culture, but it does not revolt against
it and does not undermine its elements (Veenstra, & Kuipers, 2013, pp.362-363).
Erving Goffman demonstrates that fashion and vintage fashion are a way for the
individual to express himself in groups, to gain acceptance and approval. Everyone
consciously plays a certain role in constructing their self and being perceived in a certain
way around them (Goffman, 1959, p.6). In this sense, consumers who participate in
various fashion events and fairs represent and build their own identity so that it
facilitates their entry into the community.
The term "vintage" has received many definitions over time. There are difficulties in
defining the term, the definition being constituted in connection with the temporal
connotations (Downing Peters, 2014, pp.217-218). It is a word of English origin, used
for the first time to define a very good quality wine, which gets better over time. Since
the 1990s, the term has also entered the fashion industry, to designate old clothes made
by well-known designers such as Dior, Chanel, or Yves Saint Lauren. Currently, it
designates an entire industry, from clothes to vehicles, applied even in special filters for
editing photos on social media (Chaigne, 2014, pp.19-20). So, the vintage trend has
spread over all areas. For example, the Louis Vuitton bag is back in fashion after it was
worn by Cindy Sherman. Levi’s has also launched a collection of vintage clothes
especially for lovers of classic jeans. Thus, vintage depends on a philosophy, a lifestyle,
and consumption different from the current one, in mass (Chaigne, 2014, p.9).
Considering the way of manifesting the vintage trend, we can say that it appeared as a
reaction to the fast-fashion phenomenon. Unlike mass-consumers stores that offer the
same trendy clothes at low quality, vintage stores and those with second-hand clothes
can be seen as an alternative, offering customers unique, quality clothes at low prices.
As defining elements of the vintage concept, we note utility, creativity, and authenticity.
Utility involves a cultural and cognitive process, through which the product is
recognized and differentiated as unique. Creativity and authenticity are also the main
reasons why people buy vintage products. Moreover, creativity also consists in the habit
of individuals to combine vintage objects purchased from specialty stores with current
items, from well-known shopping centers (DeLong, Heinemann, & Reiley, 2005, p.27).
However, it is important to note that not all old objects are vintage. Ruby Lane, the
largest online fair for vintage and antique objects, suggests that a vintage object must be
at least 20 years old and represent the period in which it was produced (Chaigne, 2014,
p.20). On the other hand, many connoisseurs of this trend believe that a valuable vintage
object must be older than 25 years, belong to a designer, and be reproduced in a small
number of copies (Veenstra, & Kuipers, 2013, p.356). Most often, vintage items are
unique and hard to find in regular stores. They are available in a few specialty stores, in
a limited quantity, and for this reason the desire to purchase them increases. The old
cars are representative: they are considered collectible, very rare, and very expensive.
The purchase of such a car requires a certain social status and a differentiation from
other individuals who own modern cars (Chaigne, 2014, p.21).
We also point out that there is a difference between wearing second-hand clothes and
wearing vintage. Vintage clothes are considered precious, being an indicator of
authenticity and originality. Their image was enhanced when many well-known
actresses began to adopt this style in public appearances, even though they would have
had the financial opportunity to purchase up-to-date products from well-known
designers (DeLong, Heinemann, & Reiley, 2005, p.25).
Vintage is a complex term, often correlated with other terms such as retro and nostalgia.
Obviously, these terms are closely related. Both vintage and nostalgia have in common
this connection with the past. For many consumers, but also specialists, vintage
represents “looking through a window of the past” (Cassidy, & Bennett, 2012, p. 242).
Thus, nostalgia has an important role in the consumption of vintage because it allows us
to present certain important periods for consumers. Moreover, vintage is seen as
stability against the alert changes imposed by society and helps consumers reconnect
with a certain period that represents something in their past. The number of nostalgic
consumers has increased a lot, and this is highlighted especially by fashion. However,
this trend has spread to other important industries: cars, movies, and books. This trend
has not gone unnoticed in marketing either, as most brands are trying to return to
certain designs or values from the past, evoking periods when they were much more
appreciated by consumers. Hence, we reiterate the fact that most of the time, the vintage
316 Strategica 2020
trend was seen as a movement against mass-produced clothes, through which

consumers try to create their own identity through a special, unique style. An important
factor is also related to eco-sustainability. Wearing vintage is perceived as a way of
recycling.
The lifestyle associated with the consumption of vintage products
As early as the 1980s, journalists began to investigate the behavior of vintage consumers
and their expectations from this trend. Thus, among the reasons given by consumers we
mention the quality of materials, uniqueness, and the historical period that left its mark
on an article (Fischer, 2015, p.62). Therefore, since that period, authenticity has been an
essential feature of this fashion trend, being built in opposition to mass production, very
flourishing at that time. Consumers consider the vintage products belonging to a niche
market, as opposed to standardization.
Also, DeLong, Heinemann, Reiley (2005, p.39) investigate the reasons why people prefer
to wear vintage products. They interview five women aged between 28 and 70,
passionate about this trend. The research results highlight this style supports the
creativity and originality of individuals; the originality is even more representative for
them when they create outfits that combine vintage with more current items. Another
reason why individuals were passionate about this trend was the very process of buying
them, which is seen as a hunt, dedicated to specialists and connoisseurs.
Other authors (Cassidy, & Bennett, 2012, p.260) explore the socio-demographic
characteristics of vintage consumers in the UK, but also the factors that influence their
consumption behavior. Most of the respondents who bought vintage clothes claimed
that the reasons they are attracted to these products are style, quality, uniqueness, price,
nostalgia and recycling. In the fashion industry, the most popular periods are 1930 and
1950, while more recent periods were considered retro and not vintage. On the other
hand, the most popular stores from which they buy such products are the charity and
vintage shops, the eBay website and second-hand stores.
In terms of the buying process, the act of purchasing vintage products itself is closely
related to activities such as examination, evaluation, socialization, interaction and
finding these "rare symbolized treasures" of this trend. Thus, the acquisition and find of
vintage require a special talent, a series of skills and knowledge (Duffy, Hewer, & Wilson,
2012, p.522). Price is not a purchase criterion for vintage items. Usually, consumers
prefer to pay more to be sure that what they are buying is a unique or limited edition
(Chaigne, 2014, p.27). This is also because consumers now prefer to have products
customized to their needs, which fully represent them and, for this reason, prefer to
spend more money. Cervellon, Carey, and Harms (2011, p.968) investigated the reasons
why vintage products are preferred. The main reasons included originality, nostalgia,
and interest in the whole vintage trend. Another reason is the ethical concerns,
translated into the desire to recycle.
As for the specialized sellers in vintage stores, they have an important role, because they
make the connection between producer and consumer. For this reason, sellers must
have extensive knowledge of the items they sell and the historical periods from which
they come. They can make a product more valuable that may seem trivial to an ordinary
consumer. This idea is also supported by Baker, who states that they are located
between original factories, designers or product owners, and future consumers (Baker,
2012, p.625). Being a vintage clothing retailer requires a thorough knowledge of the
product, an ability to understand and know different areas of production, and to present
them as valuable.
Observing the behavior of vintage sellers at a well-known trade fair in the UK, Duffy,
Hewer, and Wilson (2012, pp.522-523) outlined a portrait of them: they can see and
recognize a valuable potential in objects that are abandoned or that may seem trivial at
first glance. In fact, sellers are the ones who create the vintage market trend. They are
the ones who determine what is or is not authentic and what to wear, describing their
consumer as a friend. These relationships were established following an exchange:
information and products. For the consumer, this relationship is beneficial because he
has access to information about the trader's stock, while the latter plays the role of a
credible source. One of the exhibitors of this fair stated that her connection with the
client is extremely important because they share the same visions and tastes in fashion
(Duffy, Hewer & Wilson, 2012, p.521).
If we talk about the ways of manifesting the vintage fashion, implicitly, we are talking
about the fairs and specialty stores that have contributed a lot to the spread of this trend.
It is known that vintage products are mostly sold in specialty stores. They are generally
small and independent, being owned by passionate people, like customers (Nobbs et al.,
2011, p.2). In this sense, Downing Peters (2014, pp.215-217) makes a content analysis
on the website of the largest vintage fair in Brooklyn, but also a participatory
observation at this fair. She examined the interaction of active users on this site to
identify how they perceive vintage products. In his analysis, he identified three groups
of individuals: consumers (those who buy and wear vintage clothes and accessories),
sellers (those who buy and have specialized knowledge about these items) and online
influencers (who promote this trend). After participating in several editions of this fair,
she concluded that these flea markets are not only dedicated to shopping but are also a
way to spend free time to socialize with other people with the same passions. Many of
the participants did not buy vintage things, but came to socialize and analyze the outfits
of those around them. As for the sellers, they represented the approved authority,
knowing the field. They are the ones who educate consumers who love such items. The
third group, the influencers in the online environment, has a very important role in
spreading this trend on their social media pages. They are the ones who launch global
trends; they have the same role as vintage sellers, that of educating the public, only at
different levels (Downing Peters, 2014, pp.224-225).
Similar research was conducted at a well-known vintage fair in the UK called "Granny
Would Be Proud". It takes place twice a month, on the upstairs of an old cinema which
functions as a restaurant serving food on vintage Chinese plates. It is located in a
culturally important area, with a population of mostly students (Duffy, Hewer, & Wilson,
2012, p.520). Following the research, the results highlighted as extremely important the
dynamic relationship between the customer and the seller, which is established during
this fair. This is helpful for both the customer and the seller. In this, the seller plays the
role of an expert with an informed and important opinion for potential buyers.
Moreover, consumption is seen as a way to connect with others, a way in which you can
establish certain social and emotional connections (Duffy, Hewer, & Wilson, 2012,
318 Strategica 2020
pp.521-522). So, beyond its commercial function, vintage fairs can be perceived as a
space for social relations, a place dedicated to people who have the same interests.
Baby Boomers and Generation Z lifestyle and consumption behavior
Purchasing and consumption behavior differs greatly from one individual to another,
being influenced by several factors. A more relevant criterion than age is the generation,
which has several defining characteristics for the individuals it covers. In this sense, a
generation is defined as a set of historical events and related phenomena that create a
distinct gap (Turner, 2015, p. 104). Individuals belonging to different generations have
expectations, experiences, values , and a unique lifestyle that influences their behavior
(Williams, & Page, 2011, p.1).
Generation Z and Baby Boomers are located at opposite poles in terms of behavior and
lifestyle: Baby Boomers are also known as Boomers, Me Generation, Baboo, Love
Generation, or Sandwich Generation. There are many opinions regarding the period that
delimits this generation, the most frequently mentioned by researchers being the period
1956-1964. Individuals are conceived in a prosperous period after World War II
(Williams, Page, 2011, p. 2), characterized by an increase in birth rates. Instead,
Generation Z is the youngest, also known as I Generation, Baby Boomers, but also Net-
gen, because they are digital natives. Individuals of this generation are born in the period
1995-2010 (Turner, 2015, p.104). It is also interesting that this generation has not
experienced life without the Internet, they were born in the age of technology.
According to Eastern European literature, the Baby Boomers, born between 1945 and
1965, tend to be workaholics, Generation X, born between 1965 and 1979, is a
generation who is comfortable with authority and view the work-life balance as
important, Generation Y, born between 1980 and 1995, generally grew up in prosperity
and have technology savvy, and Generation Z, born after 1995 (or between 1991-2000,
or 1993-2012, according to other authors) is also named iGeneration, Gen Tech, Online
Generation, Post Millennials, Facebook Generation, Switchers, “always clicking”.
Generation Z is also known as C Generation, as its members are “connected to the
internet”, “computerized”, “communicating”, “content-centric”, “community-oriented”,
“changing” (this generation likes changes) (Dollot, 2018, pp.44-45).
Baby Boomer individuals are individualistic, optimistic, can express themselves freely
easily, and work hard. Although they are at retirement age, many of them have different
concerns and passions during this time, having an active life (Williams, & Page, 2011,
p.4). They also prefer things that bring big improvements but require minor changes on
their part. An important characteristic attributed to them is a disappointment. However,
this is not a state of disappointment or regret, but a deeper loss of trust in institutions
and values, principles, and practices in everyday life (Moody, 2017, p.96). Moreover,
once they reached maturity, they had high expectations of the life they had planned.
Even though the institutions disappointed them, they tried to make the world a better
place and improve the situation through protest and activism.
Instead, Generation Z is much more responsible, although it encourages traditional

beliefs and values, passed down from their parents, members of Generation Y. Moreover,
they are aware of everything new, precisely because they have adopted the technology
and its evolution very fast. An important value for Generation Z is the acceptance of
those around them, precisely because they have a great need for belonging. Compared
to Baby Boomers, Generation Z is more confident and optimistic. Precisely for this
reason, the young people of Generation Z want to have an impact on the world they live
in, being creative and idealistic (Williams, & Page, 2011, p. 12).
The Generation Z members may be children of Generation Y, but many of them may have
as parent individuals belonging to the Baby Boomers generation. Thus, they also have
common characteristics specific to their parents (Wood, 2013, p.1). Generation Z plays
an important role in the development and adoption of new technologies, given that a
normal house where an individual of Generation Z lives contains, on average, about four
TVs, three DVD players, two CD players, more than two radios, two computers, and at
least two video game consoles. Generation Z has developed a strong connection with the
digital environment, expressed through attachment. In this regard, following a
questionnaire, over 90% of young participants, aged between 13 and 17, said they would
be upset if they did not have the Internet and saw this as a form of punishment (Turner,
2015, p.107).
Given the characteristics of the Baby Boomers generation, individuals like to have many
options and flexibility in purchasing decisions. However, if they are offered a product
that will improve their quality of life, its price will not be as relevant to them. Health is
also a very important issue for this generation. Although many of them are elderly, they
do not like to be reminded of this, being focused on purchasing anti-aging products
(Parment, 2013, p.5). Generation Z consumers also analyze their decisions and options
very well before purchasing. For them, the image is very important, and they do their
shopping accordingly. Therefore, they seek mainly immediate satisfaction, but also
social values (Parment, 2013, p.13). In buying decisions, the opinion of others plays an
important role, whether it is a group of friends or influencers in the online environment.
In terms of preferred products or services, Baby Boomers prefer cosmetic surgery, anti-
aging treatments, health clubs, cosmetics, hair dyes, and healthy or organic food. They
are also attracted to new products and technologies that can make their lives easier or
save time. Another point of interest for them is travel, exotic vacations, and luxury
restaurants. They are also interested in retro products, which remind them of certain
periods in the past when they were happier (Parment, 2013, p.5). In this sense,
marketers attract the attention of this generation through music, consumers reacting
positively to the nostalgia of songs performed by Elvis Presley or The Beatles (Nicholas,
2009, p.49).
Unlike Baby Boomers, Generation Z prefers products and services that help them be
accepted by others or can improve their image: cosmetics, clothing and footwear, video
games. Their decisions have a direct influence on the parents, for example, in the
purchase of the vehicle. As a major difference from the Baby Boomers generation,
specialized studies claim that Generation Z individuals will be unhealthier and will face
weight problems. However, both generations seek comfort in the products they
purchase, but also an improvement in lifestyle: time-saving devices, gadgets, and easy-
to-cook products (Wood, 2013, p.2).
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In terms of the communication strategies they react to, Baby Boomers prefer the
information presented in the form of simple categories and options, to facilitate their
decision (Williams, & Page, 2011, pp.5-6). If a brand recognizes their value and
contribution, this will likely facilitate the purchasing decision of individuals of this
generation. Moreover, Baby Boomer consumers need to be drawn to attention from the
first seconds, through keywords or messages (Nicholas, 2009, p.49). Unlike Baby
Boomers who prefer brands to make their decisions easier, teenagers or young people
in Generation Z do not like to be told what to think or do. And they want to be included
in the life of the brands they prefer, which is why they are part of various online
communities (Williams, & Page, 2011, p.13). To them, the messages of promoting a
product or service must be transmitted in a way that is as short and clear as possible
(Wood, 2013, p.2).
To reach the Baby Boomers generation, marketers mainly use television. They prefer
direct and open communication, with as much information as possible. It is advisable to
explain to them the advantages offered by the product or service through strong stories,
with an appeal to emotions. In this sense, this generation also reacts very well to
environmental protection movements (Williams, & Page, 2011, p.6). For generation Z,
the Internet is the main medium, being the one in which they have total independence.
In purchasing decisions, adolescents of this generation are influenced by new media, but
also by the virtual friends they have on social networks (Williams, & Page, 2011, p.13).
With the advent of smartphones, young people no longer need a device specialized in a
particular activity. They can take all their favorite actions with the help of a phone, which
they always have with them: they can listen to music, watch movies or even buy
products (Turner, 2015, p. 106).
The behavior of purchasing and consuming vintage products for the Baby
Boomers and Generation Z generation
The overall objective of this research is to identify the buying and consuming behavior
of vintage products of the Baby Boomers generation compared to the Z generation.
These two generations are considered to be opposite in terms of their age: Baby
Boomers is the most in the older generation, while Generation Z is the youngest, the
individuals being adolescents or young people, up to 25 years old. However, both are
consumers of vintage products: Baby Boomers because they lived in those times and
show nostalgia, and Generation Z because old trends have returned and are
reinterpreted today, they are always up to date with everything new on the market.
Given the general objective, we have stated a series of research questions for each
generation, but also for the owners of vintage stores, as follows: What are the historical
periods and trends preferred by buyers of vintage products?; Why buy vintage
products?; What are the most frequently purchased vintage products?; How much do
you spend, on average, on vintage products?; Where to buy vintage products, what are
the most famous shops, sites and fairs in Bucharest?; What is the robot portrait of the
frequent buyer of vintage products?; What is the robot portrait of the seller/collector of
vintage products?; What is the relationship between seller and consumer in a vintage
store? The first five research questions target the first category of individuals, belonging
to different generations, while the last three research questions focus on sellers and
physical /online stores.
Regarding the methodology of this research, we opted for a qualitative method, through
the technique of face-to-face interviews, using as a tool the semi-structured interview
guide, the topics, and order of the open questions being partially predetermined
(Chelcea, 2001, p.277). All interviews were conducted face to face. The research period
was May 10-30, 2019, and each interview lasted an average of 60 minutes. As a specific
tool, two interview guides were made, one for Baby Boomers and Z generation shoppers
and one for owners of vintage physical or online stores. The purpose of the first guide
was to identify the purchasing and consumption behavior, but also the preferences of
individuals consuming vintage products, while the second guide was relevant in shaping
their portrait, but also of sellers. In this way, the research targeted both consumers and
sellers who can play an important role in the purchasing decision.
Thus, in the application of the first interview guide, an important role was played by the
choice of subjects. In this case, it is non-random, of convenience, of the snowball type,
the research public being relatively small. I mention that it was chosen taking into
account certain criteria: Romanian citizenship, passion for second-hand or vintage
items, the purchase of such a product, but also the generation of individuals, age being
very relevant in this case. For Generation Z, buyers must be between 18 and 24 years
old, while Baby Boomers are currently over 55 years old. In total, 30 subjects were
interviewed, 15 from each generation under analysis.
For the second set of interviews, dedicated to the owners and sellers of vintage physical
or online specialty stores, five vintage stores known to consumers were initially chosen:
Check Vintage Store, Sertar Magic, Consignația7, ResaleShop, and Drag şi Draga. Four of
the five stores sell mainly clothing items, and one is dedicated to decorations and
furniture, being the Sertar Magic store. Moreover, following the interviews and analysis
of the data obtained, we identified increased popularity among the Z generation of
Instagram accounts that sell such products. Therefore, I later included in the research
three such online accounts, with a large number of followers: Vintage Corner (5700
followers), Vintage Hunt (4900 followers), and Bite my style (2300 followers). So, in
total, eight owners of such stores were interviewed, five being physical and three online,
on Instagram.
Data analysis and interpretation

Analysis and interpretation of data obtained through interviews with buyers of vintage
products from the Baby Boomers and Generation Z
Favorite past periods and trends. The first question in the interview guide for the
individuals of the Baby Boomers and Generation Z generation has the role of breaking
the ice, but also of identifying the nostalgia of certain favorite periods. In this sense, the
vast majority (14 out of 15) of Baby Boomers participants evoked periods from their
past, from the '80s and' 90s that correspond mainly to their adolescence or youth: “The
70s (...) The years of adolescence. A calm, relaxed, effervescent Romania, quality music,
motivating education system, unrestricted personal development, the satisfactory
standard of living, safety and discipline...” (Ovidiu, 62 years old), “I would return to
322 Strategica 2020
adolescence. It is the age of innocence and great dreams” (Ermolania, 58 years old). To
the same question, more than half (8 out of 15) of Generation Z respondents chose the
periods they lived through and whose tendencies marked their childhood, more
specifically the 1990s and 2000s: “Well, close to me, it would be the period of the '90s
that I lived” (Roxana, 23 years old), “the 2000s, when I was little and I stayed in front of
the block all day, especially during the holidays” (Carmen, 21 years old), “for sure 90s!
It still attracts this period because it reminds me of a bit of childhood (Bianca, 23 years
old).
By the second question, the interviewees were asked to mention a favorite object from
the aforementioned preferred period. Two-thirds (10 out of 15) of Baby Boomers
shoppers chose objects from the past, with a certain symbolism to them: ”a doll received
as a gift at the age of 18” (Ermolania, 58), ”a notebook with thoughts” ( Liliana, 55 years
old), “a child's sock that was like a thimble” (Aurora, 55 years old), “the subscription to
the French comic magazine Pif, which disappeared from circulation due to the impact of
current technology” (Ovidiu, 62 years old). In the case of generation Z, almost two thirds
(9 out of 15) of the subjects mentioned objects that marked their childhood: “the tape
recorder that my grandfather bought for my birthday and for which I listened to
Romanian hits” (Carmen, 21 years old), “Story vinyls. My sister and I listened to them in
the greatest silence. It was a kind of celebration in the house” (Simona, 23 years old).
The next question follows the historical periods preferred in terms of clothing style,
precisely to identify why they have returned and are still preferred today. Two-thirds
(10 out of 15) of those interviewed in the Baby Boomers generation mention the trends
of the '70s and' 80s: "the shirts of the '80s were more colorful and steamier (Vasile, 59),
the men wore them. They were also very comfortable, I can confirm, I wore them for a
long time” (Marcel, 55 years old) “the two-piece swimsuit, with high-waisted briefs and
brightly colored prints” (Ana, 60 years old).
In the case of Generation Z, about half (7 out of 15) of the interviewees chose as the
preferred clothing style the one specific to the '90s. Moreover, they mentioned that she
still wears these items: ”I wear mom-jeans, denim jackets, John Lenon-type glasses, crop
tops, sneakers, leather jackets and boots, high-waisted pants and flares” (Anca, 22 years
old), ”Well, nowadays I like to dress like in the '90s. I have all kinds of retro dresses and
high-waisted jeans in my wardrobe and I wouldn't give them away for anything more
up-to-date” (Carmen, 21 years old).
Regarding the nowadays trends, two thirds (10 out of 15) of the Baby Boomers
generation claim that they are a bit extravagant: “the current ones are, in my opinion,
too extravagant. I don't necessarily find myself wearing what young people wear”
(Sabina, 58 years old), “young people want to stand out a lot, sometimes it can be too
much for the eyes” (Magda, 59 years old). However, 5 people appreciated them,
considering them more practical and comfortable: “... nowadays I can wear pants at any
time (laughs) Before, women were not allowed to do that” (Luiza, 58 years old).
Generation Z notices that current trends also include more and more vintage elements,
almost two-thirds of them (9 out of 15) talking about the cyclicity of fashion: “Well, now
you can find almost everything my mother wore when she was young. She always tells
me that too. Fashion always returns” (Rodica, 23 years old), “well, there are not many
barriers between past and present trends, all of them being reinterpreted. Even the
traditional Romanian dress is fashionable again” (Diana, 20 years old). The present
trends are preferred by both generations, to the detriment of those of the past. This is
mainly due to the diversity and the many options they currently have when making a
clothing purchase.
Motivations for purchasing vintage products. More than two thirds (11 out of 15) of
Baby Boomers respondents stated that they purchased products belonging to other
historical periods, all stating as their main reason their quality and authenticity: ”Yes, I
bought, the main reason is authenticity, but also quality, of course„ (Ermolania, 58 years
old), “it is wonderful to buy a unique, quality product, but also with a story behind it”
(Lidia, 57 years old); ”I am passionate about old objects, especially furniture (...) They
have a special scent and energy, especially if you know their story” (Catalina, 58 years
old). Members of Generation Z claim that they purchased such products, belonging to
distant periods, and the reasons mentioned by them are largely related to the quality of
the materials: “yes, I bought from specialty stores, especially for the quality of the
materials (...) and their uniqueness” (Cristi, 21 years old), “the materials are very
different from the current ones” (Loredana, 21 years old).
The differences between the two generations are easy to identify: Baby Boomers prefer
accessories, but also pieces of furniture, these being considered much higher in the past.
Instead, Generation Z individuals primarily purchase clothing and footwear. Thus, these
products also reflect the different concerns of the two generations: Baby Boomers take
more care of comfort, well-being, while young people are more concerned with the
image and how they will be cared for by those around them. However, the reasons for
purchasing a vintage product of any type are largely the same: quality, authenticity, and
uniqueness, being the most mentioned.
The perception of the two generations on vintage products. Almost all Baby
Boomers participants (14 out of 15) in the interview consider that there is a difference
between vintage and second-hand clothes: ”you certainly can't compare some shabby
clothes, second hand with some unique ones” (Marcel, 55 years old), ”I don't think
vintage = second hand. The difference is in quality and authenticity” (Mirela, 56 years
old). They perceive second-hand clothes as cheap and worn: “in my youth, relatives from
abroad brought us all kinds of clothes, worn, and we were very happy” (Aurora, 55 years
old), “I associate second-hand clothes with the clothes bag which I just took out of the
closet and I'm thinking about what to do with it” (Liliana, 55). Instead, vintage ones are
seen as valuable, precious. Catalina (58 years old) defines the vintage clothes store as
”an archeological site where, if you have patience and dig carefully, it can offer you
treasures”. In contrast, among all young people interviewed in Generation Z, opinions
on second-hand clothes differ, considering that both second-hand and vintage clothes
are uniquely produced: “I associate vintage and second-hand clothes with getting out of
the herd”. With the fact that you can look nice, without having to invest large sums in an
outfit” (Carmen, 21 years old), “I think you can find vintage and second-hand clothes. If
not, at least unique clothes, at ok prices” (Roxana, 23 years old).
Identifying places that sell vintage products. Almost two thirds (9 out of 15) of Baby
Boomers respondents mentioned the antiques and antique fairs as places where they
buy vintage products: “mainly, vintage products I buy at fairs, I was also in Bucharest at
Valea Cascadelor” (Ana, 60 years old), “I went to fairs, antiques or antiques. There is a
difference between the two. In the case of antiques, you are wonderful, but in the case
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of junk you don't find much, more nothing that people want to get rid of” (Marcel, 55
years old). Moreover, five of them have participated in such fairs in other countries, such
as Vienna, the Czech Republic, and Germany: “I have been to such a fair in Vienna, it is
very different from us and I would recommend anyone to visit one if given the
opportunity” (Sabina, 58 years old). Regarding online shopping, only three of the
individuals claimed that they would buy such old products online, the main reason being
distrust: ”I would not buy online, I prefer to see with my own eyes and try if necessary”
(Lidia, 57 for years). Ovidiu (62 years old) is passionate about music and bought old
musical instruments from sites like OLX or Facebook groups: "when it comes to guitars,
the old ones are museum pieces".
All the young people of the Generation Z also mentioned the flea markets as a source of
purchasing vintage products, the one from Valea Cascadelor being mentioned by seven
of the young people interviewed: “I went to fairs, of course. I always go when I have the
opportunity and I would recommend this experience to anyone” (Simona, 23 years old),
“I bought other things from Valea Cascadelor. I don't know other such big fairs in
Bucharest” (Diana, 20 years old). Unlike Baby Boomers, they also buy a lot online,
especially on Instagram accounts: “I buy a lot on Instagram, I follow all kinds of accounts
with vintage products and if I see something I like I leave a message to the admin”
(Rodica, 23 years old), “mainly I buy from Insta. There are a lot of accounts with super
clothes and it's much simpler” (Manuela, 22 years old).
Vintage products purchased by the two generations. Two-thirds of Baby Boomers

(10 out of 15) buy jewelry (necklaces, embroidered earrings, medallions): "a gold
necklace with green stones bought from a fair in Sibiu 8 years ago" (Liliana, 55 years
old), "a turtle-shaped frog with a small pink pebble” (Cătălina, 58 years old). Less than a
third (4 out of 5) buy vintage clothing: “a dress over 100 years old, with slightly darker
flowers, heavy, with an emphasis on the waist, midi, with long sleeves, buttoned dresses,
many and with the same material, marked shoulders” (Maria, 56 years old).
The same feelings are found in the case of all young people in generation Z, who
appreciate wearing unique items: ”I feel as if I have special energy as if I were privileged
to carry that object” (Manuela, 22 years old), ”I feel special, different from those around
me who are dressed the same” (Diana, 20 years old). They are also seen as a way out of
banality. Unlike Baby Boomers, the vintage objects preferred by all the people from
Generation Z interviewed are mostly less elegant clothing items: “a pair of purple bean
pants, with all sorts of crazy prints. It looks a lot like the one I saw my aunt in a black
and white picture” (Anca, 22 years old), “a Nike sweatshirt, green, classic, super simple”
(Roxana, 23 years old).
One of the specific objectives of the research is to identify the most purchased vintage
products. Two-thirds (10 out of 15) of Baby Boomer individuals mention accessories
and jewelry of any kind, and, less often, footwear or clothing: ”of course, jewelry:
pendants, brooches, and rings with brightly colored stones” (Liliana, 55), “When I go to
the fair I look for jewelry in particular. Or home decorations” (Ana, 60 years old).
Instead, Generation Z prefers more clothing items, the most purchased being those
specific to the ‘90s, years that they feel closer to and that have returned to current
trends: “high-waisted jeans, most often. The ones like Mom Jeans” (Manuela, 22 years
old), “crazy shirts, in the brightest colors, wide, made of silk” (Cristi, 21 years old), “I had
a little mania with the Adidas, Nike, sweatshirts by 90. I think I'm about 10” (Carmen, 21
years old).
Thus, we can see how Baby Boomers are more traditional, emphasize elegance and,
therefore, purchase vintage products that are special and precious. Instead, Generation
Z buys products that they often wear, but which are not so precious. Thus, we can say
that Generation Z appreciates more the uniqueness and differentiation offered by
wearing these items. Baby Boomers rarely buy and emphasize the authenticity and story
of the product, Generation Z buys much more often, more to be on-trend.
Regarding the reasons behind the purchase and consumption of vintage products, the
most mentioned reasons were the ”personality” of these objects, which carries a story
that makes them more special and desirable: ”nostalgia, things well done, refinement
and the elegance of vintage things. For me, they are a piece of history, treasures that
come to life again” (Carmen, 56 years old). Instead, participants in Generation Z
mentioned in particular the desire to stand out from those around them. For example,
Cătălina (23 years old) also states this reason: “because it takes them a little out of the
herd. (...) this consumerism needs a counterexample”.
Baby Boomers appreciate the authenticity of vintage products and value the story of the
historical period from which they come. Contrary to them, the Z generation is motivated
by the extra image they can bring, by the desire to be appreciated and considered
different from those around them. We can say that in the case of young people it is also
a desire to belong to a group. Although many say they want to differentiate themselves
from those around them, they still seek their assertion.
Amounts invested in vintage products. The amounts invested differ greatly, both in
terms of people's income and in terms of the product purchased. Over a third (6 out of
10) Baby Boomers participants stated that they would be willing to pay a maximum of
500 euros: ”if I like something very much and consider it worth the investment, I would
give about 500 euros for such a product” (Ovidiu, 62 years old), ”if it is a piece of
furniture or something more valuable, about 500 euros” (Ermolania, 58 years old).
Other people would be willing to pay less: “Between 100 and 200 euros. If I had any
amount, I would be willing to invest no matter how much” (Cătălina, 58 years old).
Moreover, every month, they invest smaller amounts, up to 100 lei. However, in the case
of more authentic and attractive products for them, they would be willing to spend even
more money: “At most, I paid 5,000 lei for a piece of furniture. I recognize” (Luiza, 58
years old). In the case of Generation Z, these amounts are much smaller: two thirds (10
out of 15) would be willing to invest in a vintage item at most 600 lei, or even less. And
in this case, there are exceptions, depending on the products purchased: “If it is a
clothing item, probably a maximum of 150 euros. If they are interior design objects or
cameras, probably 300 euros” (Irina, 23 years old). Although this category invests more
often, monthly, the amounts are small, mostly ranging between 100 and 200 lei, this
being explained by the budget they have.
Analysis and interpretation of data obtained through interviews with physical or online
vintage store owners
Robot portrait of the seller of vintage products. Regarding the sources where they
326 Strategica 2020
get their information about the vintage products they sell, they all say that they do not
have some sources that they read regularly, but they have studied the consumer's
behavior over time. For example, the owner of the ResaleShop store gained knowledge
after studying at the Faculty of Communication and Public Relations: “I also finished a
communication faculty and I studied a lot of people's consumption behavior, their
preferences, what motivates them and I can say that this information helped me a lot”.
However, half (4 out of 8) of the interviewees attribute the selection of materials to
experience: ”Now I have a trained eye and I know almost every piece if it is authentic,
from what it is made, the way of processing” (Sertar Magic store owner). Moreover,
vintage store owners were also asked about their favorite historical periods and past
trends, precisely to identify whether they coincide with those of customers of the Baby
Boomers and Z generations. More than half of the interviewees (5 out of 8) he prefers
the '70s and' 80s, especially mentioning the hippie period: “hippie madness is definitely
my favorite. And the source of inspiration for the clothes we are looking for on the page”
(Bite my Style account administrator). Other periods mentioned are the 1940s:
”designers played with all kinds of details and precious elements, as bright and
extraordinary as possible” (store owner Drag and Draga).
Asked about collecting vintage objects, all participants stated that they have personal
collections, which they value very much. An example is the administrator of the Vintage
Corner page: “I collect vintage Versace parts, especially rare models. They are not for
sale, I care very, very much about them, they are like my little treasure so to speak". I also
found a predilection for the Versace designer in the case of the owner of the Check
Vintage Store, precisely because of the multitude of colors and prints used by him. Other
mentioned collections were those of shoes, decorations, but also traditional ones. All
store owners said that the products in their collections satisfy their passion for these
trends. Moreover, for the owner of the vintage store Consignația7, the collection is one
of the reasons for starting this business: ”The sale somehow complemented my passion
for vintage clothes, so yes.”
The specifics of specialty stores. Regarding the store and the atmosphere found in it,
all the owners describe their boutique as a relaxing and welcoming place, being intended
both for purchasing products and for socializing: “We welcome people like in our house,
with music on the background, honey, and smiles. In addition to this gentle atmosphere,
Pepinot, our golden retriever, always helps us, always ready for new friends and
caresses.” (Drag and Dear store owner). Moreover, the owner of the Check Vintage Store
describes her boutique compared to mass-market stores: “It's not the kind of store
where you stop by the customer and ask him if you can help him with anything, but we're
there in case he needs us”. Also, in the case of the Sertarul Magic decoration and
furniture store, it is described by the simple owner: ”Significant objects”. As strengths
were mentioned especially the diversity of products, but also various events for
customers, such as the ResaleShop store: “We have days dedicated to discounts, take out
everything I have in stock and give them 5, 10 lei. Believe me, the yard is full on such
days”.
Portrait of the frequent buyer of vintage products. All interviewees describe their
customers as young, aged between 20 and 35 years: ”girls, teenagers dressed normally,
but also fashionistas looking for unique pieces” (owner of Check Vintage Store), ”young
people, mostly, up to 30 years old, I would say” (ReSale Shop owner). The information is
also confirmed by Instagram accounts whose information on the target audience is
much easier to follow: “20-34 years, but most of them are in the first category, I would
say 20-25. Young people are super interested in such products, being very trendy at the
moment to wear unique products” (Bite my Style page administrator), “20-35 according
to Insights. I also confirm” (Vintage Hunter page administrator). The owner of the Check
Vintage Store also describes her customers as young, but she also has customers and
people belonging to the Baby Boomers generation: “We also have 50+ chic ladies who
still visit us. I am a delight! ”The only owner who mentioned that he is mainly visited by
Baby Boomers is the one of the decoration and furniture store Sertar Magic: “They are
curious people, generally older. It's as if I notice them trying to find the things they
identify with, the ones they grew up with, looking for something familiar throughout the
store”, customers are described by the owner as" collectors and people with a sense of
aesthetics ".
The relationship with the clients is quite close, which is confirmed by all the interviewed
participants: “If they happen to like something, in particular, we reserve them. But only
for the most faithful” (store owner Drag şi Draga). We also find rewards in the case of
the Vintage Hunting Instagram page: "I reward the most frequent ones with a surprise
in the package: a scarf, a belt". As for new customers with no knowledge in the field, all
vintage store owners are faced with the second-hand label of used clothes. All the
interviewees mentioned that they like to educate their customers and tell them about
the concept behind the store: “we always stay to explain and tell them about us and the
concept of the store” (Drag and Draga store owner), “I like it to talk to people, to explain
to them and to have a lot of patience” (ReSale Shop owner). Thus, this relationship is
associated with a friendship: ”at first you introduce yourself, then you let the man know
you” (owner of Sertar Magic).
Asked what are the most purchased products in the store, but also the most sought after
by customers, stores that sell mainly clothing and footwear (7 out of 8) mentioned
clothing belonging to the '80s and' 90s as: ”colored bundles. A little madness has been
created with them! And the items that belong to the big fashion houses that are more
than 30 years old: Versace, Dior, Gucci.” (owner of the Check Vintage Store), “I had a
period with the colorful bundles of brands, Adidas, Nike, Puma. Everyone asked me
about them when we bring them if they were given. I post the goods on Instagram before
and many come set on a certain object” (ReSale Shop store owner).
Conclusions
From the first research question (”What are the historical periods and favorite trends?”)
There are some differences between the two generations: we identified a manifestation
of nostalgia in both generations under analysis. This was more pronounced in the case
of the respondents from the Baby Boomers generation, who told with emotion and
enthusiasm about periods, moments, objects, and even trends that marked their
existence and in which they would gladly return. In their case, the preferred periods are
the 70s and 80s, which correspond mainly to their adolescence and youth; the trends
belonging to the hippie trend are very popular, which they adopted: flowered shirts,
with a large collar, flared trousers, platforms, bandanas, in the most vivid colors. Unlike
them, Generation Z prefers the '90s, much closer to their childhood. Moreover, the
trends of this period have returned to the present and are considered to be fashionable
328 Strategica 2020
again. Among the clothing items specific to these years, the ones preferred by young
people are Mom Jeans high-waisted pants, bundles and suits, and sports blouses.
The next research question looks at the reasons why people buy vintage products. And
in this case, we identified several differences, but also similarities between the two
generations. Baby Boomers have more complex knowledge about the vintage current
and buy such products because they consider them to be precious and of superior
quality. For them, they are special and show care and protection for them because they
are aware of their value. Also, an important reason for Baby Boomers is the authenticity
of these products and the story they have. Instead, young people buy vintage products
because they have a direct effect on their image, being considered fashionable. For this
reason, he most often buys clothing and, very rarely, decorations or pieces of furniture.
Moreover, they see these products as a way to differentiate themselves from those
around them and to be considered special, associating them with "getting out of the
herd". In this case, we believe that by wearing vintage products, they can satisfy their
need for group membership and acceptance.
Regarding the third research question (”What are the products you buy most often?),
The products preferred by the two generations are diverse. The most popular are
accessories, jewelry, clothing, decorations, and furniture. In the case of older people, I
noticed a predilection for handmade jewelry and furniture. These are valuable products
that require quality and require some knowledge before they can be purchased. Vintage
jewelry is preferred for the craftsmanship with which it is made, being worn especially
on special occasions, while the furniture is considered to be of quality and, for this
reason, individuals of this generation recondition them. In this sense, we notice the care
and attention that the Baby Boomers generation shows for vintage products. Unlike
them, Generation Z mainly buys clothing and footwear. These belong mainly to the '90s
and are not always purchased from specialty stores, but also from mass-produced stores
that have adopted the retro current and brought it back today. Generation Z's preference
for clothing is also justified by their constant concern for their image, the way they dress
being essential, especially at a young age.
As for the amounts they invest in vintage products, they vary from generation to
generation. In this sense, Baby Boomers are willing to invest more than the Z generation.
One reason may be the income they have, but also their preferences for vintage products.
Baby Boomers especially prefer jewelry and furniture, which are more valuable than
clothing items, preferred by those in the Z generation. So, although it invests more often
in such products, the Z generation is willing to pay a price. smaller compared to Baby
Boomers. Moreover, I believe that this price is set according to the stores where they
buy such products. In the case of Baby Boomers, those with decorations and furniture
have much higher prices, these products are considered much more valuable than
clothing, whose prices are average and accessible to the general public.
The fifth research question concerns the places where vintage products are purchased,
but also the identification of the most famous such specialized locations in Bucharest.
Baby Boomers most often attend antiques and antique fairs, precisely because they are
the first form of this current, being authentic. Regarding online stores, we have identified
some reluctance among Boomers consumers, guided by distrust in such services. This is
also supported by the fact that these people are not so familiar with the technology and
therefore do not have such extensive knowledge in the field. However, the OLX.ro
website, which is the equivalent of Etsy in Romania, is also quite popular among Baby
Boomers. Young people, on the other hand, buy a lot online, from specialized websites,
but also from Instagram accounts that sell such articles and whose popularity is
growing. Being always up to date with everything new, young people have many sources
from which they can buy such products, Instagram accounts that sell such products are
a result of increased market demand, identified among the young generation Z.
However, and Generation Z attend the fairs, the most popular and most mentioned
among both generations being the one from Valea Cascadelor, organized every Thursday
and weekend. The fairs abroad are also very popular, the most praised being those in
Germany, but also those in Prague, Vienna or London. Among the most mentioned
specialty stores in Bucharest are Check Vintage Store, Consignația7, Resaleshop, and
Palatul Șuțu, and in terms of online stores, I mention Vintage Corner, dowries, Asos
Marketplace, and Etsy, an international online platform where there are several
merchants selling vintage items.
As for the buyers of vintage products, according to the store owners, they are young,
aged between 20 and 25 years. In other words, members of Generation Z. They are
always up to date with what is new and easily adopt current trends. They frequent
vintage stores because they want to be appreciated for their way of being, but also for
the desire to be considered different. Moreover, following the analysis, we notice how
they have as a favorite period the 90s, years that they feel closer to and whose nostalgia
they can feel, having strong influences even in their childhood.
The seventh research question sought to identify the portrait of vintage sellers. Although
store owners, they are also sellers to provide customers with as much information as
possible. They are all collectors, proof that vintage fashion is a passion for them, beyond
a business. They are also very open and often take on the role of educating their
consumers. Precisely for this reason, they are also consulted by friends or customers
when the latter make a purchase decision. In other words, in groups, they can act as
experts in vintage products. The last research question concerns the relationship that is
established between the seller and the customer in the specialty stores. This
relationship is based on friendship or, in some cases, friendship. In this relationship, an
important role is played by the specifics of these vintage stores, which are also a social
and leisure environment. Visiting a vintage store is more than just a purchase, it is an
experience, meant to transpose the buyer into a world of the past. When it comes to new
customers, sellers are very careful, providing all the information that buyers need to feel
good in the store and determine the purchase of products.
The last research question concerns the relationship that is established between the
seller and the customer in the specialty stores. This relationship is based on friendship
or, in some cases, friendship. In this relationship, an important role is played by the
specifics of these vintage stores, which are also a social environment, for spending free
time. Visiting a vintage store is more than just a purchase, it is an experience, meant to
transpose the buyer into a world of the past. When it comes to new customers, sellers
are very careful, providing all the information that buyers need to feel good in the store
and determine the purchase of products.
The general objective of the research is to identify the purchasing and consumption
behavior of vintage products of the Baby Boomers generation compared to the Z
330 Strategica 2020
generation. Following the interviews, we identified several differences and similarities

between the two generations. Moreover, the character traits and lifestyle specific to each
generation are also reflected in their purchasing and consumption behavior. In this
sense, for Baby Boomers the quality and authenticity of vintage products are paramount,
being the main reason that influences their purchasing and consumption decisions. In
their case, there is a greater feeling of nostalgia for certain periods or trends in their
past. Thus, the most purchased vintage products are jewelry and furniture, products
that, although they have higher prices, are superior in terms of quality to today's
products. Baby Boomers consumers appreciate the value and value of the products they
purchase, especially if they have an emotional charge. Instead, for generation Z, the
image is a very important aspect, and vintage products can improve it. Also, the vintage
trend is very popular nowadays, vintage products being considered to be fashionable,
and the new generation is the first to adopt the new trends. In addition, young people in
Generation Z really want to differentiate themselves from others, which is a reason that
determines the purchase of products belonging to other historical periods. This is also
reflected in the products belonging to the vintage trend that they purchase, namely,
clothing items.
Regarding the limits of the research, a first impediment was the difficulty of finding
subjects passionate about the vintage trend. In this regard, we consider that the
desirability of the answers should also be mentioned. It is possible that, in the presence
of another person or an interviewer, the interviewees may provide the information they
consider correct, without their own opinions. In this regard, the interview guide also
included some verification questions, which consisted of repeated requests for certain
information to verify the veracity of the information.
As future directions, we consider relevant to analyze the consumption behavior of

generation X, these being, in fact, the children of Baby Boomers and parents of
generation Z. Thus, a complex analysis could be made that includes these three
generations. Moreover, it would be interesting to study how this trend, so popular at
present, has spread over the three generations and the influence of each generation in
increasing its popularity.
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Annexes
Annex 1. Interview Guide for Generation Z and Baby Boomers representatives

1. If you were to go back to a certain period in the past, what would be that period?
Please explain your choise.
2. Please tell me about a thing, an object, from that period that you would like to have
now.
3. Do you have a favorite period in terms of clothing style? Please give me an example of
a clothing item from that period that you would wear today.
4. How would you describe the current trends compared to those in that period?
5. Please give me an example of products from the past that you would like to be
fashionable again.
6. If you had to choose, would you like to dress according to current or past trends?
Please motivate your the choice.
7. Do you usually buy everything that is in trend or just what you feel it to be your style?
8. Have you ever purchased a product (clothing, furniture, jewelry) that belonged to a
more distant historical period? If so, what was the motivation for buying it to the
detriment of a new product?
9. Do you consider that the old products are of higher quality than the new ones? Please
give me an example of such a product and mention the aspects that make it superior to
a new product.
10. Please tell me what you associate second-hand clothes with.
11. Please tell me what you associate vintage clothes with. Is there any difference
between second hand products and vintage products?
12. Please tell me where you buy vintage products (flea markets, specialty stores,
websites).
13. Have you ever attended a flea market? If so, tell me, please, what is the impression
about it and if you would participate again.
14. Have you ever bought used or vintage products online? If so, give me examples of
some sites where you can purchase such products.
15. What is your favorite vintage store or fair? Please tell me why you like it.
16. Please describe to me your favorite vintage product.
17. Please describe to me the feeling you have when you wear your favorite vintage item
(confident, strong, special).
18. Please give me some examples of vintage products that you buy most often (clothes,
accessories, bags).
19. What do you think are the reasons why people prefer vintage products over mass-
produced ones?
20. Before buying a vintage product, do you consult with certain people (group of
friends, sites or groups)? If so, who are these people?
21. Please tell me how much you would be willing to invest in a unique vintage product
from an important historical period.
22. Please, how much do you invest per month in vintage items?
23. Would you be willing to pay more for an authentic, but second-hand vintage product
than for a trendy product from a mall store? Explain the answer, please.
24. In your opinion, do you think that there is a difference between vintage clothes,
bought from specialty stores, and those purchased from stores in malls (Zara, H&M,
Stradivarius)? Please tell me which these differences are.
25. Today, many young people wear clothes specific to certain periods in the past (for
example, the return of the retro current). Why do you think this is happening?
26. Thank you for your time! Please let me know if you have anything else to add
regarding the vintage products that were not included in this interview.
Appendix 2. Interview guide for vintage product store owners

1. When did you discover your passion for vintage products? What attracts you the most
to these?
2. Where do you get information about the products you sell? Do you read certain
specialized sources? If so, please give me some examples.
3. Do you have a favorite historical period? Please tell me more about the trends you like
from that period.
4. In addition to selling vintage products, are you also a collector? If so, please tell me
more about your favorite items in the collection.
5. How would you briefly present the store to a new customer? What do you think are
its strengths?
6. How would you describe your customers who step on the store's doorstep?
7. What is the age category of your customers?
8. What are the most purchased products in the store? But the most sought after?
9. Do you have loyal customers who visit you daily? How would you describe the
relationship you have with them?
10. There are people who do not know about this current, but they visit your store. How
do you manage your relationship with them?
11. Do you participate in any Facebook groups, websites, where you talk to people
passionate about vintage?
12. Have you ever been consulted by someone about buying a vintage product? Please
tell me what advice you are most often asked for.
334 Strategica 2020
MARKETS ON TRADE SHOW PLATFORM: ASPECTS OF BUSINESS

COMMUNICATIONS AND TRANSACTIONS MANAGEMENT
Kirill SIMONOV
Lomonosov Moscow State University
1-46 Leninskiye Gory, 119991 Moscow, RU
kirill.simonov.msu@yandex.ru
Abstract
Fall in demand for services of exhibition company operating based on product business model in
trade shows segment means outflow of trade shows participants, which is accompanied by reducing
in the intensity of transactions between them, decrease in exhibition services value, and deterioration
of the company's competitive position. Such phenomena are observed in the Russian exhibition
market now. The desire to minimize these negative challenges determines the response in form of
searching for opportunities to ensure more effective management of business interactions intensity
of exhibition events participants. The purpose of the study is to modify the approach to managing
interactions and transactions between exhibitors and visitors of trade shows, bringing the situation
in line with current trends of the economy. The methodology of the research is based on two-sided
markets and network effects theories, event management and exhibition marketing, logistics
approach, and experiences of exhibition activities. All this scientific and practical knowledge helped
to justify the expediency of equipping exhibition companies with a "two-sided market" business
model. The results of the investigation proved that a two-sided positive cross-network effect occurs
at trade shows and that the exhibition platform is nothing but a two-sided market. By analyzing the
economic processes occurring in the exhibition ecosystem, it is shown that in a discrete sequence of
trade show sessions, the intensification of business interactions and transactions can be achieved by
increasing the number of exhibitors and visitors through the model of a two-sided market and
positive network effects triggered by subsidizing access to expositions for target visitors. These
findings contribute to the development of the applied field of exhibition two-sided markets theory,
which assists in scientific support of exhibition market activities. The toolkit, which is recommended,
allows managers of exhibition organizing companies to stimulate filling of network market sides and
to maximize benefits for trade shows participants. This is the first study aimed at investigating the
feasibility of applying the model of two-sided markets in the exhibition business.
Keywords
Trade show; platform; network effects; logistics system.
Introduction
The exhibition sector of the economy plays a significant role in production and sales
activities. The exhibition industry was formed in response to the economy's request for
periodic short-term trade and industrial shows, where suppliers and consumers could
meet F2F and negotiate, establish and formalize business relationships, thus initiating
the production of a sufficient number of products for the market. All this has a beneficial
effect on the development of territories where exhibitions are held and on the economy
as a whole (Xiaoming, 2012; Simonov, 2015). Due to exclusive marketing qualities
(Kumar, 2015; Freestone & Amati, 2014), the competitive advantage allowed exhibition
activities to develop. Annually 32 thousand B2B trade shows are held all over the world.
Their total net area is 125 million sqm, the number of guests is more than 300 million,
the number of participants is 5 million. Every year all these events involve professionals
and business people from 180 countries (UFI, 2020).
Enterprises of the exhibition sector develop Expo projects and work to ensure their
implementation. The so-called organizer heads a project as a whole and prepares each
separate periodic short-term trade show session. The organizer is a company that
focuses on creating and promoting of exhibition projects, and also on managing and
providing related intermediary services. Organizers usually manage several such
projects, which are implemented in a sequence of periodic expos of a certain topic 2 . By
managing the totality of its projects, the organizer plans workload distribution between
partners, contractors, and suppliers, coordinates their activities, and controls the
spending of resources, minimizing costs. "Just-in-time" technology helps to effectively
use the overall potential, avoid unnecessary costs, and at the same time meet prescribed
deadlines.
In addition to organizers, exhibitors and visitors are directly interested in trade shows
(Figure 1).
Figure 1. Trade show stakeholders

(Developed by the author)
Exhibitors are products suppliers, who rent exhibition space from the organizer for the
duration of the trade show and order to construct booths there to place their product
samples and staff. Exhibitors are the main partners of the organizer. In addition to
exhibits, they provide informative content on their productions and products for the
exhibition catalog and promotional materials, as well as make an advance payment for
the organizer services. Their relations with the organizer are regulated by contracts.
Visitors are representatives of the customers, analyzing the prospects of procurement.

The organizer has no formal obligations to them, nor do they have any obligations to it.
2Large exhibition companies are centers that own exhibition venues; They both hold trade
shows themselves and receive guest events.
336 Strategica 2020
The business goal of organizers is to generate revenue based on the value created by
communications and transactions between exhibitors and visitors. The amount of this
cost depends on the financial weight and intensity of economic exchanges, which are
proportional to the number of groups of exhibitors and visitors. Therefore, the
formation and recruitment of them become the most important managerial problem for
organizers. Meanwhile, in recent years the trend of falling demand for services of the
exhibition industry has dominated. The decline is accompanied by a decrease in the
activity of agents and by a reduction in the profitability of the exhibition business. To
minimize this negative impact, a concept for managing communications and interactions
between exhibitors and visitors based on the latest theoretical achievements is in
demand.
Over the years, various authors have created several theoretical models for trade shows,
the most notable of which are the following: a descriptive model of the trade show
budgeting decision process (Lilien, 1983), a three-stage model of industrial trade show
performance (Gopalakrishna & Lilien, 1995), a learning model of trade show attendance
(Tanner, et al., 2001), a model of knowledge sharing in a trade show (Reychav, 2009), a
model of trade fairs as communication (Blythe, 2010), a model of exhibition brand
preference (Jin & Weber, 2013), a model of B2B interactions at trade fairs and
relationship quality (Sarmento, 2014), fit model between participation statement of
exhibitors and visitors to improve the exhibition performance (Magro & Recio 2015).
Purposes, methodology, literature review
The purpose of this study is to present how the combination of platform economics
theory and two-sided markets theory, marketing, and logistics theory helps to modify
the approach to managing interactions between suppliers and consumers, bringing it in
line with current trends and state of the economy.
In the research the following problems are solved:

 to offer an approach to determine how to achieve the business goals of the organizer
and to systematize functions of the main stakeholders;
 to work through the transition of exhibition organizer from a linear business model
to a platform-based one;
 to create the process for preparing a transactional platform and to consider
managing the interaction of exhibitors and visitors in a sequence of trade show
sessions taking into account network effects.
The study is based on the establishment of priorities, analysis, and synthesis. The
analysis involves the decomposition of an object and the study of its components,
clarifying their place and role in the overall structure. Synthesis is used to combine
fragments of an object into a single structure. Since the study focuses on transaction
management in the exhibition two-sided market, a brief reminder of the general theory
of two-sided markets is coincided to be important. It was started by Gale and Shapley
(1962), who applied the new term to markets, where agents interact without money and
intermediaries. Then the theory was developed in investigations by Shapley and Scarf
(1974) and Roth (1982; 2002)3, who developed algorithms for forming stable
3 In 2012 they were awarded Nobel prize for their theory of two- sided markets.
combinations of agents on market sides (Zhelesova et al., 2013).
Platform-type markets were described and named as two-sided markets by Rochet and
Tirole (2003). The signs of these markets are as follows:
 there are numerous disjoint groups of economic agents on both sides of the market;
 the market is created and exists because of a firm-platform that forms groups of
agents;
 there should be a two-sided positive cross-network effect of the interdependence of
parties' demands for platform services.
Following Rochet and Tirole many authors have devoted their researches to this
category of markets. These studies consider the advantages provided by platforms
(Hagiu, 2007; Hagiu & Wright, 2015), discuss defining features of these markets (Rochet
& Tirole, 2006; Auer & Petit, 2015) and options for defining terms "two-sided platform"
and "two-sided market" (Evans, 2003; Armstrong, 2006). After summarizing them the
following wordings can be offered.
If economic exchanges between agents of groups of suppliers and consumers are made
using a platform that is owned and operated by a certain company, then the latter's
business model is a two-sided platform. Or else: a two-sided platform is a company's
business model, through which agents of two disjoint groups can interact4. The two-
sided market of Rochet and Tirole is a two-sided platform with mutual dependence of
groups of economic agents, which manifests itself as a positive two-sided cross-network
effect.
A notable place in studies on the theory of two-sided markets is given to the comparison
of different points of view on the validity of attributing different markets to two-sided
markets (Auer & Petit, 2015), as well as to the topic of management (Hagiu & Wright,
2015; Evans, 2003; Roson, 2005; Hagiu & Yoffie, 2009) and also to the topic of external
network effects (Hagiu & Yoffie, 2009; Evans & Schmalensee, 2007) combined with price
structure strategy of the platform (Weyl, 2010).
The topic of platform-based two-sided markets attracts the attention of Russian

scientists and economists. This is evidenced by analytical reviews (Yablonskiy, 2013;
Kovalenko, 2016; Shastitko & Parshina, 2016), where it is considered and where the
relevance of the development of management issues is noted. However, the available
literature does not affect the specifics of the two-sided exhibition market.
Results and insights
Models of exhibition business
The economy has undergone significant changes. Simultaneously with changes in GDP,
the effective demand for services of the exhibition sector changed. Organizers need to
transform their business models when the supply-demand ratio changes.
4For short, a two-sided platform is both a company that acts as a two-way platform and a
platform where interactions occur through the intermediary of this company.
338 Strategica 2020
The organizer offers to product suppliers its services on arranging a trade show, where
suppliers can demonstrate their market offers and make economic exchanges with
visitors. The organizer forms a group of exhibitors from product suppliers, who applied.
When the demand for the organizer's services exceeds the supply, it can successfully
make business as a product company-based on the classic value chain model.
After receiving applications from potential exhibitors to participate in the next trade
show, the organizer makes contracts with them for the provision of services. After
prepayment applicants acquire the status of exhibitors. The amount of the exhibitor's
payment depends on the size of leased exhibition space and its price, as well as on
discounts and allowances that take into account the importance of the exhibitor for the
trade show and the location of its’ booth. Formally, the amount of payment is calculated
in proportion to rented space, but it implicitly includes a share of the cost of all
organizer's services. These payments fill the trade show budget.
Having decided on applications for services in connection with the upcoming trade
show, the organizer creates value chains that close to exhibitors from subcontractors, to
which it outsources activities that go beyond its core competencies. Managing these
chains from the position of integrating link the organizer delivers “in a package”
equipped exhibition area (exposition) ready to receive visitors (Figure 2).
If demand falls the company's supply of services may exceed it. This will make it difficult
to implement even projects that are already in production. To prevent losses, the
production company must modify the business model in accordance with changing
conditions, but to try to retain customers, who used services provided following the
previous technology.
Exhibition companies have the potential of a two-sided platform. An essential feature of

such a platform is the relation between the forming of participant groups: for example,
the more agents are in the group of exhibitors, the more visitors will appear on the other
side of the platform. Moreover, vice versa: the influx of consumers causes an increase in
the number of suppliers. The ability to cyclically increase the number of agents on both
sides of the platform through a positive feedback mechanism indicates a two-sided
cross-positive network effect. These features allow us to identify the exhibition platform
as a two-sided market, where created value is partially going to the organizer. Therefore,
the market network is the most important asset.
The organizing company must create conditions for choosing successful options for
transactions. To do this using the network effect more participants should be attracted
to the platform, and exhibiting companies should produce products that provide
increased financial significance of transactions.
Along with the novelty, the business model will have a product fragment. Therefore, the
organizer can use the previous method of calculating revenue as a part of the cost that
will be created in a two-sided market network. However, the price per unit of the
exhibition area should be increased due to the cost of additional services.
Figure 2. The scheme of joint business activities on exhibition services creation

Technology determined the sequence of actions of the organizer, the main components
of its business model, and their relationships are illustrated by the main business
process (Figure 3) and by the scheme for converting the flow of economic resources into
the flow of exhibition services5 (Figure 4). The diagram allows us to see the branching
of resource flow paths following functional areas of logistics and to watch the process of
creating services that exhibitors and visitors need to complete transactions at
consecutive exhibition sessions.
5Exhibition services are services provided by the organizer of a trade show with the
participation of exhibitors and visitors that allow them to enter into business interactions for the
purpose of making transactions and exchanging information.
340 Strategica 2020
Figure 3. The basic concept of exhibition company profit creation process

Figure 4. The process model of exhibition services creation and consumption

(six consecutive trade shows)
The exhibition platform, which is a material component of the organizer's services, in

combination with the intangible component of services becomes a communicational and
transactional platform. Its functional purpose is to provide exhibitors and visitors with
a place and conditions for market interactions. The organizer manages this platform.
However, it does not interfere with the content of these interactions before, during, or
after the trade show and does not act as a guarantee of their success.
Quasi-continuous network exhibition market
The arrival of visitors to the exhibition completes the phase of the main business process
associated with the creation of a tangible component of the organizer's services. At this
point, the transition to the maintenance phase of starting an exhibition network micro-
market is made. Its’ sides are formed by groups of exhibitors and visitors, who have the
opportunity to be acquainted with the exhibition content and to engage in direct
communication with each other (Figure 5).
342 Strategica 2020
Figure 5. Trade show two-sided network market

The implementation of the exhibition project involves periodic (with an interval of

several months to several years) holding of short-term exhibition events, during which
and in between, exhibitors and visitors negotiate and make transactions. Therefore, the
network micro-markets on the discrete sequence of trade shows form thematically
separate quasi-continuous network market. Each project corresponds to a certain
sequence of trade show sessions, series of micro-markets, and a thematically specialized
quasi-continuous two-sided network market. The number of such markets is equal to
the number of projects passing through the exhibition center. The time duration of each
market is limited by the lifetime of the corresponding project.
Logistics interpretation of the process of exhibition business management
On the way to the business goal of each trade show session, the organizer solves two
tasks. First, it prepares the tangible component of services. Then it gives agents from
supplier and consumer groups the opportunity to engage in business communication.
This is how the network micro-market starts. The organizer must effectively serve it
since the profitability of its business depends on the turnover in this market. The
solution of tasks is provided by a management system that allows providing timely
services that meet the obligations of the organizer.
Based on the logistics approach the analysis of the structure of the organization for
managing the preparation of the transaction platform and the network micro-market
allows us to identify two types of logistics systems. Let's call them "market" and
"platform" (Figure 6). The latter has an organizer as a focused company and consists of
groups of exhibitors and visitors, as well as supply chains of components for the
arrangement of the exposition.
Figure 6. Logistics interactions network on the platform of trade show

In market logistics systems the focus is on exhibiting companies. Every logistics system
unites the exhibitor and its contractors, as well as suppliers of this exhibitor and final
consumers of contractors. In addition, in every logistics system, the organizer
represents helping exhibitors and visitors to interact.
Every exhibitor being an investor, partner, and supplier of the organizer, as well as a
central figure in market logistics systems turns out to be only a link in the platform
system, having ceded part of its focal powers and having transferred its resources
allocated for participation in the trade show to the control of organizer. The latter also
appears in two guises: as a focal company in the platform logistics system and as a link
in all market systems, where it serves agents of the network market, which is formed in
the zone of combining both platform and market logistics systems, i.e. in the field of
harmonization of economic interests of all project stakeholders (Figure 6).
The exhibition project should be managed so that its participants perceive it as a

continuous process of functioning of the network market created, supported, and
controlled by the organizer, so that trade show sessions are organically intertwined with
this process so that the pauses between sessions are filled with remote business
communication with clients that meets their interests. In this approach, the product of
344 Strategica 2020
the organizer's activity is a continuous flow of intermediary services in the sequence of

trade show sessions controlled by the system that provides the organization of flow
processes (Figure 7).
Figure 7. Business process on sequence of trade shows

Network effects and interaction management in exhibition projects
The two-sided positive cross-network effect allows increasing the number of trade show
exhibitors and visitors, contributing to an increase in the intensity of transactions.
However, this effect becomes noticeable when the number of agents is brought to a
specific threshold level for each specific market. This should be a significant number of
agents in the group, the formation of which is associated with serious work by
marketers.
Exhibitors are attracted to the trade show by the prospect of expanding the sphere of
business communication and getting benefits from the promotion and sale of products.
Therefore, promotion of the effectiveness of exhibition marketing should be supported
by increasing the quality of the organizer's services and commercial performance from
one trade show session to another. Much depends on the activity of target visitors,
without whom any exhibition loses its’ significance, and who are not only consumers but
also indispensable participants of exhibition services creation. In addition to traditional
advertising, personal invitations with information about exhibitors and their products
are used to attract visitors. However, the most effective way for the organizer to attract
more visitors is to choose such a pricing strategy, when free of charge access to the
exposition is provided for target visitors at the expense of exhibitors. This technique
allows using a positive network effect to attract agents to the exhibition market (Rochet
& Tirole, 2006). Both theory and practice show that subsidizing visitors pays off by the
increase in market turnover.
Network effects related to the consumption of the organizer's services both cross
(indirect) and one-sided (direct) require increased attention since they affect the
intensity of economic exchanges.
First, it should be taken into account that the two-sided positive cross-network effect is
a manifestation of the positive feedback mechanism of the demand of exhibitors and
visitors for the organizer's services. So on the positive momentum of demand of one
party the other increase, and on negative - decrease in demand. For example, the loss of
a sensitive number of visitors is accompanied by the reduction in the number of
exhibitors, subsequent decrease in the number of visitors, and a further decrease in the
number of exhibitors, etc. The final result may be the termination of the exhibition
project if measures are not taken to slow down the market degradation that has begun.
Secondly, one day a group of exhibitors may reach such a size that it will take up too
much of the exhibition area. As a result, visitors will experience congestion and
darkening of the aisles left for them to move and will feel the negative impact of an
increase in the number of exhibitors due to the negative cross-network effect. After
experiencing inconvenience and spending extra time, some visitors will find the service
unacceptable and refuse to be loyal to this exhibition project. The drop in demand for
the services of the project organizer from target visitors and the corresponding
reduction in their number may be so sensitive that further situation will develop as it
was described in the previous paragraph.
Third, it is necessary to monitor the impact of direct network effects on the content of
the exhibition market sides. Positive effects contribute to the intensification of
transactions between the trade show participants. Potential clients, who never visited
this trade show before, being attracted by the example of colleagues, who have already
become participants, join to market sides. The negative direct effect reveals itself in the
curbing of the intensity of economic exchanges due to a drop in demand for the
organizer's services caused by withdrawal from the project of disappointed and
following their example participants, as well as by the abstention of potential clients
from participation.
Negative network effects weaken the influence of positive ones as the parameters of the
exhibition market approach the limits preventing them from being exceeded.
Discussions
Business models of platform types are in demand now. Using the companies that occupy
minor positions in the markets can become leaders.
Russian exhibition business based on the product business model rapidly developed
until 2008. But today, demand for its services has fallen below the level of 2008 and
lower the supply. This change in external conditions focuses the attention on platform-
based business models, through which the most flexible exhibition companies could
strengthen their positions.
346 Strategica 2020
The results of the research presented in the article are both theoretical and practical.
Along with the conceptual aspects, the economic and technological features of managing
the value creation mechanism that is relevant for the exhibition business practice are
considered. Also, an approach to modifying the business model in accordance with the
strategy of the trade show organizer is proposed. There is also a description of tools for
exhibition managers who have realized the importance of the timely transformation of
their company models to intensify communications and transactions between trade
shows exhibitors and visitors.
The main results of the study can be formulated as follows.
1. In the field of exhibition activities business relationships between direct stakeholders

fit into the format of an objectively existing model, the potential of which is not fully
used. The model has features that make it a two-sided platform: the organizing company
provides intermediary services that make it easier for groups of suppliers and
consumers to engage in direct interaction.
2. The value of an exhibition for one group of its clients is higher, more agents are there
in the other group. The manifestation of this interdependence indicates a two-sided
positive cross-network effect and, consequently, that the exhibition platform is a two-
sided market.
3. As a result of transactions in the network of the two-sided exhibition market the value
is created. To increase its trade show organizer should contribute to committing the
most profitable economic exchanges among participants. This involves the need to
attract the maximum possible number of exhibitors and target visitors to the market.
The organizer can manage the content of the market sides by using a special marketing
toolkit, positive network effects, as well as by setting different prices for its services for
exhibitors and visitors as a means of activating a positive network effect.
4. The toolkit described above allows managers of exhibition organizing companies to

stimulate the filling of network market sides and to help to maximize the benefits of
exhibitors and visitors as participants of economic exchanges. The greater a benefit the
newer agents will come to the market and participate in trade shows to make
transactions.
5. Mobilization of business potential to gradually implement a modified business model

in pilot exhibition projects does not imply to refuse from the product business model. It
can help to keep loyal customers and will prevent an unmanageable cyclical decrease in
the intensity of exchanges.
6. Two-component business model concept provides the opportunity to generate value

using both models. However, in a two-sided market network, the cost can be multiplied
due to positive network effects.
Conclusions
Theoretical implications
As a result of system analysis based on the joint application of tools provided by logistics
theory, platform economics theory, and two-sided market theory:
 the business model of the exhibition company is classified as a multi-sided platform;
 the role of the exhibition business platform model in determining the management
goals and objectives is interpreted;
 the exhibition two-sided network market is classified as a platform two-sided
market;
 a logistics interpretation of the exhibition two-sided market as a product of
harmonization of business interests of two logistics systems created under the
management of the exhibition company is provided;
 regularities of filling the market sides with suppliers(exhibitors) and consumers
(target visitors) through positive external network effects are described.
The concept of a two-component business model is a significant contribution to the

development of the theory of two-sided exhibition markets.
Managerial implications
The practical importance of the research is reflected in the following conclusions

addressed directly to practitioners of exhibition activities:
 due to the processes taking place in the economy, it is advisable for linear exhibition
companies that are striving to develop to adopt platform-type business models;
 currently, the model of the two-sided market offers an approach to solving relevant
for the exhibition business problem of managing the intensity of communications
and transactions between exhibitors and visitors;
 for the practical implementation of such a model, an appropriate platform is needed;
in this case, this role is assigned to the organizer's service, the tangible component
of which is created using a linear business model;
 the practical application of powerful tools in the form of network effects to manage
the intensity of economic exchanges requires the preliminary development of
certain skills; it should be accompanied by careful monitoring of the content and the
interaction of market parties to prevent any undesirable effects promptly.
Limitations and future research
This study is not without limitations. The fact is that the exhibition business is
increasingly using Internet resources, IT systems, computers, video and audio
equipment, cellular telephony, transmitting, and recording mobile devices. There is no
doubt that in the near future, no trade show will be possible without the entire range of
dynamically developing digital solutions and innovative tools, including fifth-generation
wireless communications, big data, virtual and augmented reality, artificial intelligence
and speech bots, the Internet of things, new gadgets and mobile applications, NFC,
iBeacon, RFID technologies, etc.
The rapidly increasing demand for digital toolkit in the exhibition sector in the context
of the digital transformation of the economy should be taken into account when further
348 Strategica 2020
modifying the approach to managing the interaction of exhibitors and visitors of trade
shows, bringing it in line with current trends and the state of the economy. This way
future research will assist in strengthening the business case for managing economic
exchanges in the exhibition two-sided market. Interested scholars are invited to carry
out this further research.
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350 Strategica 2020
HOW ORGANIZATIONS ADAPT TO GLOBAL CRISIS: SHIFTING

THE SOCIAL MEDIA COMMUNICATION APPROACH
Mădălina-Teodora ION
30A Expoziției Bd., 012244 Bucharest, RO
ion.madalina.teodora@gmail.com
Maria-Diana CISMARU
30A Expoziției Bd., 012244 Bucharest, RO
diana.cismaru@comunicare.ro
Abstract
From now on, 2020 will be known as the coronavirus pandemic year. During this time of social
distancing and social isolation, people are spending more time at home, consuming online content,
streaming video, and increasing overall screen time. In this context of global crisis, organizations are
forced to adjust their communications strategies and explore channels they may not have previously
prioritized, like stepping up their social networking sites by increasing social presence or adapting
the content strategy. This research aims to assess the way organizations adapt to the global crisis
and shift the overall communication strategy to a more social approach through social networking
sites. We are interested in analyzing the way organizations react to a global crisis, like the one caused
by COVID-19 if there exists a communication action plan to get in touch with online communities, or
even if the overall workload tends to increase. Also, we would like to take a closer look at the way
communities reacted during the time of the pandemic, if they were more present in online, or even if
they had different questions to ask organizations and brands. To contribute to a better
understanding of the topic, this exploratory study applied a survey instrument based on theories
about social networking sites adoption and crisis communication management. Therefore, we have
invited Romanian Social Media Managers to be a part of the survey and provide input regarding the
use of social media by organizations during the global crisis caused by COVID-19 in the spring of
2020. While no approach could be considered a communication strategy, organizations, in general,
and social media managers, in particular, need to realize that there is an opportunity in the global
crisis and should re-evaluate what communities need and how can they best provide that to them.
Keywords
Uses of social media; crisis communication strategies; global crisis.
Introduction
On 31st of December 2019, Wuhan Municipal Health Commission, China, reported a

cluster of cases of pneumonia (WHO, 2020b). Shortly after, the Chinese authorities
identified a new type of coronavirus, COVID-19, followed by the decision of the Director-
General of the World Health Organization to declare the novel coronavirus outbreak
(2019-nCoV) a public health emergency of international concern, also known as PHEIC
(WHO, 2020a). On the 11th of March 2020, concerned both by the alarming levels of
spread and severity and by the alarming levels of infection, the World Health
Organization characterized the COVID-19 as a pandemic (WHO, 2020b). In Romania, on
26th of February, the officials confirmed the first recorded case of COVID-19 (CNSCBT,
2020), and on 16th of March 2020, due to the increased number of COVID-19 recorded
cases, the president of Romania declared a State of Emergency extended to 15 th of May

2020 (ONRC, 2020).
During the lockdown (16th of March to 15th of May 2020), Romanians were forced to
move their activities to an indoor environment as much as possible, from work tasks
and school courses to hobbies, physical training, and socializing. Therefore, people were
spending more time at home, scrolling down on Facebook, swiping right on Instagram
Stories, streaming video on Netflix, and increasing overall screen time. In April 2020, the
New York Times published an analysis of Internet usage in the United States of America
as the virus spread. The article titled “The Virus Changed the Way We Internet” revealed
that American’s behavior shifted and pushed people to devices for work, play, and
connecting (Koeze & Popper, 2020). Due to the first U.S. COVID-19 death, on the 29th of
February, to 24th of March, the traffic numbers on Facebook increased by an average of
27%, while the consumption of YouTube videos increased by 15.3% on average.
Meanwhile, video platforms like TikTok increased in traffic with an average of 15.4%
and it has continued its steady ascent ever since. Therefore, with the rise of social
distancing, people were seeking out new ways to connect, mostly through social
networking sites (Koeze & Popper, 2020).
In the context of a global crisis caused by the coronavirus pandemic, organizations

around the world were forced to adapt in real-time to the impact of COVID-19;
marketers and public relations specialists were constrained to adjust the
communication strategies and explore channels they may not have previously
prioritized. Due to the increased amount of time people spent on social media, brands
stepped up their social networking sites, increased social presence, or adapted a new
content strategy.
However, the COVID-19 pandemic lockdown is a benchmark in online communication

and an important point of reference in crisis communication strategies. Therefore, we
consider as mandatory a close-up analysis of the way organizations used social media
communication during the lockdown. This study examines how Romanian organizations
responded to the 2020 pandemic lockdown through the adoption of social networking
sites. Based on the conceptual framework proposed by Sinclaire and Vogus (2011), we
asked Social Media Managers to answer some questions about brand communication
during the lowdown to find out either they were passive or active, reactive or proactive,
tactical, or strategic (Sinclaire & Vogus, 2011). Also, the study identifies the social-
mediated crisis management tactics Romanian brands applied during the lockdown
(Cheng, 2016; Kim & Liu, 2012). Ultimately, we consider that our findings are valuable
for academics and communication practitioners trying to understand how organizations
adapt to the global crisis and how the historical moment of COVID-19 shifted the social
media approach and redefined crisis management.
Literature review
Over the last two decades, many academics have addressed the crisis, what it is, how
organizations apply different strategies to manage crises, and what tools can be used to
measure the effectiveness of a crisis communication strategy. As Newsom (2010) stated,
a crisis is an event that dramatically interrupts the normal activity of an organization
352 Strategica 2020
(Newsom et al., 2010). Coombs (2015), on the other hand, defines crisis as an
unpredictable event, threatens important expectancies of stakeholders, and can
seriously impact an organization’s performance and generate negative outcomes
(Coombs, 2015). In the particular case of coronavirus pandemic, organizations all over
the world faced a communication crisis caused by a disaster. Based on Quarantelli’s
(2006) definition, disasters are events that are sudden, seriously disrupt routines of
systems, require new courses of action to cope with the disruption, and pose a danger
to values and social goals (Quarantelli, 2006). For public relations specialists, a crisis is
characterized by an interruption in the normal communication process between the
organization and its internal or external publics (Chiciudean & David, 2011, p. 49). As
Chiciudean and David (2011) stated, when an organization is facing a crisis, its internal
and external communication is more reactive, unplanned, incoherent, and ambiguous
(Chiciudean & David, 2011, p.50).
In the past decades, academics developed several theories and models of crisis
management to help organizations minimize the damage endured through a crisis. In
1995, Coombs developed situational crisis communication theory (SCCT). According to
its theory, when crises occur, stakeholders involved in the crisis made attributions about
the crisis responsibility; basically, depending on the level of responsibilities (high,
medium, or low), different situations would match with the adopted crisis
communication strategy (CCS) (Coombs, 2007). For example, attacking the accuser,
denial, scapegoat, excuse, justification, remind, ingratiation, compensation, and apology
are the crisis response options listed by the author. As the academic stated,
organizations should prioritize protecting the public from harm through instructing and
adjusting information; instructing information notifies the audience what actions they
should take to protect themselves from physical threats generated by the crisis while
adjusting information helps the public cope with any psychological threats generated by
crisis and includes corrective action (Coombs, 2007). However, the SCCT is focused on
the perspective of organizations and uses the general term “stakeholders” to describe
the other key parties (Cheng, 2016). Also, the SCCT doesn’t fully investigate the influence
of new technologies that limit the organization’s ability to control the information flow
(Kim & Liu, 2012) and the impact of the social media adoption in communication crisis
strategies.
The adoption of social media in CCS
The popularity of social media and the increased number of content generation websites
shifted the power balance from organizational to consumer power (Clemons et al.,
2007). The consumers can now express themselves negative or positive impressions
about organizations on social media, without taking for granted what organizations are
posting on Facebook, for example. Thus, social media have shifted the power of expert
and the power of sanction from organizations to consumers, online audiences,
communities, and to people that are spending time in the virtual space of the society.
In this context, Sinclaire and Vogus (2011) have described the adoption of social media
by organizations through a trichotomy perspective: passive or active, reactive or
proactive, tactical or strategic (Sinclaire & Vogus, 2011) (see Figure 1). Therefore, the
two authors have identified eight reasons why organizations are using social media in
their communication strategy for (1) protecting the organization against assaults
(reactive); (2) reinforcing the consumers or stakeholders loyalty to the organization
(proactive); (3) promoting the company, the brand or the product (proactive and
tactical); (4) collecting feedback about a product (strategic); (5) building external
communities (proactive and strategic); (6) building internal communities (proactive
and strategic); (7) promoting a social cause (proactive and strategic); (8) educating
consumers about new products or technologies (proactive and strategic) (Sinclaire &
Vogus, 2011). Based on the conceptual framework proposed by Sinclaire and Vogus, the
adoption of social media implies a dynamic relationship between an organization and
its consumer: if at an individual level the adoption rate of social media increases
(increase the consumer power), then at the organizational level the adoption rate of
social media also increases to outweigh the power won by the consumer.
Figure 1. Classifications of uses of social media

Source: Sinclaire & Vogus, 2011, p. 305
In organizational crisis management, social media was more frequently used than the
traditional one (Kim & Liu, 2012). In their study, Brown and Billings (2013) empower
the function of social media in CCS as being more accurate, transparent, accommodate,
and dialogic (Brown & Billings, 2013). Scholars suggested the following online CCS: (1)
utilize the interactivity of social media by creating dialogues with stakeholders; (2)
paying more attention to citizen-generated content; (3) adopting stakeholder desired
strategies; (4) cultivating opinion leaders on social media; (5) creating texts, pictures or
videos online in the same way for organizational legitimacy (Choi & Lin, 2009; Stephens
& Maline, 2009; Veil & Yang, 2012).
From an organizational perspective, Taylor and Perry (2005) proposed the following
five best practices in social-mediated crisis management: online chatting, dialogic
communication, connecting links, real-time monitoring, and multi-media effects (Taylor
& Perry, 2005). On the other hand, Kim and Liu (2012) revised the instructing and the
adjusting information crisis responses proposed by Coombs (Coombs, 2007) and added
the following two new strategies: (1) enhancing as telling stakeholders about an
organization’s “current” instead of past good works and (2) transferring as used to
transfer third party credibility onto organization themselves by supporting a credible
third party crisis responses (Kim & Liu, 2012).
354 Strategica 2020
Reviewing crises and CCS in the social-mediated crisis management (SMCM), Cheng
(2016) proposed an interactive crisis communication model on social media by
integrating five main crisis responses: base, denial, evasion, justification, and concession
(Cheng, 2016). Based on this framework, social media channels are the binder between
an organization and its stakeholders and work as interactive platforms for both parties
during a crisis; a long-time “positive dialogue” is recommended between organization
and stakeholders by connecting links with the third credible party and expecting that
the more positive dialogue is, the more likely a high level of crisis communication
strategy effectiveness can be achieved (Cheng, 2016).
Crisis communication theories provide a comprehensive framework for organizations

to effectively respond to crises. All basic strategies are required for all crises because
they meet the organization's fundamental ethical responsibilities for crisis responses
(Coombs, 2007). On the other hand, monitoring, analyzing, and understanding
stakeholders' needs and desires in crisis might be the first step before making any
decision of crisis responses (Cheng, 2016). Also, crises often create opportunities for
organizations for the rapid adoption of new communication technologies (Kim & Liu,
2012), driven by the desire to outweigh the power won by the consumer in using social
media communication during lockdown times, for example. Therefore, to identify how
organizations adopted social media channels during the COVID-19 lockdown
communication crisis, we ask:
RQ1: During the lockdown crisis, Romanian brands have been passive or active
in adopting social media communication?
RQ2: During the lockdown crisis, Romanian brands have been reactive or
proactive in adopting social media communication?
RQ3: During the lockdown crisis, Romanian brands have been tactical or
strategic in adopting social media communication?
Our intent for this study is to create a liaison between crisis communication strategies
(Brown & Billings, 2013; Cheng, 2016; Coombs, 2007; Kim & Liu, 2012; Taylor & Perry,
2005) and the adoption of social networking sites theory through the conceptual
framework proposed by Sinclaire and Vogus (2011). Finally, we pursuit to bring a new
perspective on the theory of social media adoption impact on crisis communication
strategies.
Methodology
To find the answers to our research questions, we developed a survey instrument based
on the function of social media in crisis communication strategies and the derived list of
purposes in the adoption of social media generated in the study of Sinclaire and Vogus
(2011, p. 300). Because there is no previous study applying the purposes in the adoption
of social media to a situational crisis, this study operationalized the purposes of social
media organizational communication during the COVID-19 pandemic lockdown based
on the following characteristics of the social media use: passive or active, reactive or
proactive, and tactical or strategic (Sinclaire & Vogus, 2011) (see Table 1). Nineteen
items were included in the survey to measure these three complement variables.
An extensive search on LinkedIn of Romanian Social Media Managers resulted in 61

valid names of people having a current position as a social media manager, head or
coordinator of the social media department, social media specialist, social media content
manager or social media community manager, working in public relations agencies,
advertising agencies or coordinating the social media communication from within the
organization. These social media managers were invited by LinkedIn private messages
to complete the survey and provide input about the use of social media channels by their
managed brands during the Romanian lockdown (16th of March – 15th of May 2020).
Table 1. Purposes in the adoption of social mediaduring pandemic lockdown

Passive Active Reactive Proactive Tactical Strategic
1. Didn’t 1. Increase 1. Defend 1. Encourage 1. Promote 1. Support
communicate reputation the brand consumer to brand and medical staff &
about COVID- management against stay home products system
19 attacks
2. Stopped the 2. Info about 2. Support 2. Educate 2. Promote the 2. Support
communication brand’s brand’s consumers to benefits of the victims and the
during the activity during stand protect products families of the
lockdown the lockdown towards themselves by victims
COVID-19 using masks,
pandemic washing
hands, etc.
3. Info about 3. Support 3. Timeline 3. Info about
brand’s brand’s contests, gift future plans
protective stand cards,
measurements towards a giveaways
generated
situational
crisis (e.g.
the lack of
yeast)
4. Info about 4. Encourage 4. Third party
the safety in consumers to communication
using brand’s buy online through
products influencers
5. Info about 5. New CSR
past CSR campaigns
campaigns
6. CTA for
picking the
favorite product
The results are reported in the section below. 35 top-level social media managers
responded to survey questions, cumulating 157 brands from industries like food and
drinks, fashion and beauty, technology, health, entertainment, financial, automotive, or
education. Additionally, we mention IBM, Ikea, Heineken, Ford, Nestle, or Dr. Oetker as
the top brands whose social media communication was managed by our respondents
during the pandemic lockdown.
Findings and discussions
As shown in Table 2, 97.1% of respondents have declared they used Facebook, 94.3%
used Instagram, 60% of them used LinkedIn and 60% used YouTube in maintaining the
356 Strategica 2020
communication with strategic publics during the pandemic lockdown, while Twitter,
Pinterest, and TikTok were the least used social media channels.
Table 2. Adoption of social media channels during the pandemic lockdown

SM channel N = 35 (157 brands) Percentage
Facebook 34 97.1%
Instagram 33 94.3%
LinkedIn 21 60%
YouTube 21 60%
Twitter 3 8.6%
TikTok 1 2.9%
Twitter 1 2.9%
As Socialbakers data report revealed at the end of Q1 (Socialbakers, 2020), many people
were forced to stay indoors and, as a result, spent more time online, generally, and on
Facebook and Instagram, particularly. For example, Socialbakers reported that the peak
usage time on March Friday nights compared to February increased by 13.2% and on
Saturday nights it increased by 14.8%. These numbers are also reflected in the data
provided by this study’s respondents, who stated that, during the pandemic lockdown,
brands have focused their social media communication actions on Facebook.
“Facebook was the main communication channel, while Instagram was lower-
ranking.” – Respondent 12
“Facebook was more used than Instagram; it was the first channel communities
used in searching for official information and brand statements.” – Respondent
22
As declared by this study’s respondents, during the lockdown, Facebook has become an
important news source; communities and people were searching for official information
about the coronavirus outbreak and the protective measures against COVID-19 taken by
organizations. As a result, Romanian brands paid increased attention to communication
with strategic publics through their Facebook pages.
Table 3. The volume of community management during the pandemic lockdown

Received private Received Reply private Reply
Volume
message comment message comment
Decreased 2 (5.7%) 4 (11.4%) 1 (2.9%) 2 (5.7%)
Unchanged 7 (20%) 14 (40%) 15 (42.9%) 17 (48.6%)
Increased 26 (74.3%) 17 (48.6) 19 (54.3%) 16 (45.7%)
Before answering the research questions, we consider it important to highlight the

increased work volume during the pandemic lockdown. As shown in Table 3, 74.3% of
respondents declared that the volume of private messages received by brands increased
considerably, while the volume of comments received by brands on their social media
channels also increased, as 48.6% of respondents declared.
These numbers are strengthened by the answers given by respondents to the open-
ended question about the impact of coronavirus on social media content creation and
community management. As they reflected, the overall work volume increased during
the lockdown; because people spent more time online, brands increased the content
volume (total number of posts in social media), the rate of engagement through private
messages or comments, the communication strategy was adapted to the new global
crisis context and brands revised their overall messages addressed to strategic publics
through social media channels. Basically, the coronavirus global crisis forced brands to
change the way they use to reach communities and adopt real-time communication,
more dynamic and unpredictable.
“Brands confidence in the power of social media communication increased.

Before the lockdown, there were some reservations about promoting some
financial products on Facebook. During the pandemic lockdown, Facebook
became the main communication channel. Overall, the total number of private
messages increased by approximately 300% compared to the previous period,
November 2019 – March 2020.” – Respondent 5
“Brands adapted the monthly content plan to the lockdown context and
encouraged consumers to stay home.” – Respondent 30
“This period shifted the brands' attention from content creation to customer
support.” – Respondent 6
Therefore, social media engagement rates increased for both communities and brands.
During the lockdown, brands adjusted their communication and started posting more
about the coronavirus context, while users approached brands more through private
messages and comments, forcing organizations to quickly address the publics' primary
needs and reassure stakeholders that their safety is a priority.
Adoption of social media during the pandemic lockdown
The following tables present results on how brands adapted and used social media
communication during lockdown (see Table 4, Table 5, and Table 6). Few social media
managers declared their brands chose to adopt passive communication during the
lockdown (8 out of 35), mainly preferring to provide consumers information about the
brand’s activity during the lockdown and the overall safety measurements in using the
brand’s products. The data collected suggests as a first conclusion that brands primarily
adopted an active communication in social media during the pandemic lockdown,
choosing to view the coronavirus pandemic outbreak as an opportunity to build
stronger relationships with strategic publics.
Additionally, Table 5 reflects a more reactive approach by brands in using social media
communication during the lockdown. As previously suggested, the coronavirus
pandemic was an unprecedented moment in the history of global crisis communication
strategies. Due to the overwhelming global outbreak and the decision to lockdown,
brands were constrained to react quickly and release an official statement to inform the
public about how brands plan to solve or prevent problems caused by the pandemic
crisis.
Table 4. Passive vs. Active approach

Passive/Active N = 35 (157 brands) Percentage
slightly passive 27 77.1%
passive 8 22.9%
358 Strategica 2020
slightly active 12 34.3%

active 23 65.7%
Table 5. Reactive vs. Proactive approach

Reactive/Proactive N = 35 (157 brands) Percentage
slightly reactive 11 31.4%
reactive 24 68.6%
slightly proactive 15 42.8%
proactive 20 57.2%
Table 6. Tactical vs. Strategic approach

Tactical/Strategic N = 35 (157 brands) Percentage
slightly tactical 13 37,2%
tactical 22 62.8%
slightly strategic 16 45.7%
strategic 19 54.3%
Finally, in contrast to the strategic use of social media during the pandemic lockdown,
respondents declared a tactical, less integrated approach in the brand’s adoption of
social media communication (see Table 6). Consequently, brands posted about products
and the benefits of the products encouraged consumers to buy online and have done
little to establish a two-way dialogue with communities. By contrast, 19 out of 35
respondents declared brands adopted a strategic social media approach during
lockdown by expressing sympathy and support for medical staff, victims, or families of
the victims. Besides, 18 of the respondents declared their brands launched new CSR
campaigns during the lockdown, mostly by donating money for hospitals and NGOs to
enhance brand position to the situational crisis caused by a coronavirus. As a final
conclusion, it’s not improper to admit that, during the pandemic lockdown, Romanian
brands tended to focus mainly on reputation management.
Conclusions
As mentioned before, the historical moment of the coronavirus pandemic shifted the
social media approach and redefined the way brands respond to crisis management.
During the lockdown, people spent more time online, building relationships with
families, friends, work colleagues, brands, or institutions through social media channels,
streaming video, and increasing overall screen time. Forced by the increased expert
power and sanction power gain by consumers using social media sites (Sinclaire &
Vogus, 2011), brands tried to counterbalance the shifted communication through a
more active approach.
Through this study, 35 Social Media Managers provided input about the use of social
media channels by 157 brands active in Romania during lockdown (16th of March – 15th
of May 2020). As the results showed, Facebook was the most used social media site,
followed by Instagram, LinkedIn, and YouTube. During the Romanian lockdown, Social
Media Managers reported an increased work volume, including tasks as content
creation, community management, monitoring, and reporting. This increased volume of
work for all social media managers can be easily correlated with the overall social media
insights, which reported higher engagement numbers on Facebook, Instagram, or
TikTok during the pandemic lockdown (Koeze & Popper, 2020; Socialbakers, 2020).
Therefore, the coronavirus global crisis forced brands to change the way they used to
reach communities and adopt real-time communication, more dynamic, and
unpredictable.
To answer the research questions (RQ1, RQ2, and RQ3) and because there was no
previous study applying the purposes in the adoption of social media to a situational
crisis, this study operationalized 19 purposes of social media organizational
communication during the COVID-19 pandemic lockdown based on the following three
complement characteristics of social media use: passive or active, reactive or proactive,
and tactical or strategic (Sinclaire & Vogus, 2011). As the results showed, during the
pandemic lockdown, Romanian brands generally used active, reactive, and tactical
approaches in their communication with strategic publics. Thus, brand communication
was led more by the pressure to react instantly and to reduce psychological stress
(Coombs, 2007) and less by their genuine desire to reassure stakeholders that their
safety is a priority and that all necessary actions are taken to provide comfort and
security during these unprecedented times. Even so, by increasing the use of social
media communication during the lockdown, Romanian brands tended to focus more on
reputation management by enhancing their own good deeds during coronavirus
pandemic.
The historical moment of COVID-19 forever changed how social media managers reach
communities and redefined crisis management for many organizations from many
industries. In this pandemic context, organizations and brands should prepare today for
tomorrow, for the unpredictable road ahead.
Limitations and future perspectives
A few limitations to the current study must be mentioned. A first potential limitation
refers to the sample structure. As reported in the above sections, only 35 Social Media
Managers responded to our survey, cumulating a total number of 157 brands (an
average of ±4.5 brands managed by each responded). This could be a potential problem
as the respondents might have preferred to choose a general answer to the questions
and therefore lose sight of some specific aspects of the matter. However, the purpose of
this study is to report an overview of how organizations have managed communication
with their online communities during the lockdown. By and large, we consider the
purpose of this academic research paper to be achieved.
The second limitation refers to the necessity of approaching a more complex evaluation
of the responses. As mentioned before, the results of this study provide answers only to
the research questions. But we consider it important to mention the fact that some other
correlations with the domain of activity or other characteristics of the brands could be
integrated into the research instrument to provide an extended discussion and
implications. We will consider this aspect as a future research perspective to add value
to the way organizations have adapted their communication strategy to the pandemic
global crisis.
360 Strategica 2020
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362 Strategica 2020
THE AUGMENTED REALITY AS A SALES PROMOTION TOOL

Marcelo VALLE
Faculty of Engineering of the University of Porto
marcelovalle@marcelovalle.com
Nuno MOUTINHO
Faculty of Economics and Management of the University of Porto
moutinho@fep.up.pt
Rui RODRIGUES
Faculty of Engineering of the University of Porto
rui.rodrigues@fe.up.pt
Abstract
This article addresses the use of augmented reality content as a part of the point of sale promotion
strategy. The main research question is to determine whether the use of an application with
augmented reality can facilitate the visualization and localization of the promotions available at the
physical point of sale and, consequently, influence the shopping experience. To answer this question,
an application was created with augmented reality content, so that it can measure the influence that
this technology can have on the perception of promotions within stores. The general objective of the
study is to identify whether the use of this application, in the context of supermarkets, could facilitate
the visualization and localization of promotions in comparison with conventional disclosure
approaches. Based on a literature review with authors from different areas, this article summarizes
an ongoing investigation and at the end details the future steps of the research.
Keywords
Augmented reality; merchandising; promotion; interaction design; advertising; human-computer-
interaction.
Introduction
The environment provided by the points of sale, usually called the shopping atmosphere,
is strongly linked to consumer perceptions (Pizzi, Scarpi, Pichierri & Vannucci, 2019). In
the purchasing process, the impulse is a strong internal stimulus that leads to action.
Due to impulse purchases, the consumer is seen by the seller as an individual driven by
perceptions. In this context, points of sale use promotion strategies to try to seduce and
persuade people to consume the products on display (Friestad & Wright, 1994). This
practice can encompass any technique, action, or promotional material used at the point
of sale that provides better information and visibility to products and brands, to
influence perceptions and induce purchase. Using information technology tools as a
differential for the resulting decisions becomes more frequent in the market, and using
them efficiently in the merchandising strategy can captivate and conquer the consumer,
value the product or service, ensuring the marketer a better highlight of their
promotional actions. Following this reasoning, it can be said that technologies such as
augmented reality (AR), if properly applied to the commercial and marketing context,
can generate a disruptive revolution in the way products are presented to the consumer
in the shopping atmosphere. The flood of mobile devices in the market and the
abundance of information available to each individual have been completely

reformulating communication, uses, and consumer attitudes (Vilkina & Klimovets,
2020). Due to these perspectives, this article addresses the use of content in AR as part
of a promotion strategy. The main research question is to determine whether the use of
an AR application can facilitate the viewing and location of promotions available at the
physical point of sale and consequently influence positively the shopping experience.
Due to the pandemic, it was not possible to conclude the empirical part of the study.
To answer this question, an AR application has been created so that the influence that
this technology can have on the perception of promotions within the point of sale can be
measured. Strategic points in the aisles of a supermarket of a large Portuguese chain will
receive an AR marker. By pointing the device at those locations, the user will see the
promotional content related to the products in highlight, with AR. In this survey, two
homogeneous groups will be analyzed. The first group will receive the experimental
condition, i.e., they will use the AR application developed for this project, while the
second group will serve as a control and will walk the aisles of the supermarket and
visualize the products without receiving this stimulus. The statistical analysis of
questionnaires applied to the participating consumers will allow identifying possible
behavioral differences between groups. Finally, questionnaires will also be used,
exclusively with the experimental group, to evaluate the usability of the application to
be developed.
Literature review
Augmented reality-based computer interfaces have been used in a variety of areas.

Initially, AR was used at the points of sale for product advertising. As an example, we
can mention the markers, or QR codes of AR printed on product packaging, where the
consumer, to observe the manufacturer's message in three dimensions, could access the
product page on the Internet by placing the marker in front of the computer camera or
mobile device. But today, where the market trend is to become increasingly intelligent,
the prospects of using AR are numerous.
According to Dacko (2017), the point-of-sale scenario is being challenged to become

smarter and provide greater value to consumers and marketers. An increasingly
recognized approach with the potential to enable the smart point of sale is AR
applications for mobile devices. According to Javornik (2016), AR has emerged as a
relevant interactive technology in the marketing environment and it is increasingly used
in the point-of-sale context and often developed as smart device applications.
However, the literature on the use of this technology as a merchandising tool at the point
of sale is not very extensive. Therefore, we combine several works from different areas
of knowledge. According to Scholz and Smith (2016), the growing media coverage on AR
reflects its emerging ubiquity. AR has been discussed in trade publications, business
magazines, and national newspapers, but so far has received little attention from
marketing academics.
According to Javornik (2016), AR technology has been extensively researched in the

areas of information technology and human-computer interaction (HCI), where the
364 Strategica 2020
most relevant definitions have also been developed. Höllerer and Schmalstieg (2016,
p.3) and Billinghurst, Clark, and Lee (2015, p.77), refer that the most widely accepted
definition was proposed by Azuma (1997): AR is defined as any system that has the
following three characteristics: combine real and virtual; be interactive in real-time; be
registered in three dimensions.
According to Javornik (2016), AR has emerged as new interactive technology and its
unprecedented way of complementing the physical environment with virtual
annotations offers innovative ways to access commercially relevant content. However,
little is known about how consumers respond to its features. Based on these facts, which
highlight the lack of understanding of consumer behavior regarding the technology of
AR, this study sees how important it is to analyze the factors that influence the consumer
in the decision to buy at the point of sale.
According to Solomon (2002, p.171), the choice of product in the normal purchasing
decision process can be influenced by previous purchasing experience, tips from friends
or acquaintances, and information that appears at the time of purchase. Dacko (2017)
suggests that the trend is for applications with AR to become popular because user
satisfaction is relatively high and its use provides systematic experimental benefits as
well as advantages for traders. The author also states that its use is positively associated
with multiple consequences at the point of sale. AR applications are seen as an element
that is changing consumer behavior and are associated with ever-higher evaluations by
the retailers who offer them.
For Javornik (2016), AR has the potential to change a large number of consumer
activities, including information research and product experimentation. As its use
increases, there is a growing need to better understand its impact on consumer behavior
and the experience it provides. With this knowledge, marketing professionals can better
understand how AR can be used as a tool in various shopping channels for specific
purposes. Vilkina and Klimovets (2020) argue that AR expands and supports business
efforts in promoting its products by providing contextual links between their offer to
consumers, online resources, and points of sale. In the same line of thought, Phunsa
(2019) argues that retail business owners are using AR technology for marketing their
online shopping as a tool to help the customers simply make their buying decision in the
future. For Mowen and Minor (2003, p. 7), consumer analysis should be the foundation
of marketing management. It helps managers to: develop the marketing mix; segment
the market; position and differentiate products; analyze the environment; develop
market research.
To attract and persuade the consumer, within the point of sale, the use of marketing, and
the tools that complement it, i.e. the marketing mix, is fundamental. According to Kotler
(2000, p.37), marketers use several tools to get the desired responses from their target
markets. These tools constitute the marketing mix. Among existing marketing and
communication strategies, merchandising is the one that is closest to the audience and
most directly interacts with them. Called by some authors as "point-of-sale advertising",
merchandising has dynamic and lively characteristics making the product practically
offer itself to the consumer. Merchandising is a marketing activity that is aimed at
driving goods through the point of sale. According to Las Casas (1993, p.264), the
American Marketing Association defines merchandising as "the planning operation
necessary to put the right product on the market, in the right place, at the right time, in
the right quantity and at the right price”.
According to Blessa (2001, pp.2-4), the difference between merchandising and sales
promotion is that the promotion is done for a certain time while merchandising is
constant. According to the author, a sales promotion does not have to identify with the
company's image; it has to sell the product at that time. However, a merchandising
material has to be strictly following the philosophy and concept of the brand or
company, so as not to break the unity in the communication elaborated. For Blessa
(2001), merchandising can be understood as the sum of promotional actions and point
of sale materials. For this author, it should be clear that merchandising is above sales
promotion and uses it to accomplish her action. Merchandising actions, when well
developed, constantly applied and correctly exploited, constitute the final stimulus
necessary for the purchase to take place. Without a doubt, it is the effective weapon the
product has so that the consumer decides for his brand and does not acquire the
competing brand. According to Blessa (2001, p. 1-7), the practice of merchandising can
encompass any technique, action, or promotional material used at the point of sale that
provides better information and visibility to products and brands, to influence purchase
decisions. Following the authors' reasoning above, it can be said that the use of
techniques with the use of AR, if properly developed and executed, can generate an
experience of innovative interactivity in the contact between the consumer and the
product in the purchasing atmosphere.
According to Poushneh and Vasquez-Parraga (2017), AR significantly shapes user

interactivity, interfering with various characteristics of product quality, and that
interactivity subsequently influences user satisfaction and willingness to buy. Martins
(1995, p. 17) states that "people go shopping after emotion, not that they are irrational,
but it is an emotion that gives meaning to the purchasing decision”. According to
Poushneh (2018), applications with AR focused on commerce, allow customers to
become intelligent buyers, having access to product information, available promotions,
coupons, etc. Thus, these applications help buyers make their purchasing decisions. For
Dacko (2017), although they receive less attention in the literature and industry studies,
applications with AR can add value to store marketers due to the applications' ability to
demonstrate the marketer's promotions through the content created and thus support
the customer's purchasing decisions; interactively offering customers elements of
surprise to entertain and encourage additional interaction; creating experiences that
shoppers will share in their networks as a result of the novelty of the AR application,
where the viral outcome would be a major attraction in the market; gathering
information about customer preferences; supporting multi-channel shopping; and
providing a higher level of perceived service. Qiao, Ren, Nan, Liu, Dustdar, and Chen
(2019) argue that, due to the newly emerging 5G cellular networks, the mobile AR
technologies will have the potential to become a practical and pervasive solution that
can effectively scale to millions of end-users. Therefore, the importance of this subject
will increase in the future. According to Kotler and Armstrong (2012, p.392), point of
sale technologies has become extremely important as competitive tools. Progressive
merchants are using advanced IT systems and software to produce better forecasts,
control inventory costs, interact electronically with suppliers, send information
between stores, and even sell to customers within stores. According to Scholz and Smith
(2016), major business companies like Coca-Cola, McDonald's, and General Electric have
366 Strategica 2020
already adopted the AR in their marketing programs. They have used AR to create
interactive packaging and advertising, enhance the physical point of sale experiences,
and develop attractive games. These types of initiatives, using AR, already allow
marketers to create immersive narratives and enable consumers to experiment with
products and spaces in new ways. According to Martins (1995, p.14), the company has
two distinct functions, one is to communicate the advantages of its product (rational
marketing), the other is to create an atmosphere of enchantment, the soul, which
stimulates imagination and identification with the consumer. For Aaker and
Joachimsthaler (2000, pp.9-21), the dissemination of extensive information, especially
through media advertising, is unable to reproduce the impact of the client's personal
experience with the brand. This author states that consumer experiences related to the
brand, generally experienced in the store or at sponsored events, create a relationship
that goes beyond loyalty.
Traditional media induce a purchase, but the decision is made in contact with the
product at the point of sale. Therefore, all the support materials available to compose
the promotional strategy at the point of sale should be seen as attractive to the
consumer's perception, consequently, they become sales drivers for the entire trajectory
of this product at the point of sale. According to Blessa (2001, p.11), "visual perception
is the foundation of any marketing effort to position a brand". These data seem to
confirm the Law of Perception, established by the authors Ries and Trout (1993, p.18):
"Marketing is not a battle of products. It is a battle of perceptions". For these authors,
just as nature and physics have laws, so does marketing. The Law of Perception says that
all truth is relative and that people have a sense of personal infallibility. This law states
that truth and perception merge in the mind so that there is no difference between the
two. "There is no objective reality, there are no facts, there are no products. All that
exists in the world of marketing, are the perceptions in the minds of customers, the rest
is an illusion".
The consumer, due to impulse purchases, is seen by commerce as an individual driven

by perceptions. For this reason, this article suggests that point-of-sale merchandising
tactics would be strengthened by the interactivity of applications with AR, creating an
innovative way to attract consumer attention. "This technology should have a great
impact on people's relationships, through new ways of performing visualization,
communication, and interaction with people and information" (Kirner & Siscoutto,
2007, p.11). More recently, Chylinski, Hilken, Heller, Keeling, de Ruyter, and Mahr
(2020) point out that recent advances in AR technologies have led to a growing interest
in their application for marketing strategy and practice. Nevertheless, according to these
authors, managers and academics struggle to articulate how these technologies deliver
experiences that are valuable to customers. This is the main investigation question of
this research: see if an app using AR can improve the buying experience to consumers.
Methodology
The rapid evolution in the development of new technologies, substantially with regard
to smart mobile devices, ended up generating an abundance of available information
that has been changing consumer attitudes. These behavioral changes are making the
public increasingly demanding with regard to the shopping experience. Thus, new
technologies bring challenges to solve new problems generated by these new
requirements. In the context of supermarkets, this research aimed to identify such

problems, which involves the difficulties that people have in finding and viewing
products with promotions at points of sale. Such problems occur due to several factors,
such as:
- Due to a large number of products and promotions available in the store.
- Inadequate display of products and promotions on the shelves.
- Visual pollution in the presentation of prices and promotions.
- Lack of standardization in the layout of supermarket chain points of sale.
To solve these issues, this investigation proposes the hypothesis that an application with
content in augmented reality could provide easier to find and view promotional
information compared to conventional approaches used in the market, such as printed
price tags and promotional posters, and consequently influence positively the shopping
experience.
Based on specific methods of the areas of human-computer interaction and interaction

design, the persona-based scenario methodology was used to formulate this hypothesis.
The concept of personas consists of the use of fictional characters, created from the
analysis of the behavior of the target audience. According to Cooper et al (2014, p. 46),
the persona hypothesis is a first attempt to define the different types of users and
consumers of a product. This is because designers and developers must capture a variety
of user behavior in relation to a product, and it is essential to identify a specific and
diverse range of users and types of users. For these authors, the persona hypothesis tries
to address, at a high level, these three issues:
- What different types of people can use this product?
- How can your needs and behavior vary?
- What ranges of behavior and types of environments need to be explored?
Therefore, to raise the hypothesis of this research, and subsequently validate it, there
was a preliminary study that served to outline the personas profile and support the
elaborated interaction design proposal.
The data gathering of the preliminary study was made with 26 people, with two groups
in different contexts, where 14 consumers answered a questionnaire inside a large
supermarket, in the city of Santa Maria da Feira, and the other 12 people answered the
same questionnaire on the streets of the city of Braga. The main highlights raised were
important to characterize the personas and direct this investigation.
When asked about which product information is the most interesting, most participants
considered the price to be the most relevant information, according to 53.8% of the total
(Table 1). Another data that drew attention is the fact that all 14 people, who answered
the questionnaire inside the supermarket, would like to see the promotions better, that
is, 100% of the participants in the survey within the supermarket (Table 2).
In addition, in the questions regarding the possible functionalities of the application, was
found that 100% of the participants considered reasonable or very important to have a
tool in the application that makes possible to find promotions more easily within the
supermarket (Table 3). Eight of these participants, a percentage of 30.7%, consider it
368 Strategica 2020
reasonable and 18 people, or 69.2% of the total, consider the existence of such a tool as
very important.
Table 1. Consumer habits - Product information

Regarding product
information, which of Street Supermarket Total
the following are of
your greatest
interest? n % n % N %
Origin 2 16,6% - - 2 7,6%
Nutritional info 4 33,3% 6 42,8% 10 38,4%
Ingredients - - 4 28,5% 4 15,3%
Price 6 50% 8 57,1% 14 53,8%
Brand - - 6 42,8% 6 23%
Production Methods - - 2 14,2% 2 7,6%
Table 2. Consumer habits - Promotions
Would you like to see Street Supermarket Total

promotions in the
supermarket better?
n % n % N %
Yes 4 33,3% 14 100% 18 69,2%
No 8 66,6% - - 8 30,7%
Table 3. Assessment of the relevance level of the app's features - Promotions

Find promotions Street Supermarket Total
more easily inside
the supermarket. n % n % N %
Nothing important - - - - - -
Reasonable 8 66,6% - - 8 30,7%
Very important 4 33,3% 14 100% 18 69,2%
Notwithstanding, it was also found that of these 18 people, 14 of them were part of the
group of participants in the survey within the supermarket. In other words, again 100%
of the participants in the survey realized inside the supermarket showed that they were
extremely interested in the promotions. This suggests that the consumer really has a lot
of interest in the promotions, wants to view it in a better way, and thinks that is
important, or very important, the existence of a tool that makes it easier to find them.
The fact raised within the supermarket, which indicates consumer great interest in
promotions, was one of the determining factors to direct the research specifically
towards prices and promotions, thus collaborating not only to formulate but also to
validate the main hypothesis raised by this investigation.
After the qualitative and preliminary study, the focus of the investigation becomes an
experimental and quantitative survey, where two homogeneous groups of consumers
will be evaluated. The first group will receive the experimental condition, i.e., they will
use the AR application developed for this research, as shown in Figure 1, while the
second group will walk the aisles of the supermarket and visualize the products without
receiving this stimulus. In the end, the results obtained with the two groups will be
compared to evaluate the behavioral differences in relation to the promotional strategy
of the products. The context of the research will involve a supermarket of a large
Portuguese chain.
Figure 1. Viewing the promotions on the shelves when using the application
Participants in the study will be the consumers present at the observed points of sale.
The selection of participating consumers will not be made randomly. To identify the
target audience, an initial survey was conducted to stipulate personas who have a
favorable acceptance profile for the use of the technology and who are frequent buyers
in supermarkets.
The questionnaires elaborated will be the main instruments of this research and will be
applied to consumers participating in the study. Initially to identify the target audience
and select the participants and later to collect the necessary data to make the
comparative analysis between the experimental group and the control group. Finally,
questionnaires will also be used, exclusively with the experimental group, to evaluate
the usability of the application developed.
To collect the data needed to conduct this research, it was fundamental to develop a
mobile application, where the content in AR will be displayed. The mobile phone
application is a material developed to present the promotional content of some
supermarket products, in AR, on the device screen (Figure 2). The application interface
was developed with Unity3D software, which is one of the most popular game engines
nowadays. In the development was used the programming language C Sharp, together
with the framework of Vuforia SDK, which makes possible the creation of content in AR
370 Strategica 2020
in the application. The application works on Android and IOS operating systems, which
are currently the most widespread on mobile phones.
Figure 2. Image of the application in the test environment
Future procedures
The follow-up of the research will involve a series of tests with the application developed
that will present the promotional content, with AR, to the consumer. Exhaustive tests
will be carried out to determine the suitability of the application for the study. After the
appropriate tests with the software, field research will begin, where each individual in
the experimental group will use a mobile phone, with the application developed for this
study, to assist in making their purchases inside the supermarket. Strategic points in the
supermarket aisles will receive an AR marker. By pointing the device to these locations,
the user will see highlighted brand information as well as prices and promotions of the
goods. In this way, it will be possible to analyze consumer behavior, in relation to the
communication created in AR, and raise important information that will help to answer
the questions of this investigation. In the next step, questionnaires will be applied to
consumers at the points of sale observed to collect the data seen as necessary to perform
the comparative analysis between the experimental group and the control group.
Afterward, a questionnaire with questions with scales of answers will be used,
exclusively with the experimental group, to evaluate the rates of communicability,
interactivity, and functionality of the application with created AR. Initially, the collected
data will be tabulated and organized based on descriptive statistics techniques.
Inferential statistics will be used to identify possible behavioral differences between the
analyzed groups and the probability that these differences occurred by chance or
because of the stimulus produced by this study. We formulate two hypotheses: the AR
app facilitates the visualization and the location of promotions available at the points of
sale; AR will influence positively the buying experience.
Conclusion
The use of AR in commerce and advertising is a new field of study and technological
advances in holography indicate that, in the near future, contents in AR may be projected
inside and outside the points of sale to generate brand and product advertising.
Furthermore, devising scenarios where the user can interact with the generated virtual
content, even if it is still necessary to be holding a device in hand, can be of great
contribution to the future study of merchandising action-oriented marketing,
specifically, using AR as a new way to attract and persuade the consumer inside the
points of sale.
Furthermore, recent research suggests that the consumer experience with AR should be
more hedonic than utilitarian, especially during the initial episodes of technology, and
that the affective component plays a stronger role in conducting behavioral responses
than cognitive ones. These assumptions are based on the results of previous research
and need to be empirically tested in future studies. This study aims to use an approach
that is more utilitarian than hedonic. As AR technology in marketing is currently
evolving at a high speed, future developments are likely to go in different directions.
Thus, further investigation of this new form of human-computer interaction, which
brings significant challenges for consumer studies, is needed, where further
investigation of the research issue raised in this article could be quite enlightening. The
answer to this question would expand our existing knowledge and allow marketers to
design AR campaigns more efficiently.
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THE ROLE OF THE DIGITAL CUSTOMER IN THE CONTEMPORARY

MARKET. ASPECTS OF TRUST, RISK, AND SAFETY
Wioleta WEREDA
Military University of Technology in Warsaw,
Faculty of Security, Logistics and Management
2 Gen. Sylwestra Kaliskiego St., 00-908 Warsaw, PL
weredawioletta@tlen.pl
Natalia MOCH
Military University of Technology in Warsaw,
Faculty of Security, Logistics and Management
2 Gen. Sylwestra Kaliskiego St., 00-908 Warsaw, PL
moch.natalia@gmail.com
Abstract
At the end of the twentieth century, the whole world was enveloped in a turbulent birth and
continuous improvement of a new means of interpersonal communication, a change that darkened
previous revolutions - the Internet. The nature of the computer has changed from a tool used to
control information to a device for exchanging information as well as promoting and selling
products. Interactive multi-media applications and the Internet create opportunities for new
businesses, ideas, for entire economies, operating through a network of all human thoughts and
intelligence. The market created a new type of customer – a digital one. The world is striving to
implement the vision of digitizing every level of the lives of consumers and enterprises. The
consequence of this is the phenomenon of software domination over the human mind. It is the concept
of the Internet of Things - connecting all possible devices to improve communication, data exchange,
and intensify this process. These activities were also incorporated into people who have already
exchanged information, established contact in a quick, and, above all, inexpensive manner (Skinner,
2018, p. 296), and can buy everything on-line. This is a theoretical and empirical article and its
objective is to show the role of the digital customer in the market, especially focusing on trust, risk,
and safety in the network. The article tries to answer, among many others, the following questions:
1. How can “digital customer” be defined?; 2. What is the basic element of a customer`s trust?; 3. What
are the determinants of digital risk?; 4. How can be created safety of the customer in the network?
Keywords
Digital customer; trust; digital risk; cybersecurity; safety of the customer.
Introduction
The social changes we are experiencing in the second decade of the 21st century lead to
the formation of new digital socialism, in which masses equipped with means of
production self-organize themselves, creating so-called hyperarchic structures, working
for free for a common purpose, and then sharing and using the "fruits" of cooperation
free of charge. There are four levels of interaction within digital socialism6, and each of
6 Digital activism (cyberactivism) – a social movement in which citizens use ICT tools to
influence social, economic and political reality.
374 Strategica 2020
them increases the complexity of consumer cooperation (Kelly, 1995, pp.22-23; Shirky,
2010, pp.130-135; Roszkowska-Menkes, 2015, pp.99-100):
1. Level One (sharing) - through services such as YouTube, Facebook, Instagram, and
online forums, internet users share virtually everything from information about
themselves, their well-being, their location, through photos, videos, music, to
interesting news, articles, opinions about products and services; this is the simplest
and least demanding form of networking that underpins the next more advanced levels
of engagement.
2. Level two (conversation) – commenting on blog posts, YouTube videos or friends'

activity on FB is the first step necessary to move to the next level, that is, to start group
cooperation. Groups whose main activity is simple to exchange are simply a set of
entities, but when these entities begin to communicate with each other and then
cooperate, group identity is produced.
3. Level three (cooperation) – occurs when individuals work together to achieve a

common goal; at this level, cooperation already requires, to some extent, negotiation
and group decision-making; an example of cooperation may be the actions of so-called
cyberactivists to develop social change or influence specific institutions; at this level,
partnership production is also undertaken, defined as "a method of producing goods
and services, entirely based on self-organizing egalitarian communities of people who
voluntarily form a group striving to achieve a common goal". The final product is the
result of the work of each participant of the project and would not have been created
without their contribution e.g. Wikipedia.
4. Level four (collective action) – the most difficult, advanced, and at the same time the
least common level of group initiatives in the network; the participants of the project
undertake to make a joint effort towards a specific goal, assume joint responsibility for
the project, and group decisions are binding on everyone; group cohesion becomes a
critical factor for achieving the desired result; an example of collective action can be
the community of clients of two Polish banks, namely mBank and Multibank.
It should be noted that the very role of consumers has been transformed from passive
buyers into members of the culture-forming part of enterprises who are active in
cyberspace, doing most online shopping, suggesting opinions on portals, blogs, or social
media, and on the other hand, placing their insights and seeking information in IT
programs and systems (Wereda, & Zaskórski, 2018, p.855).
The main purpose of this article is to present a modern digital customer, building trust
in the web, bearing digital risk, and felt safe on the Internet.
A digital customer. Theoretical overview
In modern online communities, the renaissance is experiencing a "culture of gift", that

is, mutual endowment. These gifts are devoid of material or utilitarian value; they serve
to build bonds. Examples include text messages that not only help convey information
but are primarily used to maintain relationships between users. It was on the "culture
of gift" that the Internet grew and such phenomena as open-source software and file
exchange services (Bendyk, 2004, pp.20-21). However, not all users engage in
cooperative networking to varying degrees. Depending on the level of activity, the
following categories of users are distinguished (Li & Bernoff, 2008, pp.41-45,
Roszkowska-Menkes, 2015, p.102):
1. wizards – people who generate new values at least once a month, e.g. publish blog
posts or articles online, run a website, upload audio-video files to the web, create
further Wikipedia entries (in the USA about 25% of adult internet users, in Europe
– 15%);
2. interlocutors - post status updates in communities and talk to others via the Internet
(around 45% in the US and around 30% in Europe);
3. critics – a group that includes users reacting to content generated by other internet
users, e.g. comment on blog posts or online forums, edit Wikipedia passwords, rate
products or services (25% in the US and 20% in Europe);
4. gatherers – are RSS users (a contractual family of tag languages for sending news
and news headers on rss sites of your chosen use), i.e. tagging (around 10% in the
US and Europe);
5. participants – use social networking sites (in the USA – 25%, in Europe – about
12%);
6. viewers – consume content and products produced by others (around 50% in the
US and around 40% in Europe);
7. passive – do not take part in any of the above activities (in the USA – 35%, in Europe
– about 45%).
First, look at the history of the term 'digital customer/client'. In the 1990s, the field of
computer science was only close to IT professionals and users who were able to use the
network professionally. Now technology is undergoing a revolution and for today's
users, who increasingly equate themselves with the word "citizen", the use of e-services
has become a daily occurrence for them. Today, mobile devices that have dominated the
computer market are undergoing a very significant revolution. The mobile phone has
become a daily addition for users as it used to be things of general use - watches or
wallet. Now everything can be replaced with a smartphone (Ronchi, 2019, p.5).
The author of the term "citizen of the network" was Michael Hauben, who in 1992 during
his second year of the study wanted to deepen his knowledge and learn about the
shaping world online and analyze the meaning of the concept of the citizen of the web.
For this purpose, he researched to see if people use a global online communication
network. From that moment on, he realized that a new society was being created – a
society of networks (Hauben & Hauben, 2020).
The term "network citizen" is a translation of the original term derived from English
netizen. It is a neologism created after the combination of two names "net" - Internet
and "citizen", which means citizen (DeLoach, 1996). People who are referred to as
"netizens" are described as using the Internet to assess values of social practices while
taking into account the audience (Lanigan, 2016). Mr. Hauben himself defined them as a
society that overcomes geographical barriers, which cares for and actively operates in
the network, developing it to achieve the benefits of expanding the internet world
(Kotler, Kartajaya, & Setiawan, 2017, pp.37-38). They understand the value of the work
that is created by all users and the ability to create public communication networks. T.
Goban-Klas called them an e-society. He defined this concept as a set of people
376 Strategica 2020
constituting an individual whole, that is, it is not only a society that has a collective
collection of information on the web (all websites, magazines) but also that they see as
a priority issue concerning the dissemination of the Internet, its way of operation and
approach, the way of life of the audience who first come into contact with the problems
raised in the online world (Goban-Klas, 2001, p.63).
According to Kotler, the term netizens refers to internet users who are true citizens of
democracy because they want to actively participate in network and data improvement.
Everything we can find on the web is shared by users to other audiences. Distance does
not constitute any barrier for them to be able to share information and maintain contact
with foreigners. The author also identifies them as (Kotler et al., 2017, p.38):
• social connectors because they like to be in touch with other people and share
information with them. Online contact allows them to remain anonymous (thanks to the
use of avatars, username), which arouses a sense of self-confidence in them;
• expressive evangelists - the possibility of being anonymous on the Internet very often
arouses aggression among some users, which is expressed through cyberbullying,
offensive comments directed at other participants, bullying. A positive aspect is the
emergence of so-called brand evangelists, who inhibit the development of cyberbullying
and engage in the development and promotion of the brand;
• authors of content - netizen's work on the web makes life easier for the rest of the
users. The use of tags, markings, improves the process of searching for the information
you need.
Since the emergence of the definition of the internet society as netizens, two uses of this
concept have arisen. The first is the understanding of the citizen of the network
concerning all users of the network regardless of purpose. This means that internet
users can use the web for good and bad things. The second application is used to
describe people who make positive use of the power of the Internet, work to create links
among people, and create an environment that benefits citizens (Hauben et al., 2020).
For a very long time, there has been a superstition that the citizens of the network are
people who use the Internet as an ordinary consumer and recipient. Now its importance
has strengthened in the market and netizen skills have begun to be used to create more
and more new technologies used on the Internet. Netizen, despite being a consumer of
the goods offered on the market, is also an active activist (Cassells, Gilleran, Morvan, &
Scimeca, 2020).
In international literature, both broad and narrow definitions of e-consumer categories

can be seen, while fewer terms apply to the digital consumer. The term e-consumer is
derived from a combination of the word "consumer" and the prefix "e" derived from the
adjective "electronic". The consumer is a physical figure who experiences needs and
satisfies them through the acquisition and use of goods and services (Maciejewski,
2010). The adjective "electronic" emphasizes the use of electronic devices (for example,
mobile phone or computer) to connect to the Internet to achieve the intended purposes
(for example, ordering products). A key assumption that classifies a customer as an
electronic consumer is their use of the Internet.
The digital consumer is less demanding and conscious than a prosumer 7. Also, not all
consumers using mobile devices to search for web content are categorized as
prosumers, which is why the concept of e-consumer has been highlighted. This term
describes individuals who purchase products and services online (Wolny, 2012, pp.117-
129). In fact, the concept of e-consumer is a narrower concept than a digital consumer.
An e-consumer who is interchangeably referred to as an e-customer uses the online
route to purchase products, but pre-purchase or post-purchase decisions can take place
in the ordinary system. The purchased products are not only aimed at creating a sense
of satisfaction for the buyer but also to satisfy the desires of the rest of the people living
in the household. Benefits such as convenience are important for the e-consumer, taking
into account the conditions under which he can purchase products and services, saving
time, funds, and stability (Jaciow, Wolny, 2014, p. 109).
The distinguishing features that characterize an e-consumer are (Jaciow, & Wolny, 2011,
pp.12-13):
• the desire to have comfort, which ensures that he can make purchases anywhere,
anytime;
• a sense of importance and not to equate it with other customers;
• paying great attention to the use of your time;
• draws attention to the quality of service products and is therefore looking for the best
opportunity to satisfy it materially and intangibly;
• can allocate more funds for certain and guaranteeing the delivery of the product on
time;
• the desire to be a person who affects the change in the appearance and functionality of
the product.
The concept of digital consumer has only recently appeared. Under this term, we mean
a person whose inherent element of life is mobile devices. They are used for purchasing
and technical purposes (Persaud & Azhar, 2012, p.420). These devices ensure that
consumers are constantly online. Thanks to their wide application, they support the
communication process and the purchasing process. Current consumers spend most of
their free time in the virtual world, taking advantage of the wide possibilities of the
network. It is believed that the behavior of digital consumers is based on the acquisition
of information, consumption of goods acquired through devices such as phones,
smartwatches, tablets (Toczydło, 2016, p.318). They need to acquire products "here and
now". The capabilities offered by electronic devices mean that consumers can meet their
plans anytime, anywhere. Brands now face a challenge. The availability of social media
has resulted in easy and quick contact with the customer. Also, consumers have the
opportunity to add feedback on a given product, which is visible to the rest of the users
(Stępowski, 2016, p.93).
Three types of digital consumers can be distinguished (EY, 2020):

1. Digital informants - this group is the largest (63%). The most important values,
according to them, are the brand and staying true to it. They do little to interfere
7 Prosumption is a modern concept of consumption which means that consumers are not only
allowed from producers to actively change their products, but also take the initiative to use their
innovative ideas in designing a product from scratch (Tapscott, Williams, 2008, p. 215).
378 Strategica 2020
with product development. They are a group that spends little time using the
Internet.
2. Digital buyers - this group is the last in terms of the number of users (13%). Their
main motivator for purchasing products is the price and hassle-free product
acquisition. Most often they manifest the behavior of a creative prosumer, who
wants to create products that meet their needs.
3. Digital multi-taskers - companies tie the greatest prospects to this group. It
accounts for about 24%. They use their free time primarily to find information
on the Internet, although they also feel good in physical stores. They are also
called "omnichannel" consumers because they are flexible about changing their
habits. The price of products, fidelity to the brand are not significant for them.
They are also very skeptical about the media. This group is best characterized
by eccentricity and high expectations.
The difference between digital consumers and their predecessors is the level of
importance of information. Consumers are now exploring cyberspace when their
predecessors had the information they had gathered. It should be mentioned that the
digital consumer should not be equated with the user, since that term is not typically
linked to the Internet. The digital consumer shall give a more detailed account of the
actual state of the market. This means that they are perceived as an individual, not as a
group, and are at the heart of the whole system. Users were not included in the system,
while digital consumers played a significant role (Nicholas, 2009, p.26).
Literature was reviewed based on the Web of Science, Scopus, and Google Scholar
databases, as of 12 October 2020. Records for the subject matter of the study were
generated by entering passwords related to the aim of the research conducted (Table
1). In the case of the Web of Science database, due to the generation of a very large
number of records, additional filters were applied, limiting the sophisticated results to
publications in the following: management, social sciences interdisciplinary, public
administration, multidisciplinary sciences, political science. However, the results of the
search of the Scopus database were limited to publications in the field of social sciences
and business, management, and accounting. For Google Scholar, the search results were
organized by relevance and the literature search was completed when several more
non-searchable publications were found.
Table 1. Web of Science, Scopus, and Google Scholar search results (14.10.2020).
The search term Web of Science Scopus Google Scholar
E-customer (client) 7 332 4.470
Digital customer 812 4.023 4.830
Trust in cyberspace 29 82 170.000
Digital risk 901 3.789 3.160.000
Safety of the client in cyberspace 0 3 21.400
Source: own work
In conclusion, it can be said that the modern citizen of the network creates his/her image
based on the things he/she owns. Its measurable is the achieved level in society, gained
recognition among others. This leads the consumer to live in the constant belief that he
should purchase new products to show his position in society. The unconvincing
manufacturers and their offered products are causing disappointment among
consumers, which is why they want to be part of the co-creating market. In addition to
consumption, they also focus on the process of creating goods (Szul, 2013, p. =347).
The most characteristic features and attitudes of the new generation are (Mróz, 2013,
pp.75-78):
 active participation in shaping content on the Internet by writing blogs, giving in
online forums, showing your private and professional life;
 willingness to create your own product, personalized for your own needs and taste;
 spend a large amount of time analyzing information through the use of technological
capabilities. They observe the world around them very closely, which makes them
easily capture lies and take a distrustful attitude towards content, people;
 the ability to identify ways of manipulation used by undertakings to change
consumer behavior. They choose those companies that you can trust and choose
ethical methods of contacting customers. Typically, negatively receive
advertisement;
 increasing environmental awareness. They pay attention to what they buy;
 high awareness of investing in self-development;
 spending a lot of time on online entertainment;
 openness to learning new acquaintances from outside the country. They are happy
to exchange their experiences, show their culture, but also implement the customs
of cultures of other countries. Through such relationship creation, they can build
strong relationships, global programs that foster the creation of international
projects. This is influenced by emerging social networks, which are beginning to
play a big role in the life of the digital generation;
 waiting for immediate answers to questions and the problem presented. They value
instant access to knowledge using technological innovations. The priority for them
is to update their knowledge about new products on the market - mainly electronic
equipment.
The behavior of the modern consumer is shaped by factors such as the increase in the
relevance of information in the lives of buyers, the oversaturation of the market with
goods and services, technological developments, internet access, and changes in the
influence of market players (Małysa-Kaleta, 2016, pp.144-145). Małysa-Kaleta calls
them consumers of a new era. It characterizes them as autonomous people, determined
to explore the market to obtain information, having a large view of the market. Some of
the factors help consumers find themselves in the present day. They are called strengths,
to which perks such as lack of fear through change, increased awareness of consumer
protection, ecology, health, economics, the ability to adapt to market conditions can be
classified. An equally important asset is conscious and responsible consumption
(Małysa-Kaleta, 2010, p.120). In addition to these positives, there are also negative ones,
called consumer weaknesses. A. Małysa-Kaleta attributes to them such behaviors as
excessive conservativism, unconscious duplication of patterns, easy succumbing to the
pressure spurred by global marketing activities, too hasty purchasing decisions, and
consumerism, and prioritizing their affairs over the affairs of the rest (Małysa-Kaleta,
2016, p. 145).
Recently, consumer behavior based on so-called "research online, purchase offline"

(ROPO), which talks about searching for information about a product online before
buying it in a physical store, has become widespread. It is believed that at this point
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every other person performs such a process. One of the arguments for changing
consumer behavior is the emergence of a phenomenon called showrooming (Comarch,
2020). It is defined as a habit that is based on consumers searching for and evaluating a
product in a physical store before using the Internet to verify other products or services
on the market. The most visible phenomenon is to search for the best price opportunity,
which consists of analyzing prices through the Internet, and then buying a given product
in a competitive company, at a price lower than that found in a physical store.
Information about the price of the product offered is important here (Bachrach et al.,
2016, p.4). Table 2 shows the difference between traditional and digital customer
acquisition. It should be borne in mind that these two consumer models continue to exist
on the market and companies must take this into account in shaping their marketing
activities.
Table 2. Differences in traditional and digital customer acquisition in today's marketing

Steps taken Traditional consumer Digital consumer
products mainly inspect looking for products online
Search
shopping malls, in magazines through the use of the Internet
products checks by recommending
Social media friends
preferred visits to stationery
Shopping
stores
Uses store apps for regular
purchases
physical view of the product in
compares delivery time, costs,
Selection the store and decides on its
overheads;
purchase;
based on assessment and ease of
Purchasing purchase makes a choice;
purchases during certain opening
decision process
hours of the store
and selection saves items to buy in the "wish
list" tab
will stand in line to pay for the one-click delivery, next day
Purchase a product
purchased product delivery, parcel delivery;
Uses automatic gift and reminder
requires additional effort to take, options, purchase from one
Gifts
wrap, pack and send; address, and delivery to another
address
physically visits the store to Subscribes to music, rents
Rentals arrange a lease; properties, cars, and more with a
single mouse click;
Source: Study based on Hanlon, 2019, p.28.
Considerations of buyer behavior in the modern purchasing market are distinguished

by five characteristics that characterize the attitude of a new digital customer (Tapscott,
1999):
• choice – the online consumer expects a wide range of products with different
specifications, among which he will be able to easily find the one most suitable for him;
expects, therefore, full and easy access to information on the products and services
offered;
• customization – the network is a very flexible environment in which users can

customize individual applications and functions to suit their needs; whereas a consumer
brought up in the digital world, therefore, expects a wide personalization of products
and services, opportunities to participate in the process of their creation – he does not
only want to consume but also to produce – he wants to be a prosumer;
• the ability to change decisions – on the web errors can be fixed with a single mouse
click – a new generation of consumers shows the same approach when making
purchasing decisions;
• the opportunity to try – modern consumers are not the recipients, but users, and
therefore do not trust external expertise or advertising until they become convinced of
the need to have a particular product, do not want to buy it; therefore, expect to be able
to try it in advance;
• functionality – the form ceases to be important, the most important feature of the
product or service is functionality.
Digital trust and customer risk on the web
The changing technological environment influences the change in consumer behavior –

his/her emotions and feelings. It changes his/her perception – the way he/she perceives
some of the things that surround him/her. The technology has also resulted in the
acquisition of skills with which the consumer has not yet been in contact. It also changes
the definition of trust in other people or things. According to Falkenreck and Wagner
(2017) trust is an underlying determinant that 'participates' in many decisions that
managers, employees, and consumers make every day. What is more, trust guides both
conscious and unconscious choices and can be amplified by digital technologies
(Falkenreck & Wagner, 2017). In other words, "trust is based on knowledge, using
evidence from the past". Contrastingly, faith is based on the complete absence of
evidence. The reference to the past explains the power of trust, but also its fragility
(Rousseau et al., 1998).
Digital trust is about making privacy controls and permissions more effective at a time
when you have access to relevant data obtained through the right purpose and reason.
The effects of deploying digital trust are not only visible in terms of security, but can also
provide engagement that will impact business productivity and revenue growth. Digital
relationships are built on numerous interactions that started at any given time. These
interactions allow us to verify our behavior, interests, what roles we play. In the digital
world, these interactions are so complex that companies are required to constantly test
and study them because users are highly active and use multiple devices that are
connected. This can create the intricacies of repeatedly entering passwords by the user
to use a new application or platform to authenticate the data. Thus, digital trust should
create a safe and uncomplicated user experience. To this end, enterprises are taking
steps to maintain this level by implementing the appropriate technologies responsible
for automating trust mechanisms (IBM Security, 2020).
Digital trust has a key impact on the functioning of businesses on the web. It serves to
reduce the perceived risks and social uncertainties. With confidence in the company, the
online service offered, consumers are more willing to engage in activities aimed at
reducing existing risks and managing the environment. Thanks to the activity of Internet
382 Strategica 2020
users based on evaluating, commenting, and informing about the services and products
offered by companies, users can estimate their reliability. Customer concerns are
constantly growing and to reduce this, companies are taking steps to improve data
security and privacy measures and enable customers to control their data. Building trust
will become more and more complicated due to the desire to acquire a new kind of
customer data, such as biometric data, location data (Wollan, 2018, p.9).
From a consumer perspective, digital trust is a result that can be influenced but not
controlled. The level of trust in digital services used by consumers creates a sense of
loyalty and creates a different type of relationship. It mainly refers to the level of trust
in technological change, processes, and people themselves. Digital trust is a determinant
of data protection, privacy, and security, system reliability (Marcial & Launer, 2019, p.1).
The dynamics of virtual space expansion and its intersection with social relationships in
the real world are genuine challenges (Dunnigan, 2010). Vulnerabilities and risks tend
to arise (Grigorescu & Chitescu, 2018, p.829). The barrier among online consumers is
precisely the existing risk and the way it is understood. Internet shopping is often
considered in this respect. In marketing terms, several risks can be characterized in
relation to enterprise-customer relationships (Table 3).
Table 3. Typical risks in enterprise-client relationships

Model Component Main risks
Risks associated with technical characteristics; the risk of
material and raw material reinforcements; the risk of the
Product
attractiveness of the packaging/additional services; risk of
the attractiveness of the product/service.
Risk of matching price to market segment; risk of price
diversification in the product/service portfolio, risk of price
Price attractiveness of the product/service; the cost-effectiveness
of the production/service delivery process;
liquidity risk of production/service processes.
Risk of market segmentation; the risk of selection of forms of
4P
promotion and composition of promotion tools; the risk of
Promotion efficiency of product/service promotion processes; risks in
the area of outsourcing in the promotion of products and
services; risk of customer loyalty.
Risk of choosing distribution channels; the risk of the
capacity of distribution channels; the risk of choosing
commercial intermediaries; the risk of distribution costs;
Distribution
risk of trust in commercial intermediaries; the risk of the
effectiveness of distribution channels; the potential of
distribution channels.
Risk of sales/marketing effectiveness of employees; the risk
5P
People of employees' competencies; the risk of training
[4P+1P]
effectiveness; risk of employee loyalty.
Risk of discontinuity of the service process; the risk of
process effectiveness; quality risk; risk of process
Process throughput; the risk of information flows in the process; the
7P
risk of reliability of the provision of the service; the risk of
[5P+2P]
the place where the process takes place; technological risks.
Certificate Risk of the company's image; the risk of internal marketing
Material effectiveness; brand value risk; material risk.
Model Component Main risks

Risk of market attractiveness of the service; the risk of the
"Purple cow"
added value of the service; the risk of the service being
Marketing
different and unique; risk of service durability.
Risk of customer interest; the risk of persistence and
"Inbound" bandwidth of the communication channel with the client; the
10P
Marketing risk of maintaining the customer's attention; the risk of
[7P+3P]
choosing communication tools.
Risk of maintaining lasting relationships with customers; the
risk of the customer being involved in the service delivery
Partnership
process; risk of trust on the part of the client; credibility and
integrity of the customer.
Risk of changing the customer's perceived value and value to
Client Desires
the client; risk of evolution of customer desires and needs;
risk of customer loyalty.
Risk of increased costs on the client's side; risk of insolvency
Cost
of the client; risk of price attractiveness of the
for customer
4C product/service.
Risk of customer loyalty; risk of product/service availability;
Convenience
the risk of availability of post-guarantee services; risk of
Purchase
changing customer requirements.
Risk of the effectiveness of two-way communication; risk of
Communication
communication efficiency.
Source: own study based on Kotler, Keller, 2012, pp. 27-28; Pazio, 2013, pp. 30-34; Woźniak, 2019,
p. 68-69.
An example of the risk perceived by the consumer may be the conclusion of online
transactions which may have a negative effect. There are three types of risk to the
consumer online (Kim et al., 2008, p.564):
 the risk to the product – may be defective as it is not possible to view and test it;
 financial risk – a faulty online payment system and a duplicate order caused by a
system suspension, technological errors, or an unwitting double-click on a product
purchase;
 information risk – concerns the security of purchasing transactions and privacy.
This is mainly due to the need to provide credit card details to pay for online
purchases and the risk of losing funds as a result of fraud or data theft.
When analyzing the above types of digital risks borne by the consumer online, it can be
concluded that it affects his behavior and decisions. A reluctance to shop online can be
a risk that is sure to be higher than traditional product acquisition. This refers to the
ability to view the product life, check its parameters, and test it before purchasing it. For
online purchases, there is a risk of providing your personal information, phone number,
and other sensitive data that is often necessary to complete the purchasing process.
Recently, quite popular phenomena regarding the risks borne by modern digital
customers due to the development of technology are (Górski & Nowacki, 2018, p.48):
 impersonating a person or organization. In the age of internet development,
impersonating another person is very simple, as there are very limited possibilities
to verify the authenticity of an established account in social media or other
communication channels;
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 using the attributes of modern mobile devices such as fingerprint readers, faceID,
and webcams. Many devices have security features that use these systems. This is
also becoming popular in online banking, which poses a risk of hacking into an
account or system.
What is more, the vulnerability is a weakness of a hardware or software system that

allows unauthorized users to gain access to it. The main vulnerabilities in computer
systems are physical, hardware, software, or human. Information systems are primarily
vulnerable to classical attacks when a hacker manages to physically penetrate
computing systems and evade confidential information. Every computer system has
vulnerabilities, so we can say there is no 100% secure system, an attacker can act in
many different ways. Ways of responding to these attacks generate, first and foremost,
long time resources: identification of the aggressor, vulnerability and threat analysis,
methods used, development of response elements, and counterattacks are necessary
(Grigorescu & Chitescu, 2018, p.829).
To reduce the risks arising from the development of ICT, companies are taking steps to
educate the recipients of the service or the product they have acquired. They provide
knowledge about product security and how to protect data privacy. They also adapt
effective legal protection in this respect and introduce consumer-acceptance-based
marketing. The recipient is obliged to agree to the marketing activities of the company
concerned (Frąckiewicz, 2009, p.227).
Cybersecurity and the digital customer
Online shopping, the exchange of goods, crowdsourcing, social media development

tends to rise in percentage. Internet is gaining popularity and has tremendous scope for
growth as computing devices and communication technologies are making rapid
advancements and becoming cost-effective day by day. Mobile computing has
remarkable potential to make e-commerce a very popular mode of shopping.
Entrepreneurs want to provide quality of service to customers and maintain customer's
trust by ensuring high availability, sufficient capacity, and satisfactory performance for
their Web systems. Security is the main concern of customers that is hampering the
rapid growth of online transactions and ways of communication. Security issues such as
destruction, disclosure, and modification of data, denial of service, fraud, waste, and or
abuse of network resources must be resolved to build the trust of customers in the
market (Hamirani, 2020, p.2). What is more, increasing the vulnerability of personal
systems to cyber-attacks of any kind is directly proportional to the ability to evaluate
the data received by each user. Thus, the more we believe in the screen, the more
automatic data will be taken, we will consider them real, without a concrete analysis of
them, and without considering piracy of data or sources. The efficiency of an IT system
should take into account a set of factors such as the value that needs to be defended,
identifying attacks and cyber attackers, or analyzing the attack and finding ways to stop
or reduce its effects. A first step in making an answer more efficient takes into account
the fact that no system is invincible, that we must change the paradigm of the "non-
breaking wall" assuming, the awareness that cyberinfrastructures are already
penetrated, that there is no total protection. Attackers are interested in penetrating the
informational infrastructure to either detect it for as long as possible to access as much
filtered information as possible (Grigorescu & Chitescu, 2018, p.830).
Concerning network security, it can be considered in two ways: focusing on the user
(user-centered) or the system (system-centered). The first way they are analyzed in the
context of behaviors, skills, needs, and relationships of Internet users, while the second
one focuses on the security of ICT systems and networks as well as data and information
generated, stored, and processed in these systems. However, maintaining overall
network security requires a holistic approach that integrates user and system location.
It is not possible to ensure the security of the network user without appropriate system
security, just as it is impossible to ensure the security of information and systems
without properly educated attitudes, preserving the skills of their users. The threats
resulting from the use of the Internet may be related to (Breźnicka & Motylińksa, 2018,
p.161):
 risky content (e.g. macabre, pornographic, racist, false, or harmful information);
 risky contacts (e.g. tracking, collecting personal information, bullying, stalking,
seduction);
 risky behavior (e.g. gambling, illegal downloads and break-ins, harassment,
creating/uploading pornographic material, giving unsafe advice, etc.).
Methodology and limitations of research
The scope of this study concerned the issue of building trust in the customer-
entrepreneur relationship in the digital environment, the perception of digital risk by
customers, and the creation of their online security. The survey included a group of 320
people who use electronic purchases, with the respondent expected to make at least 5
electronic purchases in the last 6 months. It was assumed that the survey will be
conducted on a group of 20 people from all provinces in Poland. Random selection was
applied, proportional to the size of each age group in the province (age groups: 18-20,
21-39, 40-49; 50-74 and 75 years and more).
At the initial stage of research, the main research problem was formulated in the form
of a question: what is the role of the client in the modern market in the context of trust,
risk, and safety? To address the main research problem, specific problems have been
identified: 1) what factors determine customers' trust in entrepreneurs in the digital
environment?; 2) how do customers perceive digital risk?; (3) to what extent do
customers take care of their security when making online purchases, especially in the
context of the protection of personal data?
At the initial stage of the research, a working hypothesis was formulated in the form of
the assumption that the trust of digital customers decreases as online risk increases, and
the most important factor in the digital world is their security.
The studies were carried out using quantitative and qualitative test methods. The data
for analysis were obtained using the diagnostic survey method (CATI method) using the
survey technique. The survey was conducted in July 2020. The positive data has been
processed. Statistica [StatSoft] software as well as Microsoft Excel software were used
for this purpose. These tools were, among others, used to calculate correlations,
percentage, and numerical indications of respondents' responses, as well as to perform
other statistical calculations presented in this article, in the section containing the
386 Strategica 2020
results of the surveys carried out. Correlations were calculated based on Pearson's chi-
squared coefficient.
Theoretical test methods were also used to achieve the objective of the studies, to
respond to the research problems raised. Methods of analysis and synthesis were mainly
used in the critical analysis of the literature of the subject. Its application has identified
regularities in terms of building trust between the customer and the entrepreneur in the
digital world, the perception of digital risk, and how customers ensure security,
especially in the context of the protection of personal data. Apart from that, in turn, it
made it possible to eliminate the less important characteristics and dependencies on the
issue under investigation, but, on the other hand, to identify certain dependencies or to
consider certain characteristics to be relevant. The generalization method allowed the
disclosure of characteristics and reproducible phenomena of a general nature, as well as
the formulation of conclusions.
The study should also indicate limitations. Indeed, the study provided an only general
knowledge of the role of the customer in the modern market in the context of trust, risk,
and safety. Although they were able to give their answers, in the vast majority of cases
they merely chose from the proposed answers.
The study aimed to survey people making online purchases from all provinces in Poland
and who are members of all of the indicated age groups, which ultimately succeeded.
Results and conclusions
Characteristic of the respondents
The study involved 320 people from the following age groups: 18-20; 21-39, 40-49; 50-
74 and 75 years and above, representing all provinces in Poland. The size of each group
was determined in proportion to the number of inhabitants living in the province
(Table 4).
Table 4. Age of respondents (by voivodships and gender)

Respondents
Voivodships 18-20 21-39 40-49 50-74 75 +
M W M W M W M W M W
dolnośląskie 0 1 3 3 1 2 4 4 1 1
kujawsko-pomorskie 0 1 1 5 1 3 2 5 1 1
lubelskie 1 0 4 3 1 2 5 2 1 1
lubuskie 1 0 2 5 3 1 3 4 1 0
łódzkie 0 1 5 1 1 2 5 3 1 1
małopolskie 0 1 0 7 1 2 3 4 1 1
mazowieckie 0 1 2 4 2 2 2 5 1 1
opolskie 0 1 4 2 0 3 7 1 2 0
podkarpackie 0 1 3 4 3 0 3 4 0 2
podlaskie 0 1 3 4 2 1 3 4 1 1
pomorskie 1 0 4 3 2 2 3 4 1 0
śląskie 1 0 3 3 3 0 2 6 2 0
świętokrzyskie 0 1 2 4 1 2 5 3 1 1
warmińsko-mazurskie 0 1 3 4 2 1 2 5 1 1
wielkopolskie 1 0 3 4 1 3 2 5 0 1
zachodniopomorskie 1 0 4 2 2 1 6 2 2 0
Source: own work
The majority of respondents have secondary education (188 people). There are 52
people in vocational education and 42 undergraduate educations. The least numerous
group among respondents are people with higher education with a scientific title – 10
people (Table 5).
Table 5. Respondents' education (by age)

Age
Education Total
18-20 21-39 40-49 50-74 75 +
Elementary 1 1 3 4 4 13
Vocational 3 12 8 20 9 52
High-school 12 66 28 68 14 188
Bachelor's 0 14 12 15 1 42
Higher - master's degree 0 8 1 8 1 15
Higher with a title 0 3 1 6 0 10
Source: own work
Respondents were asked to indicate which type of customer they represent. Four types
of clients were identified (Wereda & Wozniak, 2018, pp.7-8):
1. Customer 1.0. - A customer who selects only certain product groups is not
suggested by advertising. He has his opinion on products and is guided by their
practical application in purchasing choice. It rarely takes advantage of market
news.
2. Customer 2.0. - Customer Rules 1.0 are up to date but are supported by the
development of consumerism and traditional marketing. The customer notices
the brand, and its demand for products and services is strongly driven by
marketing. It also reaches for market news advertised in the media.
3. Customer 3.0. - Customer Policies 1.0 and 2.0 are noticeable, but the buyer's
behavior is extended to include an explosion of globalization and the Internet.
The customer needs to keep him at the brand through various programs e.g.
loyalty programs. The customer pays attention not only to the quality of the
product, the brand but also to the best customer service and individual
treatment of it by suppliers of products and services. He defines his shopping
experiences and shares them with the public.
4. Client 4.0. - Client 4.0 is a person whose principles (based on customer
experiences 1.0, 2.0, and 3.0) are still evolving, but are now complicated by huge
choices, online platforms. Personal goals and creating your brand outweigh
marketing. It is the client who tries to influence and be influenced by other
customers, it is the one who applies new ways of working and thinking; who
has high expectations, where the customer's journey is his unique journey, in
which companies are only involved in enabling him to achieve his goals. This
client is an internet user, very demanding, well informed by electronic devices,
and looking for developing, competitive and innovative approaches to various
challenges from different areas of life, such as banking, professional services,
automotive and IT services, healthcare, education, municipal services (most
aspects) production and construction, etc.
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The survey involved 135 1.0. customers, 62 2.0. customers, 75 3.0 customers. and 48
customers 4.0. the most diverse group of customers are those aged 21-39 (Table6).
Table 6. Clients' type (by age)

Age
Clients' type Total
18-20 21-39 40-49 50-74 75 +
Client 1.0. 9 22 20 69 15 135
Client 2.0. 3 27 10 14 8 62
Client 3.0. 1 35 14 23 2 75
Client 4.0. 3 20 9 12 3 48
Source: own work
Respondents were asked to determine the level of their social technology ladder
according to Forrester Research, among the respondents most people identified
themselves as observers (164 people). The second most numerous group are inactive
people (58 people), with the majority of people aged 75 and over representing precisely
this level of the social technological ladder (18 out of 29 people). The least numerous
group are gatherers–4 people and critics – 6 people (Table7).
Table 7. The level of the social technological ladder of the respondents (by age)
The level of the social Age
technological ladder of the Total
18-20 21-39 40-49 50-74 75+
respondents
Creator 3 8 5 7 3 26
Interlocutor 2 15 5 7 0 29
Critic 0 1 2 3 0 6
Collector 0 2 1 0 1 4
Participant 2 6 7 15 3 33
Observer 8 67 27 58 4 164
Inactive 1 5 6 28 18 58
Source: own work
Client in the modern market in the context of trust, risk, and security
During the survey, respondents were asked which of the indicated approaches to
perceiving digital risk are most identified (Table 8).
Table 8. Digital Risk Perception

Digital Risk Perception Number of answers %
Digital risk as a source of threats (potential losses) 38 12
Digital risk as a source of both threats (losses) and
176 55
opportunities (potential benefits)
Digital risk mainly as a source of opportunities (potential
35 11
benefits)
I do not analyze digital risk and I do not think about its
71 22
significance for my electronic purchases on a daily basis.
Source: own work
55% of respondents indicated that digital risk is both a source of opportunity and a
source of potential risks. 12% of respondents expressly assessed the digital risk as a
source of potential loss and 11% as a source of potential opportunities. By contrast, as

many as 22% of respondents do not carry out a digital risk analysis at all and do not
think about its importance for their electronic purchases on a daily basis.
Respondents were asked to assess (on a scale of 1-5) individual factors in building trust
in customer-to-business relationships, assessing both the frequency of contact with the
factor and its importance/importance for respondents (Table 9).
Table 9. Factors building trust in client-entrepreneur relations

Importance/
The frequency of the
importance of a
Factors building trust customer's contact
given factor for the
with a given factor
client
Received discounts during long-term
3,12 3,33
cooperation
Minimizing the transaction risk in the long
2,98 3,58
run
The prestige and brand of the company (the
3,30 3,46
company's reputation on the market)
Personal contacts and acquaintances 2,93 2,96
Long-term cooperation based on personal
2,28 3,08
contact
A large number of contacts and contracts
2,72 3,02
concluded in a short period
Mutual loyalty 3,21 3,51
Influence of the environment, e.g. media
opinions on the company's reputation, good 3,41 3,48
public relations, etc.
Positioning the website in search engines 3,46 3,49
Ads on social media 3,42 3,39
Promoting products by famous people 3,42 3,08
Good business website 3,60 3,82
Loyalty programs 3,33 3,52
Source: own work
The trust-building factors most respondents encountered were a good company website
(3.60), search engine positioning of the company's website (3.46), social media
advertising (3.42), and celebrity product promotion (3.42). The least likely respondents
were met with factors such as long-term cooperation based on personal contact (2.28)
and a large number of contacts and contracts in the short term (2.72).
The survey showed that the most important factors in building trust in client-
entrepreneur relationships are: good company website (3.82), minimizing transaction
risk in the long term (3.58), and loyalty programs (3.52). The least important factors are
personal contacts and acquaintances (2.96) and a large number of contacts and
contracts concluded in the short term (3.02).
On the other hand, the determination of digital risks was mostly identified by
respondents as a source of both risks (losses) and opportunities (potential benefits) –
Table 10.
390 Strategica 2020
Table 10. Digital Risk Perception

Digital Risk Perception Number of answers %
Digital risk as a source of threats (potential losses) 38 12
Digital risk as a source of both threats (losses) and
176 55
opportunities (potential benefits)
Digital risk mainly as a source of opportunities
35 11
(potential benefits)
I do not analyze digital risk and I do not think about its
71 22
significance for my electronic purchases on a daily basis.
Source: own work
During the survey, respondents were asked to indicate the level of consent to these data
protection and privacy statements when making online purchases (Table 11).
Table 11. The level of consent to the indicated statements regarding the
protection of personal data and privacy when making online purchases
Level of consent[%]
I am sure that online stores: I strongly I do not I strongly
I disagree I agree
disagree care agree
process personal data lawfully and
transparently, ensuring fairness 11 21 17 31 20
towards natural persons.
have specific data processing
purposes and indicate these
8 20 21 30 21
purposes to individuals when
collecting their personal data.
they collect and process only the
personal data that is necessary to 9 21 22 22 26
achieve the purpose of the sales.
ensure that personal data is
accurate and up-to-date, having
7 20 22 32 19
regard to the purposes for which it
is processed, and correct it if not.
ensure that personal data is kept for
no longer than is necessary for the 9 19 18 35 19
purposes for which it was collected.
install appropriate technical and
organizational security measures to
ensure the security of personal
data, including protection against
7 17 24 27 25
unauthorized or unlawful
processing and accidental loss,
destruction, or damage, using
appropriate technology.
in special cases, personal data is
stored for a longer period for
archiving purposes in the public
interest or for scientific or historical 11 12 25 36 16
research reasons, provided that
appropriate technical and
organizational measures are taken.
ensure that the data stored is
7 19 22 34 18
accurate and up-to-date.
Source: own work
Research shows that 51% of respondents believe that online stores process personal
data lawfully and transparently, ensuring fairness towards individuals. 32% of
respondents do not agree with this statement. 17% of respondents are indifferent to the
processing of their personal data by online stores, 51% of respondents believe that
online stores have specific data processing purposes and indicate these purposes to
individuals when collecting their personal data. 28% of respondents are of the opposite
opinion. For 21% of respondents, the indicated issue did not matter. 48% of respondents
believe that online stores collect and process only the personal data that is necessary to
achieve the sales goal, but 30% believe that these stores also collect and process data
that is not necessary for the purchase and sale transaction. For 22% of respondents, this
issue is indifferent. More than half of the respondents (51%) indicated that online stores
ensure that personal data is accurate and up-to-date, taking into account the purposes
for which it is processed, and correct it if not. The opposite opinion is shared by 27% of
respondents. The issue of up-to-date data processed by online stores does not matter
for 22% of respondents. As many as 54% of respondents believe that online stores
ensure that personal data is stored for no longer than it is necessary for the purposes
for which it was collected. 28% of the respondents have a different opinion. For 18% of
respondents, this issue is not important. 52% of respondents believe that online stores
install appropriate technical and organizational security measures to ensure the
security of personal data, including protection against unauthorized or unlawful
processing and accidental loss, destruction, or damage, using appropriate technology.
24% of the respondents have the opposite opinion. The survey results show that 52%
of respondents believe that in special cases personal data is stored by online stores for
a longer period for archiving purposes in the public interest or scientific or historical
research reasons, provided that appropriate technical and organizational measures are
in place. 23% of the respondents have a different opinion. For 25% of respondents, this
issue does not matter. 54% of respondents believe that online stores ensure that the
data stored is accurate and up-to-date. 26% of the respondents are of the opposite
opinion. The issue of timeliness and accuracy of data stored and processed by online
stores does not matter for 22% of respondents.
Research indicates that online shoppers feel relatively safe. About half of them believe
that online stores ensure the security of the personal data they provide. About 25% of
the respondents are of the opposite opinion. What is puzzling, however, is the level of
the indifference of customers shopping online. For each of the statements, it fluctuated
at the level of 25%. This indicates the respondents' lack of interest in how the personal
data they provide is processed.
Conclusions
The digitization process provides consumers with more and more new purchasing
opportunities, ways of contacting other network users, allows them to exchange their
own experiences, search for countless information and opinions, which has led to the
formation of a new type of consumer - consumer 4.0. The possibilities offered by the
Internet increase the requirements of customers who want more and more and look for
products personalized to their needs. However, in the virtual world, the risk is
noticeable, and as it grows, the level of customer confidence on the Internet decreases.
392 Strategica 2020
It should be noted, however, that institutions more often develop cybersecurity

programs.
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4
Finance and
Banking
Chairs
Lucian ANGHEL & Laurențiu-Mihai TREAPĂT
396 Strаtegicа 2020
REVERSE CHARGE AND VAT GAP – A MECHANISM TO TACKLE

INTRA-COMMUNITY VAT FRAUD
Ionela BUTU
6 Romana Square, Sector 1, Bucharest, RO
ionela_butu@yahoo.com
Petre BREZEANU
petre.brezeanu@fin.ase.ro
Raluca-Andreea GHEȚU
gheturaluca93@yahoo.com
Abstract
VAT fraud in the European Union (EU) is presuming significant rates, which the reverse charge
mechanism is expected to tackle. This paper aims to be a descriptive analysis of the Member States’
option to use the reverse charge mechanism based on Articles 199a and 199b of Council Directive
2006/112/EC on combatting fraud, as a tool to prevent and to reduce intracommunity carousel
fraud. To do so, we presented a panel of supplies of goods and services from Article 199a paragraph
1 of the VAT Directive above mentioned, the Member State which uses the reverse charge mechanism,
the year it started to be applied, and the change of VAT Revenue in the next 2 years after being
applied. Then, having in mind that VAT fraud significantly explains VAT Gap (the difference between
the VAT total theoretical liability and the amount of VAT actually collected), we made a comparison
of countries applying reverse charge from the perspective of VAT efficiency, precisely estimating the
following: efficiency of VAT collection, VAT Gap and the percentage of VAT Gap in VAT Potentially
Collected. In the last part, there are the conclusions for this work. As an anti-fraud tool, the reverse
charge mechanism has been implemented quite early in the certain Member States, with an
increasing tendency starting from 2013. Although VAT fraud cannot be quantified exactly,
prevention plays an important role in the effort and cooperation of the Member States to combat
VAT fraud.
Keywords
Tax evasion; carousel fraud; reverse charge mechanism; VAT Revenue, VAT Gap.
Introduction
Value added tax (further only VAT) is an indirect tax which is an important and growing
source of tax revenue in European countries, hence the interest, of each state to collect
this consumption tax. Firstly, VAT was introduced in 1954, in France and in the
subsequent years was adopted by the European Member States, as well as other states.
(Ionela, Porumboiu, Ghețu, & Brezeanu, 2019, p.54). On 1 January 1993, by establishing
the European Single Market, the border controls for intra-Community trade were
abolished and thus created the premises for the appearance of some VAT fraud
mechanisms in the state of consumption. According to Sir Austen Chamberlaine, the
Finance and Banking 397
evasion methods change and adapt extremely fast, so the methods of investigation must
develop with the minimum same speed (Şaguna, 1995, p.59). Moreover, the European
Parliament (2019) points out that the current VAT (transitional) regime has been
abused by fraudsters, taking advantage of the exemption to intracommunity supplies
within the EU and exports, especially” missing trader” intra-community fraud (MTIC).
Origin of VAT fraud and estimations
The first part presents the "whole-part" relation between the concepts: underground
economy - tax evasion - VAT fraud – Carousel fraud. The unofficial economy (shadow
economy) is a regular element of the economic/social life and should be considered in
such a context (Mróz, 2002, p. 127). In terms of definition, the underground economy is
closely linked to the monetary field, mainly through the strong tendency for liquidity,
manifested by those who act as payers or paid in this domain (Craiu, 2004, p.91). The
underground economy is also linked to tax evasion in its various forms. In most cases,
the mixture of activities in the underground economy involves evasion through direct
and indirect taxes. Some authors consider that 'tax evasion' is to avoid by any means, in
whole or in part from payment of taxes, duties, and other amounts owed to the state
budget by individuals or legal entities (Câmpeanu, Oprea, & Nițoiu, 2003, p.174). More
than that, we can consider fiscal fraud as the central vector of the underground economy
(Pătroi Dragoş, p. 33). Carousel fraud is a particular form of VAT fraud. The "whole-part"
relation between the above concepts is illustrated in Figure 1.
Underground
economy
Tax evasion
VAT Fraud
Carousel
fraud
Figure 1. The relation between

underground economy - tax evasion - VAT fraud – carousel fraud
(own representation)
Although carousel fraud is a popular subject, no complex research has been performed
about the size and the effect of this fraud scheme. In most of the studies, carousel fraud
is included in the assessment of the shadow economy, VAT Gap, or VAT fraud. Most
studies focus on VAT fraud schemes, as well as the solutions to tackle the problem.
A detailed description of missing trader fraud is presented in Ainsworth (2010). On a

similar approach, Buskhsh and Weigand (2014) and Walpole (2014) after presenting
the different VAT fraud schemes, suggested that the reverse charge mechanism is a
quick reaction solution to tackle VAT fraud beyond certain economic sectors. Another
important solution is the administrative cooperation of the Member States which is
highlighted by Van der Hel-Van Dijk and Griffioen (2016).
There is hardly any literature about evaluating the reverse charge mechanism. Previous
analyzes were split and did not draw a clear conclusion regarding the effectiveness of
this mechanism in combating tax fraud. Keen and Smith (2007) proposed an estimation
of VAT fraud using national accounts. Fedeli and Forte (2008) analyze the rule for
sharing the profits obtained by fraudsters from tax evasion and the changes in the prices
on the goods subject to the fraud. According to the Reckon study (2009), there are two
methods used in calculating the VAT Gap, namely: “top-down” and „bottom-up”.
Similarly, Borselli (2011) proposed two ways for the estimation of VAT fraud: the direct
approach - „bottom-up” and the indirect approach - “top-down”.
Carousel fraud
The strongest form of the MTIC VAT fraud is known as carousel fraud. It involves
contrived transactions within and beyond the EU, to create large unpaid VAT liabilities
and fraudulent VAT refunds claims. Carousel fraud exploits the zero-rating of
sales/exporting in another member state combined with the “deferred payment”
mechanism for collecting VAT on acquisition goods. In Figure 2, we illustrated how this
fraud works, in a medium complicated case.
Figure 2. The basic carousel fraud

(European Court of Auditors)
Figure 2 illustrates a carousel fraud scheme, which assumes a 20% VAT rate and the
following steps: The ”conduit company” located (and registered for VAT purposes) in
Member State 1, sells some good to ”missing trader” located in Member State 2 (and
registered there), without charging VAT because intra-Community supplies are VAT
exempt. The ”missing trader” sells the goods to the ”buffer trader 1” and the invoice
issued by the missing trader continues its way down the production chain, through firm
”buffer trader 2” — which may be unaware of the fraud being perpetrated—until it
arrives at broker firm, with a profit of 30 000 euro and pays 20% VAT of the profit,
amounting 6 000 euro. The catch is explained by the fact that the ”missing trader” does
not pay to the tax authorities the VAT it has charged and invoiced—instead, it goes
missing without paying any VAT. In a pure carousel fraud, the broker ends the
fraudulent chain by reselling the goods to the ”conduit company”, with a profit (perhaps
via third countries). The broker does not charge VAT, as intra-Community supplies are
VAT exempt, but it requires reimbursement of the VAT it paid to ”buffer trader 2” (190
000 euro), and so, the whole process starts again, going round in a lucrative circle. Thus,
180 000 euro is the value of VAT not collected by the tax authorities of Member State 2.
It was collected 10 000 from buffer traders 1 and 2 but refunded 190 000 euro to the
broker. The total profit obtained by the carousel is also 180 000 euro which is divided
between the different parties to the fraud.
Reverse charge mechanism
The reverse charge mechanism is a temporary tool to combat carousel fraud and applied
only to transactions between two taxpayers. The essence of this system is to shift the
obligation to pay VAT from supplier to customer in certain sectors vulnerable to
carousel fraud.
The authors Berger, Kindl, and Wakounig (2010) suggested that it is a measure aimed
to simplify the procedure for evaluation of VAT tax and to strongly support in the
prevention of tax evasions and avoidance of the tax liabilities in certain fields.
(Grásgruber, Otavová, & Semerád, 2013, p.2133). Thus, the reverse charge mechanism
is regulated by the Article 199 of Council Directive 2006/112/EC on the common system
of value-added tax (further only the VAT Directive) which stipulates that Member States
have the option to apply a temporary (until 31 December 2018) reverse charge
mechanism to specific goods and services counted by and under the conditions laid
down by Article199 and Article199a of the VAT Directive. The Council Directive
2018/1695 extended the term of application until 30 June 2022.
For this paper, we have collected data from Eurostat Database and from Report of the
Commission to the Council and the European Parliament on the effects of Articles 199a
and 199b of Council Directive 2006/112/EC on combatting fraud (further only the
Report of the European Commission 118 final, 2018). In the next section, we emphasized
the option of the Member States to use the reverse charge mechanism based on Article
199a (1) of the VAT Directive. We included as well the United Kingdom because the
period analyzed was part of the European Union.
Table 1. Sample of countries which apply the reverse charge mechanism for ”the transfer of
allowances to emit greenhouse gases”
VAT
Member Start Member Start VAT Revenue
Trend
Trend
Revenue
State year State year per year*
per year*
7.7 2010 8.4 2011

Austria 2010 ↓ Hungary 2011 ↑
7.5 2011 9.1 2012
6.9 2010 6.8 2011

Belgium 2010 ↔ France 2011 ↔
6.9 2011 6.8 2012
8.3 2010 Netherland 6.4 2011

Finland 2010 ↑ 2011 ↔
8.8 2011 s 6.4 2012
9.5 2010 7.8 2011

Denmark 2010 ↑ Poland 2011 ↓
9.6 2011 7.1 2012
7.0 2010 8.6 2011

Germany 2010 ↔ Romania 2011 ↓
7.0 2011 8.3 2012
6.0 2010 6.7 2011

Ireland 2010 ↓ Slovakia 2011 ↓
5.7 2011 6.0 2012
6.5 2010 8.1 2011

Luxembourg 2010 ↑ Slovenia 2011 ↓
6.7 2011 8.0 2012
6.0 2010 9.0 2011

UK 2010 ↑ Sweden 2011 ↓
6.8 2011 8.9 2012
Czech 6.9 2011 8.1 2011

2011 ↑ Portugal 2010** ↑
Republic 7.0 2012 8.3 2012
7.3 2011 12.6 2013

Greece 2011 ↓ Croatia 2013 ↔
7.2 2012 12.6 2014
12.8 2015
Italy 2015 ↑
12.9 2016
Notes: * in % of GDP; ** CO2 emission rights

Source: own representation based on Eurostat and European Commission, 2018
The category is referred to the transfer of allowances to emit greenhouse gases as

defined in Article 3 of Directive 2003/87/EC establishing a scheme for greenhouse gas
emission allowance trading within the Community. This fraud occurred mainly between
the end of 2008 and the beginning of 2009, the reason why most of the Member States
(21) started to apply the reverse charge mechanism in 2010 or 2011. Only Croatia and
Italy started to apply it in 2013, respectively 2015.
Regarding VAT revenues (in the percentage of GDP), from 21 Member States which
applied the mechanism, it can be noticed that in 7 countries had an increasing trend, and
9 countries had a downward trend, while in countries like Belgium, Croatia, France,
Netherlands and Germany, VAT revenue remained the same. We can conclude that the
revenues increased by less than half of the countries, both emerging and developed.
Table 2. Sample of countries which apply the reverse charge mechanism for ”supplies of
mobile telephones” and ”supplies of integrated circuit devices”
VAT
Member Start Member Start VAT Revenue
Trend
Trend
Revenue
State year State year per year*
per year*
7.0 2011 9.4 2014

Germany 2011 ↔ Denmark 2014 ↔
7.0 2012 9.4 2015
6.0 2011 7.0 2015

Italy 2011 ↔ Poland 2015 ↑
6.0 2012 7.2 2016
7.7 2012 Czech 7.3 2015

Austria 2012 ↔ 2015 ↑
7.7 2013 Republic 7.4 2016
6.4 2013 8.1 2016

Netherlands 2013 ↔ Latvia 2016 ↓
6.4 2014 8.0 2017
6.6 2014 6.4 2016

Slovakia 2014 ↑ Romania 2016 ↓
6.8 2015 6.2 2017
Notes: * in % of GDP
Table 3. Sample of countries which apply the reverse charge mechanism for “supplies of
game consoles, tablet PC's and laptops”
VAT VAT
Member Start Member Start
Trend
Trend
Revenue per Revenue per
State year State year
year* year*
6.4 2013 Czech 7.3 2015

Netherlands 2013 ↔ 2015 ↑
6.4 2014 Republic 7.4 2016
7.6 2014 7.0 2015

Austria 2014 ↔ Poland 2015 ↑
7.6 2015 7.2 2016
9.4 2014 6.1 2016

Denmark 2014 ↔ Italy 2016 ↑
9.4 2015 6.3 2017
6.9 2014 8.1 2016

Germany** 2014 ↔ Latvia 2016 ↓
6.9 2015 8.0 2017
6.5 2015 6.4 2016

Spain 2015 ↔ Romania 2016 ↓
6.5 2016 6.2 2017
Notes: * in % of GDP; ** without laptops

The first remark we can make from Table 2 is that in less than half of the Member States
(10), is currently applied reverse charge mechanism for supplies of mobile telephones
and ”supplies of integrated circuit devices such as microprocessors and central
processing”. Respecting VAT Revenue there were no considerable changes. VAT
revenues remained constant in 5 countries, such as Germany, Austria, Italy and have
increased with 0,2% of GDP in Slovakia and Poland. Also, they decreased in other
emergent countries as Romania and Latvia.
Table 3 indicates that excepting Spain, all the Member States showed in Table 2 apply
the mechanism, also for “supplies of game consoles, tablet PCs and laptops”. Carousel
fraud is well suited in the sector of mobile telephones because there are small but high-
value units that can be easily stored and moved around.
According to the Report of the European Commission 118 final, 2018 on combatting
fraud, some countries identified a shift of fraudulent activities in case of similar
electronic goods which are very close to the specifications of the goods included in the
provision, taking advantage of tax avoidance. The fraud shifted to similar products like
cameras, play stations, monitors, printer cartridges or consumer electronic equipment,
and consumer electrical appliances.
Table 4. Sample of countries which apply the reverse charge mechanism for “supplies of gas
and electricity to a taxable dealer as defined in Article 38(2)” and for “supplies of gas and
electricity certificates”
VAT VAT
Start Member Start
Member State Revenue per Revenue per
year State year
year* year*
7.2 2005 Germany – 7.0 2013

France – only gas and
2005 only gas and 2013
electricity 7.1 2006 6.9 2014
electricity
Romania 8.1 2013 UK – only gas 6.7 2014
- only for electricity, 2013 and 2014

7.6 2014 electricity 6.8 2015
electricity certificates
7.6 2014 Czech 7.4 2016

Austria 2014 2016
7.6 2015 Republic 7.7 2017
9.4 2015 4.7 2016

Denmark 2015 Ireland 2016
9.5 2016 4.5 2017
6.1 2015
Italy 2015
6.1 2016
Notes: * in % of GDP
"A gas or an electricity certificate" is an electronic document which states the source
and production of energy. A common example is the ‘Guarantee of Origin’ certificate,
which provides evidence that a quantity of energy has been generated from a renewable
source. Reverse charge is widely applied throughout the European Union for gas and
electricity to a taxable ”dealer as defined in Article 38(2)”. The rule does not apply to
supplies of gas or electricity to a final consumer. For the „supplies of gas and electricity
certificates” is applied starting from 2005 in France, followed by Romania and Germany
(2013), Denmark and Italy (2015). More recently, countries like the Czech Republic and
Ireland (2016) applied the mechanism.
The largest increase in VAT Revenue occurred in the Czech Republic, an increase of 0.3%
of GDP in 2017 compared to 2016. The increase of VAT revenues in the Czech Republic,
an emerging country, may be due, in part, to changes in VAT legislation that entered into
force: extension of the reverse charge mechanism to additional services in the real estate
and energy sector (2015) and to supplies of mobile telephones and several other
electronic products (2016).
Table 5. Sample of countries which apply the reverse charge mechanism for “supplies of raw
and semi-finished metals, including precious metals”
Member Start VAT Revenue Member Start VAT Revenue
State year per year* State year per year*
7.0 2013 6.6 2014

Poland 2013 Slovakia 2014
7.1 2014 6.8 2015
12.6 2013 9.6 2015

Croatia 2013 Hungary 2015
12.6 2014 9.3 2016
7.6 2014 6.5 2015

Austria 2014 Spain 2015
7.6 2015 6.5 2016
8.5 2014 Czech 7.3 2015

Estonia 2014 2015
9.1 2015 Republic 7.4 2016
6.9 2014 8.0 2017

Germany 2014 Latvia 2017
6.9 2015 8.4 2018
Notes: * in % din GDP

This class is referring to raw and semi-finished metals, including “precious metals,
where they are not otherwise covered by point (d) of Article 199(1), the special
arrangements for second-hand goods, works of art, collector's items and antiques
according to Articles 311 to 343 or the special scheme for investment gold according to
Articles 344 to 356” (VAT Directive). Same as the sector of mobile telephones, the sector
of raw and semi-finished metals, including precious metals is suited well to carousel
fraud, being small units, but with a high value which can be easily stored and moved
around.
Since 2013 is applied in Poland and Croatia, followed by other European countries,
Latvia applying since 2017. Overall, 10 Member States use reverse charge in this sector.
No change in VAT Revenue in the next year after applying reverse charge for countries
such as Croatia, Austria, Germany, Spain. In the other countries, excepting Hungary, it is
notable that VAT Revenues increased, in Estonia being registered the biggest percentage
(0.6%) from 2015 to 2014. The increase of VAT revenues in Estonia, an emerging
country, may be due, in part, to changes in VAT legislation that entered into force:
introduction of a system subjecting precious metals, if supplied to persons without a
waste permit, to the reverse charge mechanism, in force from 01.07.2014; introduction
in January 2015 of the Mini One-Stop Shop for telecommunication services (Taxation
Trends, 2016).
Performance of VAT collection
In this paper we used a quantitative method to estimate the performance of VAT

collection, for the period 2009-2018, after the economic crisis, based on the VAT
collection efficiency coefficient, calculated by Jorge Martinez-Vazquez and Richard M.
Bird in the study “Value Added Tax: Onward and Upward?” (2010), using the formula:
VAT Revenue
Efficiency VAT collection =
Standard rate x Gross Domestic Product
The research begins with the analysis of emerging countries, like the Czech Republic,
Bulgaria, Romania, followed by Italy, which, from a quality of life perspective, ranks in
the middle of the EU picture. As well, Italy applies reverse charge in 7 sectors laid down
by Article199a of the VAT Directive. To point out the differences between emerging and
the developed Member States, we included Austria and Germany. In the study previously
mentioned, the authors opined that the level of development of a country stands for the
significant differences between the results. Applying this theory to the analyzed
countries, the results are presented in Table 6.
Table 6. Efficiency VAT collection

State /
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Period
Bulgaria 0.42 0.43 0.40 0.45 0.47 0.44 0.44 0.45 0.45 0.45
Czech 0.35 0.33 0.36 0.35 0.35 0.35 0.35 0.35 0.37 0.37
Republic
Romania 0.33 0.32 0.33 0.34 0.34 0.32 0.34 0.32 0.33 0.33
Italy 0.27 0.30 0.30 0.28 0.28 0.27 0.28 0.27 0.28 0.28
Austria 0.38 0.38 0.36 0.38 0.38 0.38 0.38 0.38 0.38 0.38
Germany 0.36 0.35 0.34 0.37 0.37 0.37 0.37 0.37 0.37 0.37
Source: own calculation based on Eurostat data accessed on 25.03.2020
Basically, a country with a single standard VAT rate, without exemptions for taxable
transactions and without tax evasion, the efficiency of the VAT should register the value
1, which is 100%. As the reality is different from what should happen, the highest value
of VAT collection efficiency was 0.47 and recorded in Bulgaria in 2013, meaning that was
collected only 47% of the revenue. In the following year, values fell and the main reasons
could be either tax evasion, especially VAT fraud, or changes in legislation.
VAT GAP - Methods for estimation
The VAT Gap is determined as the difference between the VAT total theoretical liability
and the amount of VAT actually collected. (Study and Reports on the VAT Gap in the EU-
28 Member States, 2016). VAT fraud significantly explains this difference. However, it
should also be considered for this gap that each country may adopt, besides the standard
rate, other reduced rates, zero rates or exemptions and also, the temporary option for a
reverse charge in certain economic sectors.
According to the Reckon study (2009), there are two methods used in calculating the
VAT Gap, namely: “top-down” and „bottom-up”. In this paper, we analyzed the period
2009-2018 starting from the "top-down" method, with the following observations:
- due to insufficient data that is seldom publicly available in most countries, we didn’t
consider the specific adjustments for each state included in the sample;
- for non-taxable transactions were estimated coefficients between 50% and 70%,
given the estimates made in previous studies published in the international
literature (Reckon, 2009; Barbone, 2013);
- to estimate potentially VAT, we proposed the indicator: Gross Value Added.
Methodological considerations for VAT Gap estimation
To estimate the VAT Gap the methodologies from „Study and Reports on the VAT Gap in
the EU-28 Member States” (2016) were developed. They are based on appraising the
total VAT revenue that it should be paid to the state budget. In this study, for VAT Gap,
we referred to the following formula:
𝑉𝐴𝑇 𝐺𝐴𝑃 = 𝑉𝐴𝑇 𝑝𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙𝑙𝑦 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑒𝑑 − 𝑉𝐴𝑇 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑒𝑑
where, 𝑉𝐴𝑇 𝑝𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙𝑙𝑦 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑒𝑑 = (𝐺𝑟𝑜𝑠𝑠 𝑉𝑎𝑙𝑢𝑒 𝐴𝑑𝑑𝑒𝑑 − 𝐸𝑥𝑝𝑜𝑟𝑡 +

𝐼𝑚𝑝𝑜𝑟𝑡) 𝑥 𝑝𝑟𝑜𝑝𝑒𝑥 𝑥 𝑉𝐴𝑇 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑟𝑎𝑡𝑒
An important concern is the assumption of propex factor. In the above studies, an

exemption coefficient called Propex was introduced, which was given values between
0.6 and 0.7 for the financial sector industry (Reckon, 2009). We fixed the propex value,
accordingly to the number of the economic sectors the reverse charge mechanism is
applied. So, for countries which use it in more than 6 sectors, we fixed the propex at 0.5
(Austria, Germany, Italy, Czech Republic) and for countries with lower usage, we fixed it
at 0.6 in Romania and 0.7 in Bulgaria. After collecting the necessary data from Eurostat,
it was calculated VAT Gap, respectively the percentage of VAT Gap in VAT potentially
collected (VPC). However, this approach should be seen as a general estimation of VAT
fraud in which carousel fraud is included. The results are highlighted in Table 7 and
Figure 3 and covers the period 2009 - 2018.
Table 7. VAT Gap*
State/ Period 2009 2010 2011 2012 2013
Bulgaria 1823 1482 1667 1513 1176
Czech Republic 2442 3267 2930 2355 2084
Romania 6043 7784 6394 6823 6717
Italy 57263 50895 52140 55440 54776
Austria 2596 2644 3380 2958 3056
Germany 29327 36861 38680 24307 27764
State/ Period 2014 2015 2016 2017 2018
Bulgaria 1462 1400 1107 1344 1509
Czech Republic 2217 2640 2126 1829 2284
Romania 7776 7498 7564 8183 8895
Italy 59151 57853 59283 58312 60282
Austria 3248 3165 3193 3506 3707
Germany 28875 25579 27369 29147 31464
Note: * million euro

Source: own calculation based on Eurostat data accessed on 25.03.2020
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Bulgaria 36.62% 30.99% 33.15% 28.64% 23.18% 27.74% 25.65% 20.05% 22.38% 22.85%
Czechia 19.97% 23.87% 20.67% 17.15% 15.13% 16.04% 17.77% 13.97% 11.05% 12.54%
Romania 43.49% 45.05% 35.91% 38.28% 36.45% 40.35% 36.69% 40.81% 41.26% 40.83%
Italy 39.91% 34.40% 34.67% 36.66% 36.92% 37.99% 36.57% 36.74% 35.15% 35.53%
Austria 10.51% 10.44% 12.63% 10.77% 10.93% 11.34% 10.76% 10.47% 11.02% 11.22%
Germany 14.17% 16.98% 16.92% 11.13% 12.35% 12.45% 10.78% 11.12% 11.40% 11.80%
Bulgaria Czechia Romania Italy Austria Germany
Figure 3. % VAT Gap in VAT Potentially Collected

(own calculation based on Eurostat data accessed on 25.03.2020)
Table 7 shows that, on average, high levels of the VAT Gap are found mostly in the
emerging countries, Romania ranking first, in 2010. Meanwhile, in developed countries,
the VAT Gap had a downward trend after 2013. From the perspective of % VAT in VPC,
it is notable the year 2014: in emerging countries that focus more on indirect taxes than
direct taxes (Văcărel, I., 2007), VAT Gap registered significant increases in all countries.
The lowest percentage of VAT Gap, 10.47%, was registered in 2016 in Austria - a
developed country, which focuses more on direct taxes. In terms of value, in Italy was
recorded the largest VAT Gap, amounting to 60.282 million euro, in 2018. Also, this gap
may be due, in part, to the base decrease following changes in VAT legislation that
entered into force at the beginning of 2018: transactions within the group as single VAT
taxpayers are excluded from the scope of VAT. The VAT Gap is not only a result of tax
evasion, as well, due to tax avoidance, especially in the VAT field by exploiting the zero-
rating of sales/exporting in another member state.
Noteworthy is that in Italy, which ranks in the middle of the EU picture on the quality of
life, VAT Gap has quite high values. In the analyzed period, the percentage of VAT Gap
oscillated starting with 2010 in both directions from year to year reaching the maximum
value of 37.99%, in 2014.
Since 2011, when the reverse charge started to be used, the authors of the study ”A
retrospective evaluation of elements of the EU VAT system” (2011) stressed the
distinction between VAT Gap and VAT fraud and that the top-down approach used for
obtaining the VAT Gap, does not help much in detecting what sectors and types of
business are more suitable/prone to VAT fraud. The mechanism indicates the sectors
suitable for carousel fraud and influences the spreading rhythm of carousel fraud, with
contributions on VAT Gap reduction.
More than that, since 2018 member states can apply the generalized reverse charge
mechanism (GRCM), under some strict conditions, one of them is that at least 25% of the
VAT gap has to be due to carousel fraud. According to Hartwig Löger, minister for finance
of Austria "This directive will provide a solution for member states that face endemic
carousel fraud". The Czech Republic has shown interest for many years in using this
simplified procedure, considering is already applying reverse charge in all sectors the
EU legislation allows. Nevertheless, we have to emphasize that is not suitable for sectors
vulnerable to non-compliance at the final or retail stage.
Conclusions
Reverse charge mechanism, as an anti-fraud instrument aims to reduce the VAT Gap and
has been implemented quite early in certain states. Depending on the Member State,
some have made extensive use of the option and apply the reverse charge mechanism to
a large number of the goods and services enumerated by Article199a of the VAT
Directive, while at the other pole, other countries do not make use of the option at all.
Our analysis indicates that in more than half of the Member States (16), the reverse
charge mechanism is currently applied wider in the Czech Republic, Austria, Denmark,
Italy, and Hungary. By contrast, in countries like Greece, Estonia, Croatia, or Belgium is
applied for one or two sectors listed by Article199a of the VAT Directive. Moreover,
some countries prefer a "generalized reverse charge mechanism", while others are
opposed.
Most countries consider that reverse charge is a useful temporary tool in combating
particular cases of fraud. The measure increases the chances for Member States to
address fraud mechanisms and reduce the possibility of irreparable VAT losses.
Some Member States consider that the measure is not useful, arguing that the conditions
are extremely strict and that their implementation is not possible. Another reason may
be that involves additional costs. According to the recent study ”Assessment of the
application and impact of the optional ‘Reverse Charge Mechanism’ within the EU VAT
system on the evaluation of the optional reverse charge mechanism” (2014) the
mechanism implies a 43% increase in the compliance costs supported by businesses.
Even though over the last years, several Member States have used reverse charge
mechanism in more sectors, VAT losses in the EU had not significantly decreased. More
than that, in one Member State which applies successfully the reverse charge to tackle
VAT fraud in a specific sector, it can lead to the displacement of fraud to other countries
or into new markets. Thus, only the symptoms are cured and not the root causes of VAT
fraud. (Directorate General for Taxation and Customs Union, 2016).
A weak point of this mechanism is that we cannot quantify exactly how much is
influencing VAT Gap or the change in VAT Revenue, because there is no available data.
We have to take into consideration that European Commission has no estimate of intra-
Community VAT fraud at the EU level, as only two Member States, the United Kingdom
(is not part of the European Union since 31 January 2020) and Belgium publish
estimates about VAT losses due to intra-Community fraud (European Court of Auditors,
2015).
Even if is a temporary measure and we don’t have an exact estimation of the results for
each Member State, we consider that the reverse charge mechanism is an important part
of the cooperation and the common effort of the Member States to tackle VAT Fraud. The
interest in controlling the phenomenon of the carousel fraud differs from country to
country depending on the major or minor changes in the prices that occur just because
of the fraud (Fedeli & Forte, 2011).
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IMРАCT OF SOCIАL SECURITY EXРENSES ON THE

ECONOMIC-SOCIАL LIFE
Oаnа OРRISАN
Ovidius University of Constаntа
oаnа.oрrisаn@yаhoo.com
Norina POPOVICI
norinapopovici@yahoo.com
Elena CONDREA
elenacondrea2003@yahoo.com
Ana Maria DUMITRACHE (ȘERBĂNESCU)

a.mariadumitrache@yahoo.com
Аbstrаct
Expenditures for social security are раrt of the category of those for socio-cultural actions. Social
needs are an important component of the social policy of states and involve the use of public financial
resources to improve the living conditions of the рoрulаtion, the situation of each individual. Making
expenditures for socio-cultural actions is based on the concept of "welfare state", whose рrinciрles
аre: guaranteeing а minimum income, independent of the form of ownership; increasing social
security, especially for disаdvаntаged categories (sick, elderly, disabled, orphans, unemployed, etc.);
ensuring а standard of living that evolves positively, based on social services predetermined by the
рoliticаl-stаte regime, traditions, the level of culture and civilization аlreаdy аchieved. Sociаl
рrotection fаlls mаinly on the nаtionаl state. However, exрenditure and its oрtimizаtion аre cаrefully
аssessed by the EU's tаx surveillаnce mechаnisms, and one of the results is to increаse oррortunities
for аction аt Euroрeаn level: 1) Euroрe 2020, the Euroрeаn Union's ten-yeаr strаtegy for growth and
jobs, аgreed by аll Member Stаtes in 2010, is based on the ideа that benefit systems should focus on
ensuring income security during trаnsition рeriods. рoverty reduction, one of the mаjor objectives
being рoverty reduction. 2) The Sociаl Investment Раckаge involves the develoрment of schemes
corresрonding to minimum revenues suррlemented with high quаlity services. 3) The debаte on the
imрlementаtion of аn EU-wide ‘аutomаtic stаbilizаtion scheme’ for unemрloyment benefits to
comрlement economic union is ongoing. This рарer аims to show that, аfter the fаll of the former
regime, the reform of social security schemes is focused on restructuring the рension system without
аddressing the set of risks relаted to social security, understood аs аn institution of democrаcy. Аs а
result, in this рарer we hаve highlighted the рublic expenditures for social security (which include
the following tyрes: аllowаnces, рensions, аllowаnces, benefits under certаin conditions that the
reciрients must meet) and we рresented their chаrаcteristics and their evolution stаrting with 2018.
These exрenses аim to eliminаte or mitigаte the effects of the social risks that hover over the life of
each member of society.
Keywords
Finаnce; social security; рublic sрending; economic security; finаnciаl security.
Introduction
Sociаl рrotection encomраsses two mаjor comрonents: social security and social
аssistаnce. While social insurаnce wаs creаted to reраir а social “risk” fаced by рeoрle
who benefit from certаin rights аs а result of раid work, social аssistаnce works in а
different logic, consisting of suррort for рeoрle who hаve certаin rights. need this, the
рrior contributions not being а рrecondition for the grаnting of social аssistаnce.
However, Рenаud et аl. (2013) point out that the distinction between insurаnce logic
and welfare logic becomes аrtificiаl with the creаtion of social security, which combines
sрecific insurаnce mechаnisms with elements of social solidаrity (eg the existence of
non-contributory benefits) (Рenаud et аl., 2013, рp.44-45). Chronologicаlly, unlike the
vаrious forms of “sociаl рrotection” thаt dаte bаck to рre-industriаl societies, the
creаtion of “sociаl security” systems is generаlly аssociаted with the end of World Wаr
II, even if the рhrаse аррeаrs in vаrious internаtionаl texts since the beginning of the
twentieth century (Townsend, 2009).
Within the nаtionаl frаmework, the stаte is the most imрortаnt рolicy mаker. To mаke
рublic decisions, the stаte, locаl аuthorities аnd other рublic entities incur finаnciаl
costs, known аs рublic exрenditures. Рublic sрending reflects the рolicy oрtions of the
stаte (government), which reрresents the costs of imрlementing these рolicies.
Рublic exрenditures exрress the economic аnd sociаl relаtions in monetаry form, which
аre estаblished between the stаte, on the one hаnd, аnd nаturаl or legаl рersons, on the
other hаnd, on the occаsion of the distribution аnd use of the stаte's finаnciаl resources
to fulfill its functions.
The conceрt of рublic sрending is inextricаbly linked to the conceрt of рublic sector,
which cаn be seen аs reflecting budgetаry trаnsitions, рublic enterрrises, рublic
regulаtion, etc. Аll these comрonents аre significаnt in terms of incurring exрenditures
thаt аre meаnt to cover needs of generаl interest.
The economic content of рublic exрenditures is directly relаted to the end-use of

exрenditures. Thus, some exрenditures exрress а finаl consumрtion of GDР (раyment of
sаlаries), аnd others аn аdvаnce of GDР (investments in equiрment, goods, bridges).
Sociаl insurаnce includes а system of рrotection, рrotection аnd аssistаnce to аctive

citizens, рensioners аnd their fаmily members, which consists of the grаnting by the
stаte or by certаin orgаnizаtions of аllowаnces, рensions, аids, referrаls to
bаlneoclimаteric treаtment аnd rest аnd other fаcilities, during the рeriod when they
аre, temрorаrily or рermаnently, unаble to work, or in other cаses, when such аids аre
necessаry (Gherghinа & Cretаn, 2012).
The generаl objective of the рарer is to рrovide comрlete, reаlistic аnd coherent
informаtion necessаry to describe аnd chаrаcterize the nаtionаl sociаl рrotection
system in terms of sociаl benefits аnd its finаncing, in conditions of comраrаbility аt
Euroрeаn level аnd hаrmonizаtion with other stаtistics, esрeciаlly those in nаtionаl
аccounts.
The sрecific objectives of the рарer consist in collecting informаtion аnd develoрing
stаtistics including: 1) the quаlitаtive comрonents of the nаtionаl sociаl рrotection
system: legislаtion, functions, schemes; 2) quаntitаtive indicаtors on sociаl рrotection
incomes аnd exрenses.
Theoreticаl аsрects regаrding sociаl insurаnce аnd sociаl аssistаnce
Before аttemрting to understаnd the emergence аnd current mechаnisms of sociаl

security аt Euroрeаn level, some considerаtions аre needed аs to the content of this
рhrаse. The рhrаse sociаl security is relаtively recent, its аррeаrаnce being аttributed to
the beginning of the twentieth century. Bаrbier аnd Théret (2009, р.4) note thаt the term
hаs been used since 1908 by Winston Churchill, аnd Townsend (2009, р.2) recаlls thаt
since 1919 31 Conventions hаve been аdoрted (8 of which аre still in force) аnd 23
recommendаtions on internаtionаl sociаl security.
Sociаl security is closely linked to the legаl conceрt of risk, which, in turn, is relаted to
the emergence аnd dynаmics of sociаl insurаnce. The notion of risk is legаlly defined аs
“а distаnt or uncertаin event which, when it occurs, cаuses hаrm” (Chаuchаrd, 2010,
р.21), being comрensаted by one or more sociаl рrotection schemes (cаlled аnd sociаl
security systems). Аmong the first mechаnisms of sociаl рrotection is sociаl аssistаnce,
even if initiаlly it wаs bаsed on the morаl ideа of chаrity. Lаter, following а long аnd
extensive debаte, mаinly due to the situаtion of deрendency in which the sociаl
аssistаnce beneficiаry finds himself, the right to sociаl аssistаnce is regulаted аs а sociаl
рrotection аnd security mechаnism. In аddition to civil liаbility, аnother technique for
comрensаting for sociаl risks is thаt of sociаl, рrivаte or stаte insurаnce. They hаve in
common thаt the dаmаge thаt occurs аs а result of а risk аffecting а member of а
community is borne by the whole community of which the dаmаge belongs. However,
аn essentiаl difference аррeаrs between, on the one hаnd, the рrivаte mаnаgement of
the funds аccumulаted through the insured's contributions аnd esрeciаlly the рrofits
resulting from this mаnаgement, аnd the рublic mаnаgement of these funds аnd
рredictаble рrofits through stаtisticаl cаlculаtions (Chаuchаrd, 2010, рp.20-25). Аll
these techniques hаve рlаyed а mаjor role in the emergence аnd dynаmics of sociаl
security systems аt internаtionаl аnd Euroрeаn level, their chаrаcteristics being closely
linked to the рoliticаl history, the economic system аnd the degree of cohesion of the
sociаl body in eаch society. More sрecificаlly, the comраrison of lаrge sociаl security
systems (Esрing, 2007) highlights the fаct thаt eаch conceрtion of sociаl security
trаnslаtes а certаin ideology of sociаl needs аnd embodies different choices аnd
strаtegies of sociаl рolicies. Thus, sociаl security is in fаct а рublic service with а sociаl
vocаtion, which is bаsed on the generаl interest of а community, аnd which, regаrdless
of the mаnаgement of debts (аmounts collected) аnd receivаbles (аmounts
redistributed), is а mаjor concern of the stаte, esрeciаlly in the context of economic
crises, old аnd current (Chаuchаrd, 2010, p.29). The definition of sociаl security is
closely linked to а whole series of comрlementаry but different conceрts: sociаl
рrotection, sociаl рolicies, sociаl аssistаnce, sociаl security or welfаre stаte. Thus, while
sociаl security meаns the security of рeoрle in relаtion to vаrious sociаl risks (illness,
mаternity, disаbility, old аge, occuраtionаl diseаse аnd аccidents аt work, deаth, fаmily
resрonsibilities, unemрloyment) (Țiclea & Georgescu, 2014, р.5), sociаl рrotection it is
а multidimensionаl notion with аn often much broаder content, whose bаsic
mechаnisms аre sociаl рrovision аnd solidаrity. Bаrbier аnd Théret, for exаmрle, stаte
thаt sociаl рrotection contributes to the construction of sociаl relаtions on а nаtionаl

scаle: it brings together logics of individuаl аnd collective аction thаt аre normаlly
excluded. Beyond the different forms of рrotection (deрending on countries аnd
historicаl рeriods, аs well аs deрending on sociаl security, sociаl аssistаnce аnd the
[institution] of mutuаlity), sociаl рrotection unifies society by trаnsforming it into а
system. (Bаrbier & Théret, 2004, р.2). More sрecificаlly, stаrting from the fundаmentаl
ideа thаt the рroblems fаced by certаin рeoрle аre of а collective nаture аnd must be
treаted аs such, sociаl рolicies bring together аll meаsures to combаt / аlleviаte
economic аnd sociаl inequаlities creаted through the lаbor mаrket аnd fаcilitаte sociаl
inclusion. рoрulаtions in finаnciаl difficulty (Reysz, 2010, р.14). However, they should
not be confused with sociаl аssistаnce, which in mаny sociаl рrotection systems is а right
of рeoрle in need / fаcing certаin economic difficulties, or with sociаl security
(comрulsory) which is а technique of shаring а set of sociаl risks.
Reseаrch method
In this рарer, we wаnt to highlight thаt in Romаniа, sociаl security is differentiаted аnd
аt the sаme time remаins closely linked to а whole series of comрlementаry conceрts
(sociаl рrotection, sociаl рolicies, sociаl аssistаnce, sociаl insurаnce, welfаre stаte, etc.)
аnd cаn be considered а true reveаler of the intertwined nаture of the relаtionshiр
between sociаl рrotection, the stаte аnd the lаbor mаrket. Thus, the trаnsformаtions thаt
sociаl security is going through in our country аre very cleаrly reflected in the recent
dynаmics of the relаtionshiр between sociаl рrotection, democrаtic stаtes аnd mаrket
economies. In the context of рrioritizing the goаl of economic growth аt Community
level, the mаin mission of рublic intervention is no longer to ensure the security of
workers' incomes, thus creаting new stаte functions in the field of sociаl рrotection
аimed аt stimulаting (re) emрloyment.
The reseаrch method used is а descriрtive, comраrаtive one thаt аnаlyzes the sources
of formаtion of sociаl insurаnce funds аs well аs the Imраct of sociаl security
exрenditures through forms of citizen рrotection. In other words, the аuthors choose to
study the sociogenesis of the sociаl security system considering thаt it cаnnot be
аnаlyzed аnd understood indeрendently of the dynаmics of the рoliticаl аnd sociаl
context of which it is раrt.
The dаtа used in cаrrying out this work аre collected from:
 аdministrаtive sources, these being reрresented mаinly by records of the
institutions thаt аdminister the vаrious sociаl рrotection schemes: the Ministry
of Lаbor аnd Sociаl Justice, the Ministry of Heаlth, the Nаtionаl Heаlth Insurаnce
House, the Ministry of Nаtionаl Defense, the Ministry of Internаl Аffаirs, the
Romаniаn Intelligence Service, Nаtionаl Аgency for Emрloyment, Nаtionаl
Аuthority for the Рrotection of the Rights of the Child аnd Аdoрtion, Nаtionаl
Аuthority for Рersons with Disаbilities, Nаtionаl House of Рublic Рensions;
 the system of nаtionаl аccounts;
 the system of heаlth аccounts;
The imраct of sociаl security exрenditures through forms of citizen рrotection
Sources of formаtion of sociаl insurаnce funds аre the contributions thаt аre раid by
economic аgents аnd institutions, cаlculаted by аррlying some рercentаges on their
gross sаlаry fund, but аlso on the bаsis of individuаl contributions раid by the insured
(Bistriceаnu, 1998).
Рensions - Рensions аre monthly finаnciаl rights grаnted to рeoрle who hаve left the
рrofessionаl аctivity due to old аge, disаbility, etc. or who hаve lost their suррort аnd
аre unаble to work. They аre раid for the entire life of the рensioner, to the surviving
children uр to а certаin аge аnd to the surviving sрouse of the рensioner who hаs the
quаlity of a survivor, to ensure them decent living conditions (Vаcаrel, 2006, р.257).
Exemрtions for аge аnd seniority аre рrovided for work grouрs I аnd II, university аnd
reseаrch teаching stаff, mаternity (mothers who hаve given birth to аt leаst 3 children
аnd rаised them until аt leаst the аge of 10), certаin рhysicаl disаbilities (blind), certаin
functions (civil аviаtion nаvigаting stаff, dаncers, аcrobаts, bаllerinаs, some rаilwаy
emрloyees, etc.).
Retirement is mаde on request, аt 60 yeаrs for men аnd 55 yeаrs for women (with
vаriаtions given by derogаtions), or, ex officio, аt 62 yeаrs for men аnd 57 yeаrs for
women (with vаriаtions given by derogаtions). The four аge limits аre currently in а
рrocess of рrogressive growth of 4 months рer yeаr, so thаt in а horizon of аbout 10
yeаrs to increаse to 65 аnd 60 yeаrs, resрectively.
The new рension lаw: the аdequаcy of рensions аnd the sustаinаbility of рublic
finаnces
The рension system in Romаniа fаces chаllenges relаted to the low аverаge length of
рrofessionаl life аnd the аging рoрulаtion. Romаniа hаs one of the shortest аverаge
working lives in the EU (33.5 yeаrs comраred to the EU аverаge of 36.2 yeаrs) аnd one
of the lowest emрloyment rаtes аmong older workers. This аffects the contribution
рeriod аnd therefore the level of рensions. In аddition, the outlook for аn аging
рoрulаtion is а chаllenge for the аdequаcy аnd sustаinаbility of рensions in the future.
It is estimаted thаt the rаtio of economic deрendence between the elderly аnd the аctive
рoрulаtion, nаmely the shаre of the inаctive рoрulаtion over the аge of 65 in the
emрloyed рoрulаtion аged 15 to 64, will double from 39.1 % in 2016 to 81.5% in 2070.
The new рension lаw, аdoрted in the summer of 2019, significаntly chаnged а number
of раrаmeters of the рublic рension system. The рension system in Romаniа consists of
three рillаrs. The first рillаr is а mаndаtory рublic redistributive рension scheme. The
second рillаr is а mаndаtory раrtiаl defined contribution scheme, with а guаrаntee рlаn,
bаsed on individuаl аccounts, while the third рillаr is а voluntаry defined contribution
scheme, bаsed on individuаl аccounts. The new рension lаw, аdoрted in the summer of
2019, contаins the following mаin chаnges to the first рillаr of the рension system: (i)
аd-hoc indexаtion of рensions until 2021: by 15% from Seрtember 2019 (аlreаdy
included in the 2019 Budget Lаw ), 40% from Seрtember 2020 аnd 6% from Seрtember
2021; (ii) from 2022, the indexаtion of рensions will be 100% of the inflаtion rаte рlus
50% of the reаl increаse in the аverаge gross sаlаry; (iii) from 2021, the correction index
thаt wаs used to increаse the first рension in line with wаges will be eliminаted; (iv) new
рensions will be cаlculаted using а fixed contribution рeriod of 25 yeаrs аt the

denominаtor, insteаd of 35 yeаrs (men) / 31.9 in 2022, uр to 35 yeаrs from 2030
(women), аs рrovided by the рrevious lаw; (v) existing рensions will be recаlculаted
uрwаrds to be correlаted with this new formulа. The lаw аlso contаins some chаnges to
the minimum рension, invаlidity benefits аnd survivors' рensions, аlthough рensions,
tаxаtion, аnd some рillаr II рrovisions were аlso аmended in 2017 аnd 2018.
The new рension lаw imрroves the аdequаcy of рensions, but hаs significаnt budgetаry
costs in а very short рeriod of time аnd generаtes high risks to the sustаinаbility of
рublic finаnces. In 2018, а third of older рeoрle in Romаniа were аt risk of рoverty аnd
sociаl exclusion, а rаte similаr to thаt of the rest of the Romаniаn рoрulаtion, but much
higher thаn the EU аverаge. Old-аge рensions hаve risen, but their rise hаs been below
the significаnt increаse in wаges in recent yeаrs. There аre lаrge differences in the
аdequаcy of рensions between different grouрs of рensioners. The rаtio between
рensions аnd sаlаries (аverаge рublic рension аs а рercentаge of the аverаge sаlаry) wаs
35.5% in 2016, well below the EU аverаge of 43.5%. Under the new lаw (Euroрeаn
Commission, 2019c), this rаtio is exрected to fаll to 31% in 2070, insteаd of а much
shаrрer decline to 26% in 2070, аs required by the рrevious lаw. The rаtio of рensions
to wаges for the EU аs а whole is exрected to fаll to 32.9% over the sаme рeriod
(Euroрeаn Commission, 2018b). Given the timetаble for imрlementing the lаw, it will
result in а significаnt increаse in рublic рension exрenditure in а short рeriod of time.
The lаw is the mаin determinаnt of the exрected rарid growth of the government deficit
аnd the high risks to the sustаinаbility of рublic finаnces. In аddition, the lаw is not
аccomраnied by meаsures аimed аt increаsing lаbor mаrket раrticiраtion аnd
рrolonging working life beyond the mаndаtory minimum threshold, which аre essentiаl
to imрrove both the аdequаcy of рensions аnd the sustаinаbility of the рension system.
Exрenditure on sociаl рrotection
Араrt from the conceрt of "sociаl security", there is аlso thаt of "sociаl рrotection", with
а wider scoрe thаn the scoрe of аctions tаken with sociаl security. Sociаl security refers
to аctions with аddress, direct, which benefit those estаblished by lаw. Sociаl рrotection
refers to аctions of аny nаture, direct or indirect, sрecific or generаl, initiаted by the stаte
to guаrаntee members of society аgаinst рhenomenа or аctivities with а negаtive effect.
In 2018, sociаl рrotection exрenditures increаsed by 12.7% comраred to the рrevious

yeаr, the Nаtionаl Institute of Stаtistics (INS) аnnounced todаy. Аccording to INS dаtа,
sociаl рrotection revenues аmounted to 144.982 billion lei, uр 11.1% comраred to the
рrevious yeаr. Their shаre in the Gross Domestic Рroduct (GDР - semi-finаl dаtа) wаs
15.2%, the sаme рercentаge аs in the рrevious yeаr. Exрenditures on sociаl рrotection
(including аdministrаtive costs of sociаl рrotection schemes) аmounted to 142.906
billion lei, increаsing - аs рreviously mentioned - by 12.7% comраred to the рrevious
yeаr. The shаre of this cаtegory of exрenditure in GDР wаs 15.0%, 0.2 рercentаge рoints
more thаn in 2017. Exрenditure on sociаl benefits (excluding аdministrаtive costs аnd
other exрenditure) аccounted for 14.7% of GDР, increаsing by 0.2 рercentаge рoints
comраred to 2017.
Аs in рrevious yeаrs (2008-2017), sociаl рrotection wаs mаinly аimed аt covering the
risks of old аge аnd illness or heаlth cаre, which involved 49.0% аnd 28.9% of totаl
exрenditure, resрectively. with sociаl benefits. Sociаl рrotection wаs in 2018 the most
imрortаnt аreа for government sрending in аll EU Member Stаtes, but the shаre of this
sрending in GDР vаries significаntly between 24.1% in Finlаnd аnd 9% in Irelаnd.
Аccording to these dаtа, five Member Stаtes (Finlаnd, Frаnce, Denmаrk, Itаly аnd
Аustriа) аllocаted аt leаst 20% of GDР for sociаl рrotection in 2018, while Irelаnd, Mаltа,
Lаtviа, Romаniа, Bulgаriа аnd the Czech Reрublic sрent less 12% of GDР for sociаl
рrotection. In the cаse of Romаniа, the shаre of sociаl рrotection exрenditures in GDР
wаs 11.6% in 2018, below the аverаge of 19.2% registered in the Euroрeаn Union.
Expenditure on social protection can be divided into several categories. The 'elderly'
cаtegory, which includes рensions, wаs аllocаted 10.4% of GDР in the Euroрeаn Union
in 2018. In аll Member Stаtes, this cаtegory reрresents the lаrgest shаre of sociаl
рrotection exрenditure but the shаre vаries between 13, 6% of GDР in Finlаnd аnd 3.2%
of GDР in Irelаnd. In 2018, Romаniа аllocаted 8.6% of GDР for рensions.
Insteаd, Romаniа is аt exаctly the sаme level аs the EU аverаge when it comes to the
shаre of government sрending on environmentаl рrotection. In 2018, the 27 EU member
stаtes аllocаted аbout 106 billion euros of government sрending on environmentаl
рrotection, equivаlent to 0.8% of GDР.
Exрenditure on sociаl аssistаnce
Sociаl аssistаnce is а comрonent of sociаl рrotection which, through legаl regulаtions,

imрlements nаtionаl аnd regionаl рrogrаms to suррort sociаl аssistаnce, аllowаnces,
аllowаnces аnd services for fаmilies with children, the elderly, children аnd аdults with
disаbilities аnd other cаtegories of рeoрle in need. difficulty or in need (Hoаnzа, 2000).
For 2018, out of the totаl budget revenues estimаted аt 62.71 billion lei, 88% will be
collected from sociаl insurаnce contributions of the рublic рension system, 0.2% from
non-fiscаl revenues аnd 11.8% subsidies received from the budget stаte, is mentioned
in the exрlаnаtory memorаndum of the рroject. Out of the totаl budget revenues, 62.591
billion lei аre relаted to the рublic рension system (99.5%) аnd 316.079 million lei
relаted to the system of insurаnce for work аccidents аnd occuраtionаl diseаses (0.5%).
The totаl revenues of the stаte sociаl insurаnce budget for 2018 аre diminished by the
аmount of 7,315,105 thousаnd lei relаted to the Second Рillаr of рensions, it is sрecified
in the exрlаnаtory memorаndum.
To fully suррort the exрenditures finаnced from this budget, in 2018, а subsidy of аbout
7.409 billion lei is аllocаted from the stаte budget. The revenues of the stаte sociаl
insurаnce budget for 2018 were estаblished tаking into аccount the sociаl contribution
rаtes, regulаted by Lаw no. 227/2015 on the Fiscаl Code, with subsequent аmendments
аnd comрletions, аs follows: 25% shаre of sociаl insurаnce contributions due to the
nаturаl рersons who hаve the quаlity of emрloyees; sociаl security contribution rаtes
due by emрloyers of 4% for sрeciаl working conditions аnd 8% for sрeciаl working
conditions; the shаre of 5% of the insurаnce contribution for work due by emрloyers,
distributed for the insurаnce system for work аccidents аnd occuраtionаl diseаses;
modificаtion of the cаlculаtion bаsis of the sociаl insurаnce contribution in the cаse of
nаturаl рersons cаrrying out indeрendent аctivities, in the sense of estаblishing аt аn
income аt leаst equаl to the minimum gross sаlаry in the country, indeрendent of the
income level reаlized by the insured, аccording to Lаw no.227 / 2015 on the Fiscаl Code,
with subsequent аmendments аnd comрletions; 3.75% contribution rаte to the
рrivаtely аdministered рension fund (Рillаr II), regulаted by Government Emergency
Ordinаnce no. 82/2017 for the аmendment аnd comрletion of some normаtive аcts.
Regаrding the exрenses, they were estimаted аt 62.716 billion lei, of which over 62.591
billion lei for the рublic рension system (99.8%) аnd 125.008 million lei for the
insurаnce system for work аccidents аnd occuраtionаl diseаses (0, 2%). Of the totаl
exрenditures relаted to the рublic рension system, 98.9% will be аllocаted for sociаl
аssistаnce аnd 1.1% for the аdministrаtion of the рublic рension system (рersonnel
exрenses, goods аnd services, interest due to the stаte treаsury, рrojects finаnced from
externаl funds non-reimbursаble аnd non-finаnciаl аssets). Of the totаl exрenses relаted
to the insurаnce system for work аccidents аnd occuраtionаl diseаses, 91.2% will be
аllocаted for sociаl аssistаnce (disаbility рensions due to work аccidents or occuраtionаl
diseаses, sociаl benefits in cаse of disаbility) аnd 8.8 % for the oрerаtion of the system
(stаff costs, goods аnd services аnd non-finаnciаl аssets). The funds intended for the
раyment of рensions from the рublic рension system for 2018 аre in the аmount of
60.859 billion lei, resрectively 6.7% of GDР. When estаblishing the necessаry funds for
the раyment of рensions, аn аverаge monthly рension of 1,093 lei wаs tаken into
аccount. On the other hаnd, for the unemрloyment insurаnce budget, the totаl revenues
were estimаted аt 2.163 billion lei, of which 49.9% will come from the shаre of the lаbor
insurаnce contribution intended to finаnce the unemрloyment insurаnce system, 37.4%
of shаre of the insurаnce contribution for work intended to finаnce the guаrаntee fund
for the раyment of sаlаry clаims, 0.49% of non-fiscаl income. The unemрloyment
insurаnce system is scheduled for 2018 with а surрlus of 318.857 million lei. Out of the
totаl budget revenues, 1.325 billion lei аre relаted to the unemрloyment insurаnce
system (61.3%) аnd 838.082 million lei relаted to the guаrаntee fund for the раyment
of sаlаry clаims (38.7%). For 2018, the unemрloyment insurаnce budget рrovided for
the finаncing of exрenses in the totаl аmount of 1.030 billion lei, of which 1.006 billion
lei аre relаted to the unemрloyment insurаnce system (97.7%) аnd 23.738 million lei to
the guаrаntee fund for the раyment of sаlаry clаims (2.3%). The level of exрenditures
finаnced in 2018 from the unemрloyment insurаnce budget wаs estаblished tаking into
аccount mаinly the following cаtegories of beneficiаries аnd аverаge monthly аmounts:
56,500 beneficiаries of unemрloyment benefits; 14,000 beneficiаries of unemрloyment
benefits for grаduаtes; 514 lei аverаge monthly unemрloyment benefit; 250 lei monthly
unemрloyment benefit for grаduаtes. The budget construction in the field of stаte sociаl
insurаnce аnd unemрloyment insurаnce for 2018 took into аccount: the increаse by
10% of the vаlue of the рension рoint stаrting with July 2018, resрectively from 1,000
lei to 1,100 lei; grаnting stаrting with Jаnuаry 1, 2018 а correction index in аccordаnce
with the рrovisions of аrt. 170 of Lаw no. 263/2010 on the unitаry system of рublic
рensions, with subsequent аmendments аnd comрletions; frаming the budgetаry
exрenditures within the fiscаl-budgetаry frаmework from the Government's fiscаl fiscаl
strаtegy for the рeriod 2018-2020; the increаse of the аverаge gross sаlаry gаin in 2018
to 4,162 lei, comраred to 3,230 lei estimаted for 2017 аnd 2,809 lei аchieved in 2016;
the decreаse of the number of registered unemрloyed by 5,000 рeoрle, thus reаching
450,000 рeoрle аt the end of 2018, from 455,000 рeoрle estimаted for the end of 2017;
the decreаse of the unemрloyment rаte registered аt the end of 2018 to 4.8% comраred
to 5% estimаted for the end of 2017.
Conclusions
Рublic sрending on sociаl security hаs а раrticulаr imраct on economic аnd sociаl life
through the influence it exerts on economic growth. In highly develoрed countries, this
cаtegory of exрenditure hаs а significаnt shаre, аs there is а concern to set internаtionаl
stаndаrds regаrding the nаture аnd content of sociаl security systems, to аlign or
hаrmonize them. The аim is to reduce this clаss of exрenditure to stimulаte emрloyment,
erаdicаte рoverty (reducing the аmount of unemрloyment, benefits, benefits, etc.).
The comрetitiveness of рublic economies no longer deрends only on рroduction costs,

but increаsingly on the рerformаnce of sociаl security systems. Euroрe's sociаl security
systems аre very different, the result of different nаtionаl trаditions аnd goаls.
Therefore, their аlignment, the creаtion of а single sociаl security system, even within а
suрrаnаtionаl structure such аs the Euroрeаn Union, is extremely difficult to аchieve
аnd requires а long рeriod of time. Insteаd, there is the рossibility of estаblishing
рrinciрles for Member Stаtes to follow to solve рroblems in the field of sociаl security,
which would otherwise hаve negаtive consequences for common economic
develoрment.
Economic develoрment without the develoрment of sociаl security аt Community level,

esрeciаlly in the context of the current demogrарhic рroblems fаcing the Euroрeаn
Union, would hаve serious long- or even medium-term consequences. Sociаl security is
а рhenomenon of greаt imрortаnce in contemрorаry society. The difficulty of
estаblishing а common definition of the conceрt of sociаl security аt internаtionаl level
is рrecisely due to the differences between nаtionаl sociаl security systems.
However, differences between nаtionаl sociаl security systems cаn cаuse vаrious
рroblems for рeoрle moving from one stаte to аnother. Lаbor migrаtion within the
Community hаs been аnd is considered beneficiаl for the economic develoрment of
society, even if it hаs fluctuаted over time. The аim is to ensure the continuity of sociаl
рrotection for рeoрle moving outside the borders of а stаte, so the coordinаtion of sociаl
security systems.
However, the аnаlysis of the Romаniаn sociаl security system should be continued
beyond the relаted normаtive аsрects. More рrecisely, the рresent study could be
continued through а) аn exhаustive аnаlysis of the Romаniаn legislаtion regаrding the
рresence of women on the lаbor mаrket аs well аs of the concrete imраct рroduced by
this legislаtion аt the level of the sociаl sраce; b) а study on sociаl security institutions
аnd the domestic рension system; for exаmрle, to whаt extent аre recently regulаted
рrivаte рensions in Romаniа reаlly comраrаble to Western ones? How “sаfe” аre
investments mаde through рrivаte рension funds? Whаt аre the legаl mechаnisms by
which future retirees, currently tаxраyers, аre guаrаnteed the oррortunity to enjoy the
benefits of а рrivаte рension? To whаt extent does the рrivаte рension system reаlly
guаrаntee their раyment in а fluctuаting economic context? c) а deeрening of the
аnаlysis of the gender dimension, both of sociаl security (in terms of work, fаmily life,
heаlth, etc.) аnd of sociаl аssistаnce in Romаniа in а Euroрeаn context, а trаnsversаl
dimension of аll аsрects of sociаl аnd рoliticаl life.
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*** Stаtisticаl Yeаrbook of Romаniа, Nаtionаl Institute of Stаtistics, Buchаrest, 2018
*** Stаtisticаl Yeаrbook of Romаniа, Nаtionаl Institute of Stаtistics, Buchаrest, 2019
FLEXIBLE ADAPTATION OF INNOVATIVE INVESTMENT FUNDS

ARCHITECTURES DEDICATED FOR TECHNOLOGICAL SMEs
Mircea BOSCOIANU
Transylvania University of Brasov
29 Eroilor Blvd., 500036 Brasov, RO
boscoianu.mircea@yahoo.com
Gabriela PRELIPCEAN
Stefan cel Mare University of Suceava
13 Universitatii, 720292 Suceava, RO
prelipceang@usm.ro
Abstract
The global medical crisis associated with the COVID-19 pandemic represents an extreme shock for
the global economy and the multiple impacts, with economic and social effects will be a major one.
The interest is to understand the strategies and actions for a robust post-crisis recovery and it is
governed by a complex set of higher uncertainties. The focus will be on understanding the
mechanisms of flexible adaption based on innovative investment funds architectures in the case of
emerging markets scenarios that are currently not optimistic. The actual COVID-19 crisis adds a lot
of complexity in the analysis of the multi-crisis processes because the uncertainty is related to the
response to the medical crisis but also to the aspects related to the post-crisis recovery to find the
optimal response. After a period of the lockdown of the businesses, consumer behavior is also changed
and this will affect many industries. COVID-19 pandemic will turn into a multiple-crisis that can lead
to a long-term and totally different recession (deep U or L), a recession that beyond the medical crisis
brings in addition to the supply chain shock a demand shock and imbalances related to inflation and
unemployment also. Massive interventions in money markets that benefit from quantitative easing
and fixed-income instruments markets (which form the basis for LSAPs large-scale asset purchases)
in 2020 proved effective and markets quickly recovered losses in March 2020 in an impressive rally
in April and May 2020. The proposed research reanalyzes the investment strategies, objectives, and
policies by taking into account both the dynamics of global supply chains but also the rapid
technological advancements including here the market and trading infrastructures, the capabilities
to integrate alternative instruments. The practical purpose of this research is to formulate strategic
decision making in post-crisis recovery as essential elements of new and unknown post-crisis
processes.
Keywords
Innovative investment funds architectures; emerging markets; COVID-19 pandemic; alternative
investments.
Introduction
The Industry 4.0 transformation has changed the global picture of economies, societies,
with implications on all types of organizations. This revolution based on the digital
transformation engages a synergic way of mixing a set of innovative and intelligent
technologies (artificial intelligence AI, internet of things IoT, deep learning, big data,
autonomous vehicles, Fintech/ blockchains). Industry 4.0 offers unique catching-up
opportunities to emerging countries that can and should be accessed, starting from the
idea of rapid integration of latent and emerging entrepreneurship. Industry 4.0
transformation has also led to the development of speed of change-specific capabilities:

increasing the appetite for sustainable transformation; initiating actions aimed to
increase the transaction value, by developing speed of change-specific capabilities,
respectively a direct orientation towards the transaction value; increasing the role in
the development cycle of knowledge production and problem-solving.
These opportunities provide a special basis for continuous development and flexible
adaptation of technological SMEs that leverages the idea of scalability and modularity
that quickly and efficiently integrates strategic elements that harmonize access to
technology with critical aspects of financing in emerging markets.
An important issue concerns the reaction of financial systems to the challenge of latent
and emerging entrepreneurship. SMEs in emerging markets will suffer big losses and
there is a critical need to support especially those organizations with capabilities for
quick recovery, like those oriented on technological innovation. In this case, it is possible
to use private investment funds (open-ended funds OEFs, close-end funds CEFs,
different forms of alternative investment funds AIFs like venture capital funds VCFs,
exchange-traded funds ETFs, hedge funds HFs or managed futures MFs) or mixed
architectures like public-private partnerships (PPPs).
The selection of investment fund architectures depends on the current realities on

emerging markets, shaken by the COVID 19 pandemic, and the macroeconomic
evolution of the next critical months (major uncertainties are arising from the evolution
of medical aspects that influence all forecasts and economic prospects). Also, depends
on how the governmental and European programs dedicated to SMEs are carried out
effectively and the way in which the global supply chain is restored.
Initiatives related to private investment funds and PPPs dedicated to technological SMEs
should be adapted for emerging markets in crisis and turbulent situations. The case of
Romania as a new emerging capital market is expressed by a lack of understanding of
the innovative SME financing alternatives, the low transparency, significant market
inefficiencies (illiquidity aspects, a poor culture of entrepreneurs but also retail
investors in the mechanics of capital markets). In this complex environment, there is the
problem of finding architectures adapted on both branches, both on the entrepreneurs
but also the investor’s side. Investors search for risk-return performances in the short-
medium-term and entrepreneurs are not comfortable with conventional long-term
financing mechanisms. The interest is now to design reliable architecture capable to
collect the private funds and to invest effectively in technological SMEs, based on a
professional selection of projects, scalability, and exit capabilities. All these constraints
are difficult to meet in emerging markets and the first objective is expressed by a
comparative analysis of investment fund architectures (including also PPPs) reliable to
engage in emerging markets.
Based on the analysis of the possibilities of diversification by using alternative

investments (like venture capital funds VCFs, private equity funds PEFs) are also
considered solutions based on smart strategies (Hedge funds HFs) including Sovereign
Recovery Funds SRFs based on innovative partnerships and retailization.
The analysis of VCFs / PEFs implementation aspects is done for the current market
context in emerging markets highlighting the efficiency of these investment vehicles but
also their market vulnerabilities. Because the investment side is sensitive to risk-return
performance with doubts for long-term exposures, are considered HFs oriented on
liquidity and stability. Usually, all these solutions with remarkable capabilities for SME
financing, are dedicated to informed investors and institutional but we hope to attract
also retail investors. This objective is a very ambitious one in the actual context and our
proposal will use the public-private partnership PPP ingredient.
The conclusions are related to the actions in the actual context of the medical crisis,
followed by an economic crisis. The comparative analyses are important for
governmental institutions, for entrepreneurs but also for fund managers and investors,
which will capitalize in the future all these new financial innovations. Future work will
be oriented on discovering new flexible architectures oriented on SME financing in
different situations in emerging markets.
Innovative financing strategies for knowledge, innovation, and creative

construction - the case of technological SMEs in emerging markets
In the literature, the transformation from knowledge to innovation is a complex process

that can be analyzed by combining the economic perspective with the managerial
perspective. Innovation, as a driver of growth, is analyzed based on the value created by
innovators not only starting strictly from creative destruction (replacement of products
by increasing the competitiveness of the business environment). The classical idea
(Schumpeter, 1934) fails to explain how these opportunities can turn into innovations.
Later, in a new theory, it is shown that the entrepreneur will have to play an increasingly
important role in marketing new knowledge (via spin-offs) and to quickly reformulate
his response to non-commercial opportunities. In other words, in this case, the
transformation of knowledge must be integrated into practical market-oriented actions
in conditions of uncertainty (Kirzner, 1999).
The connecting element is defined by the innovative concept of knowledge spillover

construction circle (KSCC) which is the basis of the latent and emerging
entrepreneurship model (LEEM). The LEEM highlights an important aspect, the
strategic role of the entrepreneur, which appears in each stage of the process, starting
from the research of new knowledge to commercialization. In the knowledge spillover
theory of entrepreneurship (KSTE) is presented the mechanics of knowledge spillover
construction (KSC). In this case, latent entrepreneurship based on knowledge generated
by actors creates opportunities for other actors (local or in the same industry). Actors
able to take risks to create new vehicles or new firms to develop innovations (Agarwal,
2007) can turn these latent opportunities into emerging entrepreneurship. This
represents a strategic role of entrepreneurship in creative construction (Agarwal, 2007,
Caiazza, 2016). In the transformation from latent to emerging entrepreneurship, a new
type of entrepreneurs takes the risk of implementing innovation and activate a
leveraging mechanism that continues to attract other opportunities. In this way, the 4-
step model of latent-emergent transformation LEEM captures the strategic role of the
entrepreneur, starting from the research stage, to development and finally to
commercialization. LEEM has been proposed for developed economies with strong
markets while in the case of emerging markets although there are significant problems
at the level of technological convergence, in fact, financing problems are the most critical
(Figure 1).
Figure 1. Industry 4.0 and Latent and Emerging Entrepreneurship
A new vision for asset allocation - the integration of venture capital and private
equity as innovative alternative assets
Asset allocation is a complex problem even if we use only the classic set of assets and
instruments, equity, fixed- income and money-market instruments. The diversification
is in this case limited to a small set of assets strongly correlated with the markets.
Although for emerging markets, the focus of investors is on liquidity, representative
indices are sought and only a few elements are selected in portfolios. Romania is making
the transition to emerging markets in the difficult conditions of 2020 dominated by the
Covid-19 pandemic problem.
Expanding the possibilities of diversification through alternative assets is essential in

streamlining transactions, especially in the case of emerging markets, and the beneficial
impact on portfolio performance and stability will also provide the long-term
development capacity of markets and thus increase the efficiency of capital markets.
In the literature is expressed that alternative assets used more in the short-term tactical
allocations, aiming to maximize returns, as the main indicator of performance. The
fruition of the lesson learned in other emerging markets and the associated success
depends on how to ensure flexibility in portfolio management, solving the problem of
asset efficiency, given the difficulty of managing liquidity issues (in the context of
markets), information, and associated costs.
The New Alternative Investments Law (2020) will have a significant impact on the
management of Alternative Investment Funds and the most important element that we
propose here is the strategy of achieving the retailization advantage with a beneficial
impact on the critical mass of investors in these instruments and of emerging capital
market investors, in general.
Venture capital funds (VCF) and Private equity funds (PEF) have several similar
characteristics, being organized as close-end funds with long investment duration and
low liquidity. The volume of VCF / PEF financing is low in emerging markets due to the
lack of investment culture but also of entrepreneurial culture (low interest for the
capitalization of companies). There is the problem of streamlining a competitive
segment of SMEs that would attract a cycle of amplification of entrepreneurial interest
through strategic elements. SMEs in emerging markets are clearly disadvantaged
compared to SMEs in developed markets both in terms of knowledge, technology, but
especially in terms of immediate financing capacity in the hope of accessing market
opportunities. There is a market inefficiency that spreads at the level of the strategic will
of entrepreneurs and the simple copying of VCF / PEF from developed markets cannot
create an adequate framework to attract investors, including retail ones. There is the
hope of creating a critical mass to streamline these transactions.
Venture capital funds VCFs are recognized for their impressive growth (Alibaba,
Alphabet, Apple, Amazon, Facebook, Microsoft) but in the real world, there are some
limitations: the narrow band of technological innovations harmonized with investors'
requirements, lack of critical mass of investors who understand and accept the direction
of funds towards technological change; lack of support by government factors in the
context of social welfare recognition. In the last decade, VCFs have benefited from new
technological opportunities (and here the strength of ICT is still the decisive factor) with
implications on the critical mass of investments, but also from a greater availability on
the supply side of markets. These aspects have made the VCF industry more efficient by
reducing financing costs and reducing implementation deadlines.
VCFs can be particularly effective in supporting latent and emerging entrepreneurship

and innovation in general. However, there are several limitations in terms of
implementation efficiency: the organizational structure of partnerships has become
heavy-debt, and the focus on investments on more challenging sub-sectors (a reduction
in the area of interest has an impact on the architecture of VCFs and how to diversify of
portfolios).
The duration of the specific partnerships VCF of 7-10 years with possibilities of further
extension by 2-3 years configures about 5 years of the investment, the rest of the period
being dedicated to the fruiting of this investment. Although there are differences at the
level of sectors in general, investors change their perception of the long-term notion. At
the high VCF level, a scale-economy effect appears on the management fees line, and the
competition changes the compensation structure, but the long-term effect generally
erodes the investment return. Other important aspects result, such as that of attracting
investors, respectively how information problems influence the persistence of a socially
sub-optimal VCF structure.
VCFs face high uncertainties, much of the portfolio elements being failures while few
firms contribute decisively to overall success. There is a preference for segments with
favorable dynamics at the level of uncertainty in the sense of reducing it. The ability to
learn quickly, specific to ICT, high tech is accompanied by other risks related to market
demand in relation to a reference price. In other sectors, such as biotechnology, there is
an advantage in reducing asymmetric information. VCFs can benefit in high-tech sectors
and from collaborative effects resulting from Triple-Helix partnerships or programs in
which the government is directly involved (as Small business innovative research SBIR
program) through competitive grants oriented to emerging fields.
Next, we go beyond the diversification through instruments (VCFs/ PEFs), and we

consider the double diversification, through strategies, and we are talking about hedge
funds (HFs).
The advanced design of alternative strategies - the adaptation of Hedge Funds in

emerging markets
Hedge Funds (HFs) represents a private investment vehicle that manages a diversified
portfolio of listed instruments and derivative, benefiting from the impact of alternative
strategies. The main advantage of HF is the possibility of selecting an extensive range of
alternative strategies with long-term or short-term investment objectives and which can
take advantage of movements in the opposite direction to the market. It should be
mentioned from the beginning that HF could not access funds through initial public
offering IPOs, and the limited advertising possibilities cause a narrowing of the niche of
investors. In this proposal, although the analysis addresses emerging markets, it will be
shown that there are real possibilities for retailization in the case of HFs that can be
intelligently exploited. Although it seems surprising that a qualitative and cultural leap
is wanted from investors, this fact can be achieved practically precisely due to the
significant progress in investment funds management made through artificial
intelligence, decision support systems and advanced big-data.
Although they can access a diversified set of strategies, HF introduces a more limited set
of investment strategies through the issue prospectus. Management aims at a single
niche segment in terms of strategies and not diversification of strategies. Even in this
case, although investors would like comparisons with other HFs, there is no
benchmarking (Figure 2).
Figure 2. Design of alternative strategies
Regarding risk control, in the case of HFs it is very sophisticated for several reasons:
- derivative-based strategies cannot provide linearity of cash flows;
- HF can simultaneously contain both long and short instruments (the
combinations of long stock - short stock/index/futures - offer superior
performance even in bear markets);
- unlike traditional funds, HF capitalizes leverage effects and a unique ability to
engage in short strategies in response to declining markets.
Table 1. Types of HFs strategies for emerging markets

Strategy Description
Equity Mix between Long stock- Short stock/ index/ futures
Long+Short
Diversified Ability to follow various strategies with low movements but high leverage
leverage
Market neutral Design of portfolio aims to reduce market risk and is based on the Jacobs-
Levy principle (Unique Alpha)
Arbitrage 1 Similar buying and selling of correlated securities, in the hope of fruiting
(fixed income) some price discrepancies (in the dynamics of the yield curves) in the
conditions of the subsequent convergence
Arbitrage 2 Purchase of shares of the company that will be acquired simultaneously

(merger/ sub with the sale of the shares of the integrating company, which bears the
trading) discount at the level of the transaction price - the strategy is subject to
event risk
Arbitrage 3 Exploiting the arbitrage opportunity resulting from differences in the
(Volatility volatility of the options on the same underlying stock
differential)
Event-driven Exploits spectral mispricing resulting from transactions (buy-back
operations, special/ large dividends, mergers, and acquisitions,
reorganizations, spin-offs) and depends on the dynamics of the transaction
process, the success of the event completion, market liquidity; it does not
depend on the direction of evolution of the market as a whole but it is
applied in quite rare situations
Regarding the persistence of performances, the source of return from alpha (skill-based
portfolio) must be mentioned at the same time as the introduction of a qualitative aspect
configured by the persistence of volatility in HF returns. In emerging markets, the
volatility of returns could be surprisingly lower than the developed markets aspect
related to spectral phenomena related to liquidity blockages.
Managerial aspects - the implementation of dynamic capabilities for

organizational resilience - the DC-MR-AIF framework
An aspect of interest in the management of AIFs (VCF / PEF / HF) portfolios in emerging
markets is related to organizational resilience. Emerging markets do not have liquid and
efficient markets and investors, although they have an investment culture, over-react
and limit their holdings in portfolios. Romania is part of a transition process from the
border to emerging markets in a current difficult context of connecting the Covid-19
crisis with other related crises (economic, social).
The idea of introducing dynamic capabilities starts from the fact that in emerging
markets investors are trying to understand how to build and maintain the sustainability
of competitive advantage adapted to rapidly changing environments. How dynamic
capabilities can contribute to the efficiency of adaptation processes and the increase of
resilience are essential aspects in maintaining the competitiveness of AIFs in turbulent
conditions and restricted markets. In turbulent conditions, instability issues are
leveraged and external difficulties have an amplified impact on the growth and survival
potential of AIFs. Increasing resilience becomes a critical issue and includes strategic
actions to maintain and adapt AIFs to markets and their movements. Simple classical
diversification is not enough because in emerging markets large investors select only a
few significant issuers that appear in all portfolios and are viewed strictly in terms of
liquidity, as an essential quality element in this type of market.
Dynamic capabilities provide a way to understand the sustainability of competitive

advantage in rapidly changing environments, how to manage resources/capabilities to
respond to change in markets, while resilience includes strategic actions to maintain and
adapt to markets. From here, the idea of creating a new framework that integrated the
two concepts, dynamic capabilities, and managerial resilience (DCMR). Through this
new framework can be better understood the strategies of rapid adaptation and
reconfiguration of the AIF-portfolio. Dynamic capabilities can contribute to the
management of AIFs not only by adapting to the dynamics of capital markets but also
structurally, through innovation and collaboration with other special purpose vehicles
and other alternative partnerships (for example public-private-partnerships and
specific instruments dedicated to accelerated retailization).
Turbulence and instability are difficult to predict (there are discontinuities, surprises,
and disruptive changes) and reduce the growth potential and survival of AIFs. A
distinction is made between turbulent markets (difficult to predict, with instability,
uncertainty and lack of control with radical, nonlinear changes) and rapidly changing
markets. In turbulent situations, the critical success factors consider agility and
resilience as solutions and strategies for rapid response and respectively maintaining
the energy base (liquidity, cash flows). Leadership aims at identifying routes and
understanding how to combine existing knowledge and capturing and processing to
adapt to opportunities; there is the problem of amplifying these capabilities to respond
to opportunities. In this case, there is a special interest in analyzing the way to amplify
the capabilities to create more agile portfolios and resistant to the impact of external
turbulence. Managerial resilience can be used in the context of strategic actions to
maintain and adapt AIF portfolios even for unexpected situations, and in this case,
dynamic capabilities could synergically contribute to adaptation and resilience.
Dynamic capabilities capitalize on value-creating resource combinations that are

difficult to emulate and can provide a sustainable competitive advantage in fast-
changing Schumpeterian regimes. The implementation is based on the configuration of
knowledge, and the exploration of market opportunities must be fast and take
advantage of the capacity for learning, innovation and integration. Dynamic capabilities
are related to portfolio refresh and reconfiguration in line with new market
developments. Portfolios need to be flexible, adaptive and innovative because the
market dynamics (including competition in the AIFs segment) are difficult to anticipate.
Dynamic capabilities actually extend the Porter-5 Forces vision, resource-based view
(Barney, 1991) and basic competency theory (Prahalad, & Hamel, 1990) emphasizing
the ability to adapt to rapid change and unpredictable markets, and implementation is
based on reconstruction tools of existing capabilities: sensing, learning, integration,
coordination (Gonzales, 2009; Pavlou, 2011).
The managerial resilience of AIFs (MR-AIF) describes the need to respond to rapid
changes in markets, which requires an understanding of the dynamic nature of market
processes. AIFs need to consider behaviors and strategies such as agility, integration,
leadership, change, and communication. Resilience is related to the prediction and
prevention of unexpected threats and takes into account sensitivity, perception of
change and flexible decision-making management. Resilience is defined as the ability of
the system to compensate for external distortions and shocks while preserving basic
functionality. Resilient AIFs should respond to these challenges and turbulent survival
allows these changes to be understood in the light of various crisis scenarios. In the
context of AIF-portfolio management, the ability to absorb shocks and the ability to
restructure and renew the portfolio in the context in which shocks affect liquidity are
pursued. The management of AIFs must be equipped with the ability to evaluate,
recognize, adapt and absorb variations, changes, shocks and surprises.
The DC-MR-AIF framework, which aligns dynamic capabilities and managerial

resilience, aims to survive in turbulent environments and starts from an innovative way
of planning and formulating the implementation strategy. Dynamic capabilities have

been recognized as tools that allow the reconfiguration of operational capabilities
starting from the Pavlou-cycle, based on four capabilities that can be viewed from the
perspective of managerial resilience:
- discovery - the ability to recognize the triggers of turbulence and the ability to
monitor changes in markets and competitors;
- learning - an innovative readjustment of operational portfolio management
capabilities and exploitation of competitive advantage through multi-
dimensional diversification;
- integration - combining individual knowledge (including encouraging strategic
decision making) into a new operational capability better oriented to market
movements;
- coordination - streamlining the reconfiguration of operational capabilities and
monitoring the results obtained.
The DC-MR-AIF framework can contribute to the creation of new opportunities for
diversification through both tools and strategies. Dynamic capabilities offer agility in
detecting opportunities but also fluidity in reconfiguring portfolios in the context of
market movements. They have an impact on the performance of the portfolio but this is
done indirectly by reconfiguring operational capabilities into new capabilities that
harmonize with the markets.
Conclusions
The Knowledge Spillover Construction Cycle Framework (KSCC) is based on the

reconciliation between the managerial and financial-economic perspectives of
knowledge, respectively innovation, entrepreneurship, and growth. Understanding the
way of knowledge exploitation from latent to emerging entrepreneurship through KSCC
can start from the necessary energy and the one available for investments that suggest
unique mechanisms of creating change starting from unrealized opportunity in multiple
uncertainties. The idea of creative construction is a process by which entrepreneurs use
the knowledge created by existing companies and implement innovation without
destroying incumbents. The creative construction cycle starts with the strategic ability
and energy available to use knowledge spillovers to introduce innovation in markets.
The economic perspective is complemented by the managerial perspective as a
distinctive element of the transformation of the classic concept of creative destruction
in the new creative construction. The process of transition from latent to emerging
entrepreneurship uses a mix of macroeconomic literature with a managerial perspective
on knowledge spillover and highlights the role of the entrepreneur as an agent who uses
strategic capabilities in implementing activities specific to this transformation process.
In emerging markets, the role of the financing process becomes essential, often
overcoming the importance of technological convergence.
The main contribution of this paper is related to the use of alternative instruments and
alternative strategies in building special purpose vehicles for emerging markets and
based on an efficient selection and accuracy in the proportionate use of allocated funds.
In addition, aspects related to the retailization process are considered as an element that
brings critical mass and alternative partnerships as a way to harmonize public and
private contributions managed by a private entity.
VCF / PEF financing offers a series of advantages compared to financing through the
banking system, for companies lack of guarantees and for financiers, the ability to select.
However, VCFs / PEFs are not well known in emerging markets due to the lack of
investment culture and the lack of entrepreneurial culture that benefits from this type
of financing. The next step in refining financing solutions for technological SMEs refers
to alternative strategies, and are expressed by hedge funds (HFs) with central sub-
portfolios represented by VCFs / PEFs and satellite sub-portfolios for liquidity and
stability.
The proposed research could be continued by analyzing the solutions for creating and
implementing a Sovereign Fund for Recovery, an ambitious idea for Romania but which
is not well enough substantiated given the current macroeconomic conditions and the
situation in the markets.
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VENTURE CAPITAL AND PUBLIC POLICY

Flavia ANGHEL
30A Expoziției Blvd., 012244 Bucharest, RO
flavia.anghel@facultateademanagement.ro
Anca LUNGU
Alexandru Ioan Cuza University of Iasi
11 Carol I Blvd., 700506 Iași, RO
ancalungu01@gmail.com
Bogdan GLĂVAN
Romanian-American University
1B Expoziției Blvd., 012101 Bucharest, RO
glavan.bogdan.nicolae@profesor.rau.ro
Abstract
Venture capital is a specific type of investment dedicated to start-ups and innovative enterprises. The
goal of the risky investment is to support entrepreneurs who develop new technologies or new
products and who do not have the necessary funds and often the necessary business development
experience. In many countries, governments have decided to support venture capital in an attempt
to stimulate technological creativity and boost the local economy. The European Union, considering
the huge deficit in venture capital compared to the US, has in particular decided to establish or
support venture capital funds to invest in those areas in which the EU could achieve global success.
In this article, we present the weaknesses of the European Union intervention to support venture
capital. In a few words, the Commission’s interventions were not based on an adequate assessment
of market needs and no sufficient evidence of the impact of the intervention carried out during the
analyzed period can be identified. Also, the cost of these interventions is not fully transparent or
designed to meet policy objectives and there is a problem in the justification process of start-ups fees.
Keywords
Venture capital; public policy; public finance; innovative enterprises; European Investment Fund;
European Union.
Introduction
Venture capital represents an important segment of the financial markets, attracting and
providing funds to startups and innovative enterprises. The origins of the venture
capital industry can be found in the post World War II American economy, where
business pioneers made high-risk investments in developing companies. In the 1960s
and 1970s, venture capital became a distinct form of equity investment in Silicon Valley
technology companies.
The paper is organized as follows. The next section reviews the importance of venture
capital and the relation between technological development and this form of business
finance. The following section presents the case for policy interventions in support of
venture capital. Then we provide a critical perspective on the government support of
venture capital using the European Union as a general case study. The design and
impact, proposed implementation, and comprehensive investment strategy will be the

key elements of the analysis. To achieve the main goal of a pan-European venture capital
market, the European Court of Auditors recommended several changes. The last section
concludes the paper.
Venture capital: theory and history
Venture capital represents funds that buy private equity or venture capital offer
medium- and long-term capital to accelerate the growth of companies. Generally, these
investments reach maturity in 3-7 years.
Venture capital is a specific type of investment dedicated to start-ups. The goal of the
risky investment is to support entrepreneurs who develop new technologies or new
products and who do not have the necessary funds and often the necessary business
development experience. According to Zider, “venture capital fills the void between
sources of funds for innovation (chiefly corporations, government bodies, and the
entrepreneur’s friends and family) and traditional, lower-cost sources of capital
available to ongoing concerns” (Zider, 1998, p.132).
As Gompes and Lerner explained: “Venture capital has developed as an important

intermediary in financial markets, providing capital to firms that might otherwise have
difficulty attracting financing. These firms are typically small and young, plagued by high
levels of uncertainty and large differences between what entrepreneurs and investors
know. Moreover, these firms typically possess few tangible assets and operate in
markets that change very rapidly. Venture capital organizations finance these high-risk,
potentially high-reward projects, purchasing equity or equity-linked stakes while the
firms are still privately held. The venture capital industry has developed a variety of
mechanisms to overcome the problems that emerge at each stage of the investment
process” (Gompers & Lerner, 2001, p.145).
Private equity or venture capital financing is different from bank financing. When
granting a loan, the bank asks for guarantees, imposes a repayment schedule of the
principal and the payment of interest. Instead, equity participation and venture capital
mean taking on business risk; investors become co-owners of the company, contribute
to its administration and development, anticipating that the process will end with a
profit; once the company reaches maturity, they sell their stake in the capital, often
through the stock exchange, thus obtaining the desired return for the investment made.
Venture capital funds not only provide an alternative financing solution to bank
financing but also support the company by providing know-how, contributing to its
management and development. The average size of European venture capital funds in
2018, according to the European Commission, was 56 million euros.
Venture funds are a key source of financing for start-ups, which identify the most
promising business ideas and turn them into engines of economic growth. The studies
carried out allowed the observation of some essential tendencies for the optimal
formulation of the public policies:
 The innovations of start-ups financed by risk investment funds are qualitatively
superior to the general innovations in the economy. Firms supported by risky
investments tend to register more patents, collect more citations, and innovate in
the fields of basic research. This means that venture capital-backed firms play an
important role in creating jobs and increasing productivity.
 Innovation supported by venture capital is pro-cyclical, to a greater extent than the
economy as a whole.
 Investments in the late stages of start-up development are relatively uniform
throughout the business cycle, while investments in the early stages are sensitive to
crises.
Mutual funds (FOFs) are funds that invest in multiple venture capital funds. In other
words, the portfolio of a FOF contains the portfolios of the various smaller funds on
which it is based. On the one hand, the mutual fund offers investors a lower return, but
also the advantage of diversification; on the other hand, FOF helps private venture
capital funds gain access to a larger pool of resources, provides liquidity, and helps
disperse risk.
Funds can be private or public structures. Almost all Central and Eastern European
states have set up FOFs to effectively support entrepreneurship. Examples: Baltic
Innovation Fund (2012; 130 million euros), Central European Fund (2017; 97 million
euros), Croatian Venture Capital Initiative (2018; 32 million euros). One of the best
examples is the Polish National Capital Fund, set up by the Polish government in 2005
and set up the first two venture capital funds in 2007, with a total investment of 100
million zlotys. To date, the National Capital Fund has invested in 18 venture funds.
Venture capital and government intervention
The theory of public finance argues that the government should subsidize those
activities that generate positive externalities. Innovation is considered an activity with
strong external benefits and these externalities can lead to insufficient provision of
private sector finance to new companies and risky investments.
Governments can use two methods of stimulating venture capital: (1) via a friendly
regulatory regime and (2) via injections of public funds. The first method attempts to
improve the conditions for the accumulation of venture capital by advancing
appropriate fiscal codes, securities laws, and competitive labor market regulations. The
second method implies the establishment of a public agency that will allocate funds
through a venture capital like scheme.
An extensive literature has documented the positive effects of market-friendly

regulations on venture capital markets. For example, Wang and Wang (2012)
demonstrated the relationship between trade liberalization and cross border capital
flows, Bozkaya and Kerr showed that less burdensome labor regulations are correlated
with more developed capital markets (Bozkaya & Kerr, 2014), Armour and Cumming
discussed how effective bankruptcy laws stimulate the new business formation and risk
capital (Armour & Cumming, 2006).
The public subsidization of venture capital is a more controversial issue. On the one
hand, many economists have argued that the financial market does not provide a proper
level of investment in start-ups, given that the market is reluctant to finance the “longer-
term and riskier” investments in the development of new products. As a consequence,
the state should support investment through funding development banks and venture
funds, and provide public guarantees for long-term investment projects that cannot
fulfill the requirements of private investors. On the other hand, government support of
venture capital would present the risks associated with all public expenditures in
general: crowding out private investment, rent-seeking, lack of knowledge concerning
the optimal level or pattern of investment, etc.
The European Union has decided to offer financial support to the venture capital
industry, taking into account the underdevelopment of this market compared especially
to the US. According to some estimations (Matveeva, 2019), Europe invested around
€23bn in venture capital in 2018, whereas the US invested $130bn and China $92bn. As
the European Investment Fund put it in a report, “In the past 20 years, the European
Investment Fund has been the leading public provider of risk capital, and in particular
of venture capital, to young and innovative European start-ups” (EIF, 2016, p.6).
Problems with the EU interventions for venture capital as detected by the

European Court of Auditors
The innovation, entrepreneurship, venture capital, and economic growth offer benefits
for economic and social development. Starting from this point, this part aims to highlight
the main ideas from a Special Report of the European Court of Auditors. The document
appraised how the European Commission coordinated venture capital contributions.
The evaluation goal was to obtain a picture of reality, by analyzing how European
Commission implemented venture capital interventions. The design and impact,
proposed implementation, and comprehensive investment strategy were key elements
of this analysis.
Funding is a challenge for emerging firms and start-ups and a facile solution is
represented by venture capital. This option is more open to the risks than banks for
different reasons like return opportunities and strategy. Generally, venture capital
investments are based on a fund made up of multiple investors and administrated by a
fund manager. The diversification principle helps to manage the risks.
Regarding venture capital investments in Europe, we can notice some defining

characteristics: the average investment is between €2 and €3 million, longstanding
financial perspective, illiquidity, growing through active ownership, highly return
expectation, a fee payable to investment manager (20% of investment) and specific
skills. In the EU, the sources of venture capital funds are, on one hand, financed by
different budgetary areas, and, on the other hand, by the European Structural and
Investment Funds (ESIF). In other words, there are centrally managed interventions and
shared management interventions.
Over the last few years, the European state agencies increased the groundwork for
venture capital funds and investments in companies. To deploy the interventions in
venture capital, the European Commission mandated the European Investment Fund
(EIF)/European Investment Bank (EIB). Averagely, the venture capital funds created 48
jobs per company and invested 3 million euros. Some authors affirm the European
venture capital funds have a limited effect on their ability to raise equity capital, grow,
and create jobs (Bottazzi & Da Rin, 2002).
Since 1998, several instruments provided venture capital funds for start-ups: Growth
and Employment Initiative (G&E), Multiannual Programme for Enterprise and
Entrepreneurship (MAP), Competitiveness and Innovation Framework Programme
(CIP), Programme for the Competitiveness of Small Enterprises and Small and Medium-
sized Enterprises (COSME), Horizon 2020 – the Framework Programme for Research
and Innovation, European Fund for Strategic Investments (EFSI), but the largest
program is EFSI.
Nowadays, the European Investment Fund (EIF) is one of the most important players in
the European venture capital market and administrates funds from the European
Commission, the European Investment Bank, and national sources. To highlight an
objective point of view of the EIF, there were analyzed three major directions in the EU’s
behavior:
 Has the European Commission conducted good evaluations in each investment
stage?
 Has the European Commission implemented an exhaustive investment strategy?
 Did the EIF use the proper instruments for implementing the proposed action by
the European Commission?
According to the audit, there can be identified the following major ideas in the EU
behavior regarding the venture capital:
Weaknesses in ex-ante and ex-post evaluations
From the very beginning, the actions were expected to be evaluated in each stage, but
the European Commission extended the venture capital support out of the evaluation of
the market. The issues that should be investigated can be divided into two main
categories: on one hand, we find the general market assessment, which includes, for
example, ex-ante assessment, impact evaluation, market needs study, and, on the other
hand, business-related issues, as the structure, sources, and needs of funding.
Related to the analyzed subject, the audit detected the following difficulties: the
Commission’s interventions were not based on an adequate assessment of market needs
and no sufficient evidence of the impact of the intervention carried out during the
analyzed period can be identified. These problems were triggered mainly by the lack of
available data. Gampfer et al. noticed “Member States are predominantly a supply or a
demand-side problem, i.e. whether there is insufficient venture capital supply or whether
there are insufficient companies to invest in” (Gampfer, Mitchell, Stamenov, Zifciakova, &
Jonkers, 2016, 12).
Over time, there have been many situations demonstrating that the Commission has not
given sufficient attention to the evaluation process. For example, in 2013, for the
InnovFin Equity Facility (IFE) instrument, the evaluation was carried out after an
estimated budget had already been discussed, together with the Commission, the
Parliament, and the Council and after the legislative proposal was initiated. Also, there
were situations when the Commission was not able to quantify the funding gap and,
finally, this can determine a non-absorption of the venture capital funds. Although some
regular assessments have been carried out, these have not analyzed the impact of EU
intervention in venture capital or the effects on the economy. If the assessment is not
proper, cannot provide substantial information for the design of the used instruments.
The evaluation reports do not offer an image of the impact and do not provide
performance indicators (excepting EFG, IFE, and EFSI), for example, in the area of job
creation as a result of venture capital funding for the beneficiary companies. “The targets
for IFE do not only relate to venture capital but combine venture capital and debt financing
support, making it difficult to evaluate the performance of each instrument” (European
Union, European Court of Auditors, 2019, p. 22).
The Commission lacked a comprehensive investment strategy
By analyzing the investment strategy, the auditors discovered a set of four stringent
issues that must be corrected:
(1) Demand-driven approach does not favor the development of less developed
venture capital markets or sectors. Some capital markets and sectors have fewer benefits,
starting with centrally managed interventions. In fact, the strategy was not exhaustive.
A weak strategy is not able to support a suitable investment and this context affected
the underdeveloped markets. Since the beginning, there was no oriented investment
strategy, the allocation funding process was not differentiated and, finally, the
underdeveloped markets received less financial support. In June 2018, France (20% of
total EU-backed venture capital funds) and Italy (14% of total EU-backed venture capital
funds) registered the highest EU-backed venture capital funds. On the opposite side,
there were registered 12 member states with no EU-backed venture capital funds.
According to the auditor’s report, the Member States that were attractive to venture
capital benefited the most from the EU interventions and “as at 30 June 2018, 42 % of the
EU-backed venture capital funds had a multi-country focus” (European Union, European
Court of Auditors, 2019, p. 25). The concentration on countries such as France, Germany,
and the United Kingdom (representing 50% of venture capital investments) affected the
crystallization of a European venture capital market. Finally, the report concluded that
the assistance allocating process based on demand favors the most developed venture
capital markets.
(2) Funding needs were not quantified by the development stage or sector of
activity. The EU-backed venture capital funds promoted the investment in SMEs at
different development stages, but there was no evidence or strategy in this direction.
”The assessment makes no mention of targeting or analysis by Member State” (European
Union, European Court of Auditors, 2019, p. 29). Based on EIF data, the auditors
highlighted that 45% of venture capital funds (EU-backed) were intended for start-ups,
32% for growth, 12% for a buy-out, and 11% for seed. Regarding the distribution of EU-
backed venture capital funds per sector, there can be observed a trend: almost 50% of
the total investment is oriented toward firms operating in computer & consumer
electronics and the life sciences sectors.
(3) The EU venture capital market is not attractive enough to private investors.
To develop a venture capital market, the EU's objective was to bring private capital. The
low rate of return investments determined a low contribution of private investors in
venture capital. The Commission established minimum targets for private participation
in the venture capital funds. ”Some of the Commission’s final and interim evaluations of
the centrally managed programs declared the pari passu principle a failure or a barrier to
stimulating private investment” (European Union, European Court of Auditors, 2019, p.
30).
(4) Complexity resulting from using more than one intervention to deploy EU
support to the venture capital market
Since 2014, the European Commission used three instruments to develop a venture
capital market: EFG, IFE, and the EFSI. Due to the overlaps, for the next years (2021-
2027), the Commission proposed just a single instrument, not three, and a single
budgetary guarantee.
The EIF is a cornerstone investor but its management of EU interventions can be

streamlined
After analyzing the results, the Commission must ensure that EIF can implement EU
interventions. To achieve the main objective, there are several points to highlight. First
of all, the EIF is an important player in the venture capital market and one of the EIF
difficulties is represented by the exiting EU-backed funds.
Another point is related to the EU-backed instruments that overlap with others managed
by the EIF rather than supplementing them. Taking into consideration “the mandates’
preferences (for specific sectors or a certain performance, for example) and their
geographical focus, there is overlap between the centrally managed EU interventions and
other” (European Union, European Court of Auditors, 2019, p. 35).
On behalf of the Commission, EIF is mandated to implement the venture capital

interventions backed-EU. Apart from the predetermined fee (between 5.7 % and 8.5 %
of the EU intervention), the Commission refunds to EIF some eligible costs for
implementing the EU funds and some management fees. Over the years, the fees paid by
the start-ups to EIF increased, reaching up to 14% for the instruments used in recent
years. According to the auditor’s report, the Commission provided no information about
the costs of previous schemas. Finally, they conclude that EIF’s fees are not fully
transparent or designed to meet policy objectives and there is a problem in the
justification process of start-ups fees. Because of this behavior, there is no motivating
force in the area of venture capital market development. Even if the EIF was not able to
achieve the target, the Commission paid a part of the incentive fees.
The audit report’s conclusions suggest an improvement in the area of the allocation
policy and, additionally, a resolution to the issues determined by the expired mandates.
Furthermore, we can also observe that higher fees are eventually being paid by the start-
up to the EIF. To improve the quality of the intervention in the venture capital market,
the auditors purpose to the European Commission three major improvements areas:
(1) carry out the necessary analyses for the improvement of the evaluation
process for EU interventions. For optimal results, the EU should properly analyze the
allocation venture capital funds process. A counterfactual analysis can facilitate this
purpose.
(2) develop an exhaustive investment strategy. The interventions in the venture
capital markets failed to take into account the case of the less developed countries. For
this reason, we cannot discuss a European venture capital market. The demand-driven
perspective offered benefits to the most developed countries and the underdeveloped
ones were not so competitive and engaged in achieving the European purpose. Also, the
low level of the returns was not attractive for the private sectors.
(3) engage with the EIF to streamline its management of the EU interventions. In
order to become more efficient, the EIF should:“(a) streamline the project approval
process by shortening the current timeline; (b) ensure that it applies a deal allocation
policy ensuring complementarity between the EU interventions and the other mandates
managed by the EIF; (c) ensure that it identifies sufficient exit options when approving
investment in a fund”(European Union, European Court of Auditors, 2019, p. 44).
Conclusions
In this paper, we have discussed the lessons of public involvement in the venture capital
sector. First of all, we have seen the significance of the venture capital industry in fueling
technological innovations. The venture capital represents an important type of
investment not only for a start-up but for other companies that need funds to develop
new technologies or/and new products. Building a picture of the venture capital market
helped in achieving the initial purpose of the paper.
In the second section of the article, we have considered the arguments for government
intervention and how the European Union acted to support venture capital. According
to the literature, the government can use two methods to stimulate venture capital
markets: on one hand, a friendly regulatory regime, that can improve the conditions for
the accumulation of venture capital by advancing appropriate fiscal codes and, on the
other hand, via injections of public funds, through a public agency that allocates venture
capital funds, using a scheme.
Based on the lengthy European experience we have presented several issues that have
to be addressed in the future to build a more transparent and efficient institutional
setup. The evaluation goal was to obtain a picture of reality, by analyzing how European
Commission implemented venture capital interventions. The design and impact,
proposed implementation, and comprehensive investment strategy were key elements
of this analysis. According to the auditor’s report, there can be observed several issues
on the European Commission behavior regarding the venture capital: there were
identified weaknesses in ex-ante and ex-post evaluations, the investment strategy was
not comprehensive (demand-driven approach was not oriented to the development of
less developed venture capital markets or sectors, the funding needs were not
quantified by development stage or sector of activity, the EU venture capital market was
not attractive enough to private investors, etc.). The European Court of Auditors
recommended some changes in the European Commission behavior to achieve the main
goal of a pan-European venture capital market. In a few words, the Commission’s
interventions were not based on an adequate assessment of market needs and,
furthermore, no sufficient evidence of the impact of the intervention carried out during
the analyzed period can be identified. Also, the cost of these interventions is not fully
transparent or designed to meet policy objectives and there is a problem in the
justification process of start-ups fees.
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5
Towards Sustainable and Digital
Organizations and Communities
Chair
Mauro ROMANELLI
Towards Sustainable and Digital Organisations and Communities 443
DIGITAL TRANSFORMATION GENERATES A NEW BUSINESS

PARADIGM: “HUMAN-MADE IN THE AGE OF ARTIFICIAL
INTELLIGENCE “
Lavinia-Andreea GRUIA
West University of Timisoara
16. Johann Heinrich Pestalozzi St., Timisoara, RO
gruialavinia23@gmail.com
Nicolae BIBU
nicolae.bibu@e-uvt.ro
Alexandru ROJA
alexandru.roja@e-uvt.ro
Abstract
The aim of this paper is to contribute to the identification of the future of work in the age of artificial
intelligence (AI) by providing answers to the question of ”how can a creative business compete with
other businesses using creative artificial intelligence algorithms?”. By analyzing the recent
developments in the field of artificial intelligence we have identified that AI has done a large
breakthrough in the field of creativity. In our opinion, one of the most promising approaches in
achieving artificial intelligence creativity is the use of ”generative” models that are created by
humans and are self-training using large amounts of data from one domain like images, sounds, and
text. We consider that AI will work side by side with humans in helping them make better decisions
in the first phase of the digital transformation of organizations that are integrating AI in their day
to day functioning. However, we consider that in time these AI systems will become better than
humans because they are trained on larger data sets and thus they will get better even on performing
creative tasks. Therefore, we are asking the following question: How human beings possessing human
creativity will be able to compete with artificial intelligence? We are analyzing how creative jobs
such as design and content creators, will compete with artificial intelligence creativity in the context
of digital transformation. Also, we are recommending what strategies they should apply to add value
to human-made creativity. By competing with artificial intelligence creative people will be enabled
to pursue new business strategies in the context of digital transformation. We are arguing that this
approach will lead to a new form of “hand-made” business model, and to a new paradigm called
“human-made in the age of AI”, made possible by the development of cloud technology. A massive
change started some centuries ago when due to the first industrial revolution humans have created
business models capable to add higher value to hand-made products compared to machine-made
products. We consider that now, in the current period of the fourth industrial revolution, is the
appropriate time for creative arts and business to add value to their products and compete with AI
by adopting new strategies and business models in the context of digital transformation. Examples
for such new types are described based on existing companies.
Keywords
Artificial intelligence (AI); computer creativity; human-made; age of AI; co-creating; future of work
444 Strategica 2020
Introduction
As digital transformation is happening across industries it provides opportunities for

businesses generated by different technologies. According to Calp (2020), digital
transformation represents the ability of a business to “provide more effective and
efficient services, in line with the opportunities provided by rapidly developing
information and communication technologies, and changing social needs” (Calp, 2020).
The technologies used by businesses in their digital transformation lead to new
opportunities like competitive advantage and value creation (Calp, 2020). But these
technologies and innovations also produce changes in the business environment from
customer engagement to employee satisfaction. One of the important aspects of digital
transformation is the future of work because as technologies advance, humans will need
to adapt and retrain to new jobs. And this is happening because jobs will be enhanced
by artificial intelligence systems and machines for co-creating or will disappear if they
are repetitive and can be fully automated.
We begin this study by taking into consideration that what is currently known about the
future of work in the age of artificial intelligence and is hypothetical will become a reality
and questions like “What if?” will become “and now what?”. It is true that artificial
intelligence will create new jobs and that humans will have to become creative in
adapting to new jobs, but we have a very hard time when attempting to describe these
new jobs. As for now, humans are using machines for co-creating, and for example,
humans can choose a product from multiple generated ones. But as information
technologies advance and systems will become better there will be no more need for
human supervision, because systems will be able to generate new products within
specific parameters. Also, in regards to creativity, we have to point out that artificial
intelligence is evolving fast in the area of creativity with laboratories like OpenAI and
DeepMind driving this progression. Given this evolution we explore what it will take for
humans that possess creative skills like writing, drawing, and music composing to
compete with artificial intelligence generated the same outputs. Before we discuss
human creativity and what can be done to help create jobs and add value to human jobs,
we need to discuss about computer creativity and how it has evolved in the last years.
Computer creativity
Creative behavior is defined as “the creative act, or a set of acts, of humans, which is
made explicit through behavior” (Puccio & Cabra, 2011). Although it is focusing on the
domain of cognition and thought it is a human action that yields output that is deemed
original and useful. Therefore, creativity is a human behavior that permits one to act
unobstructed from self or externally imposed constraints in pursuit of self-expression,
invention, discovery, design, and problem-solving.
Although creativity is a human behavior that allows us to imagine new ways and aspects,
it is very difficult to define even if there are similarities between domains there are also
differences. For example, creativity in games like chess and go is different from art and
design. This is why human creativity is so important compared with anything else. We
have identified that a new branch called “Computer Creativity” (CC) has emerged in
recent studies in the field of artificial intelligence As defined by Veale et al., CC “studies
and exploits the potential of computers to be more than feature-rich tools, and to act as
autonomous creators and co-creators in their own right” because in this system the
“creative impetus should come from the machine, not the human, though in a hybrid CC
system a joint impetus may come from both together” (Veale, Cardoso, & Pérez, 2019).
According to them, computer creativity (CC) is a field at the intersection of “artificial

intelligence, psychology, cognitive science, linguistics, anthropology, and human-
centered related sciences” with the main focus on system building. We consider that CC
also is intersecting with the field of philosophy, ethics, sociology, and neuroscience.
However, in their approach, Veale, Cardoso, and Pérez (2019) define computer
creativity (CC) as an experimental science and engineering discipline because it
connects the study of creative behavior to algorithms and structures by building
computer working systems.
The purpose of creating a computer creative system is to build the future of intelligent
computing by transforming computers from passive tools into active creators. To build
a computer, creative system researchers must analyze the criteria on which a solution
to a problem is considered creative. Veale, Cardoso, and Pérez (2019) mentioned that in
1963 Newell, Shaw, and Simon have defined the following criteria’s for identifying
problem solution as creative: the solution must be novel, useful, reject conventional
categories, must come from intense motivation by exploring a wide range of conceptual
space, and last but not least must clarify a problem and this requires illumination and
insight. Having these five criteria, it is very difficult to give a clear definition to computer
creativity explaining why computer creativity researchers are following a different
approach, characterized by first, ignoring the objective definition of creativity and
employ an ad hoc definition; second, identifying current computational algorithms by
adopting a “metaphorical foundation of creativity”; and third, by “identifying an
archetypal area of creativity” (Veale, Cardoso, & Pérez, 2019). Given the fact that
computer creativity is a research area anchored in engineering, the novelty and value
output produces by such systems can and should be evaluated only by humans. One of
the main goals for researchers in the area is to develop computer creativity systems that
produce output evaluated by humans as creativity. Their fundamental belief is that
machines can become creative only by using algorithms and knowledge structure and
that they do not need humans for that.
However, in the current technological context computers are just generating outputs
that humans need to evaluate in terms of utility, of value if the product can be sold at a
market acceptable price. And for now, this can’t be considered human-level creativity
because computers are not aware of the value they are creating, in fact, they are just
generating content. A computer creative system must be able to filter its outputs for
quality, understand the value it is creating, articulate, and justify the value exactly as
human creators do (Veale, Cardoso, & Pérez, 2019).
On one hand, humans are still holding to the idea that only humans can be creative and
that such systems that generate outputs are just mimicking creativity because they are
made of algorithms based on computer programmer's creativity.
On the other hand, this type of creativity mimic is also seen in humans and is known as
“pastiche” because “computers unknowingly resort to the same kind of stylistic mimicry
that is knowingly exploited by uncreative human artists” (Veale, Cardoso, & Pérez,
446 Strategica 2020
2019). The pastiche systems are useful for humans working with machines in co-
creating because they allow the possibility of exploring multiple variations of the same
product. From the viewpoint of computer creativity researchers’ pastiche is a useful
point in this field, and a stepping stone for achieving the main goal and that is in
developing true computer creative systems that will achieve “human-level creativity”
(Veale, Cardoso, & Pérez, 2019). For example, an artificial intelligence system that is
trained on large data set of classical music will be able to generate a variation of such
music and can delight the human listener because these systems produce good outputs.
A good example of this is mentioned by Daniel Susskind (2020) in his book “A World
Without Work: Technology, Automation, and How We Should Respond” referring to an
experiment which was run at the University of Oregon, USA, where the listener thought
they were listening to Bach music but it was actually music written by a computer
program named EMY. Professor Douglas Hofstadter who organized the experiment
commented that if humans will have composed the classical music it would have been
called creative, but because it was generated by a machine it feels wrong to be called
creative (Susskind, 2020). According to Professor Hofstadter, human creativity works
differently compared to machines, and that is because machines cannot feel the way
humans do (Susskind, 2020).
Artificial intelligence creativity
In the last years, AI has become one of the most important research fields and moved
from academia to business deployment. As small and large businesses started to
implement artificial intelligence in a wide variety of applications, the impact of this
technology on the lives of humans has started to show. The artificial intelligence field is
broad having a lot of uses like analytics, computer vision, chatbot’s and by leveraging
large quantities of data that helps us get an insight about the world (Kamath et al., 2019).
In recent years many studies have been conducted in the field of creative artificial
intelligence, leading to the growth of this technology in the media industry and creative
industry. This happens because the researchers and companies have access to low-cost
computational platforms and to large datasets which datasets are composed of sounds,
images, and texts. From a technical perspective, artificial intelligence refers to the study
and design of rational agents that can demonstrate tasks we can associate with humans
like learning and finding solutions, reasoning, intelligent-behavior, and rationality
(Sewak, 2019; Kreutzer et al., 2020).
In the creative industry, artificial intelligence has made a huge step and is used broadly
from generative art images to non-photorealistic images and style transfer. At this point,
it is very important to mention the “Generative Adversarial Network” (GANs) create by
Ian Goodfellow because a lot of the existing generative artificial intelligence creativity is
based on this. The GANs algorithm uses a generator that generates sample images and a
destructor that discriminates between real images and the generated ones; this allows
the generator to improve itself in time (Brown, 2020). One of the most important steps
in this direction has been made by Google with “DeepDream” with the help of a
“convolution neural network”. These algorithms use an image as an input to find
patterns and enhance them resulting in a dream-like hallucinogenic image (Caramiaux
et al., 2019).It is important to mention that DeepDream was designed to help researches
understand how neural networks work because in this network each layer deals with
features at different levels of abstraction and the new image are generated based on the
layer chosen to enhance (Caramiaux et al., 2019).This results in the fact that the network
is showing the seer what has been seen in that specific part of the image like objects in
trees.
In business, this type of artificial intelligence algorithms are used to edit images by using
filers, modifying content, enhancing the quality, and photo retouching, and here it is
important to mention that these algorithms can retouch photos at an expert level. This
points out the importance of integrating ethics into IA algorithms, indicating that is a
created image, not a real one. One negative consequence is the proliferation of the so-
called “fake news” based on retouched video images, such as a photo or short videos.
These artificial intelligence algorithms enable photographers to produce high-quality
image-enhancing (Caramiaux et al., 2019). In business that requires photo manipulation,
there are artificial intelligence algorithms used for image inpainting which is a technic
that refers to the reconstruction of damaged or missing parts of an image. Also
Caramiaux et al. (2019) mention Yan (2016) for proposing a Deep Convolutional
Generative Adversarial Network that can predict semantic information in images and
correctly replace missing parts in images. For example, if an eye is missing from a model
in an image the network can correctly generate a place for the missing eye.
In industries like games and movies, artificial intelligence is used to simplify the creation
process of content with the help of generative design. Artificial intelligence is
cooperating with designers by producing a variety of solutions from which the designers
have the possibility to choose the most appropriate solution (Caramiaux et al., 2019).
Also is very important to mention that these algorithms in the game industry can
generate new game levels. This is helping the game industry in reducing cost in content
creation and also storage and bandwidth (Caramiaux et al., 2019).
As digital transformation is happening across the business world, also news and media
business are experiencing artificial intelligence on all levels from content production to
consumption as it can be seen in the next example. An article from Bloomberg has
mentioned that the Eurovision 2020 was a competition between artificial intelligence
generated songs. The Eurovision 2020 competition was between 13 teams, each one
being made up of an artist, academics, and computer sciences specialist. The winner of
the Eurovision2020 competition was a team from Australia called “Uncanny Valley” with
the song “Beautiful World”. The Australian team has managed to create a song generated
by an artificial intelligent algorithm. The winning artificial intelligence algorithm was
trained on data from previous Eurovision competitions and sample sounds of koala,
kookaburras, and Tasmanian devil noises to reflect the Australian specific wildlife
(Thomson, 2020).
Artificial intelligence for co-creating content
Businesses are entering the stage of co-creating during their digital transformation
because humans and artificial intelligence are working side by side in creating new
designs. This type of artificial intelligence is called “generative” artificial intelligence and
according to Brown (2020), it is part of the “collaborative” artificial intelligence because
collaborative AI changes the way humans work with machines and allows machines to
become co-creative alongside humans.
448 Strategica 2020
Brown (2020) mentions that the company Autodesk has designed a system that uses
generative design and that is applied in architectural and engineering design. This
system uses GANs to generate alternative designs based on a single original design and
using designer constraints like weight, cost, and size (Brown, 2020). Also, researchers
at the University of California have developed an artificial intelligence system using
GANs for dental crown design. By using the x-rays of their patients they can produce a
dental crown that fits perfectly in the patient tooth line and has been able to outperform
dental crown designed by humans (Brown, 2020).
With the help of generative design, businesses will be able to semi or fully automate
product design (Brown, 2020). Using this type of generative artificial intelligence
humans will be able to design and create stronger and lighter robots, aircraft, better
products, and also use their algorithm in architectural construction for a better design
of the building structure.
One of the main players in this field is ”OpenAI”, a research laboratory based in San
Francisco, USA. They have trained a large scale unsupervised language model GPT-2 that
has achieved state-of-the-art performance on many language modeling benchmarks
without task-specific training. According to Radford et al. (2019), GTP-2 is a large
“transformer-based language model with 1.5 billion parameters, trained on a dataset of
8 million web pages”. GTP-2 is able to predict the next and previous words in texts but
has also other capabilities like “the ability to generate conditional synthetic text samples
of unprecedented quality, where we prime the model with input and have it generate a
lengthy continuation” (Radford et al., 2019). Also, GPT-2 is able to perform a
rudimentary reading, generate coherent paragraphs, machine translation, question
answering, and summarization (Radford et al., 2019).
Another deep neural network created by ”OpenAI” is called ”MuseNet” which can
combine 10 different instruments to generate 4 minutes of musical compositions
(Payne, 2019) and (Vaswani et al., 2017). Although”MuseNet” has no understanding of
the music it generated, it can discover patterns by predicting the next token in hundreds
of thousands of MIDI files. “MuseNet” is able to generate music with styles from Mozart
to the Beatles (Payne, 2019). According to Payne (2019) “MuseNet” has also some
limitations because it generates the musical notes by calculating the probabilities across
all possible notes and instruments and because of this when you ask the model to add a
musical instrument it will try to arrange to your instrument choice but it can also choose
a different instrument (Payne, 2019). Also when using this model for music generating
it is recommended to choose instruments and music styles closely related and try not to
pare for example Chopin with bass and drums (Payne, 2019).
“MuseNet” is not the only deep neural network for music created by OpenAI, they have
also created another one called “Jukebox” which is a neural network that can generate
music with rudimentary singing. According to (Dhariwal et al., 2020) “Jukebox” is able
to take as an input music genre, artist and lyrics and generate music samples produced
from scratch. “Jukebox” trained on a large dataset of 1.2 million songs, paired with their
corresponding lyrics and metadata (Dhariwal et al., 2020).
Another major player in the artificial intelligence field is Microsoft as in their developer
build conference they have announced the building of an artificial intelligence
supercomputer. For training of this new artificial intelligence model it is needed an
advanced infrastructure, high bandwidth networks, and also the tools needed to train
across interconnected computers. This supercomputer is built in a collaboration with
OpenAI and will be hosted in the Azure. The supercomputer built by Microsoft ranks
among the top five supercomputers compared to the top 500 supercomputers in the
world and it benefits from all the capabilities of modern infrastructure (Langston, 2020).
According to Microsoft chief technical officer Kevin Scott, the new supercomputer will
enable the development of new artificial intelligence applications that will go beyond
what is now considered narrow advances in artificial intelligence models (Langston,
2020).
Until now researchers and experts have built artificial intelligence models designed for
a single task such as objects and speech recognition. But a new type of multitasking
artificial intelligence model is emerging that will allow a single artificial intelligence
model to perform multiple tasks. The new artificial intelligence model can learn and
absorb knowledge, concepts, language nuances, and exceed at multitasking like
moderating content in live gaming chats, summarizing a lengthy speech, and generating
code from GitHub scouring (Langston, 2020). As Kevin Scott has announced the purpose
of this artificial intelligence model is to allow businesses to deploy artificial intelligence
at scale. Also, Microsoft has developed the Microsoft Turing models which are large
artificial intelligence models used to improve language understanding and tasks across
Microsoft products like Office and Dynamics. According to Kevin Scott, artificial
intelligence will become in the future a platform by taking broad data sets and artificial
intelligence models and learning to do general tasks (Langston, 2020).
Digital servitization
Servitization is defined by Neely (2013) as "the innovation of the organization’s

capabilities and processes to better create mutual value through a shift from selling a
product to selling Product-Service Systems". There is also needed to define the idea of a
“product-service system” as "an integrated product and service offering that delivers
value in use". In this respect, a "’servitized organization’ is an organization that designs,
builds, and delivers an integrated product and service offering that delivers value in use"
(Neely, 2013). Servitization can be defined as a transformation from product to services
orientation business (Kohtamäki et al., 2020). Businesses that deploy digital
technologies that help them create and design new products must also develop
capabilities to size these new opportunities by offering better services like maintenance,
research and development, and customer services. In the current period when humans
are working side by side with machines, it has become very important for businesses to
offer better servitization. The value must be captured with its help because digitalization
enables innovation and businesses are deploying different technologies. Kohtamäki (et
al., 2020) mentions that servitization is required for a business to achieve higher
financial performance, too.
According to Kohtamäki et al (2020), we are in the age of ”digital servitization” where

businesses move from standalone products to maintenance, services, and performance-
based offerings using digital technologies. According to Leon (2015), businesses are able
to achieve a competitive advantage using Artificial Intelligence by offering a balanced
mix between product creation and services because servitization is integrated into the
450 Strategica 2020
product lifecycle and it manifests strongly in advanced services and product

customization.
Human-made in the age of artificial intelligence
With the advancement in creative artificial intelligence, the digital transformation of

every business is happening and these algorithms will continue to become better over
time as computing power will grow and breakthroughs in the field will happen. For now,
humans and artificial intelligence are co-creating but the question is: what will happen
when these algorithms will not need the humans’ decisions anymore?
That could be the end of some creative business or could be the chance to adopt new
business models. We consider that one of the big impact factors here is customer
relationships because it is important to know that there are things that an artificial
intelligence system will not be able to do, even if it is programmed to do. In our opinion,
creative businesses will be able to survive the next age only by offering better
”servitization”, influencing their clients to choose them over their competitors, and their
products/services over those generated by an artificial intelligence system. Businesses
will have to rethink their business model and add human creativity as their core by
adding value to products designed by humans compared to artificial intelligence ones.
Just like how hand-made products had greater value over industrialized ones so can
human creativity will have greater value over artificially generated creativity.
Conclusions
Given the fact that researchers are advancing fast in the space of creativity and creative
systems, this research attempts to shine some light on what is to come. As for now
computers and systems are co-creating alongside humans. This paper is a conceptual
study for the future of work and based on the literature found on subjects that depict
the level of advancement in the field of artificial intelligence. This research is just the
beginning and can be the stepping stone on what is to come for the future of work and
human creativity. This is why we propose a new paradigm that is “human-made in the
age of artificial intelligence”. As systems are continuing to evolve we need to create new
business models that help better promote human creativity and help businesses add
bigger value to their products/services compared to the ones generated by an artificial
intelligence system.
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DOI:arXiv:1607.07539
BARRIERS TO DIGITAL TRANSFORMATION IN SMES: A

QUALITATIVE EXPLORATION OF FACTORS AFFECTING ERP
ADOPTION IN ROMANIA
Miruna-Elena ILIESCU
National School of Political Science and Public Administration
30A Expoziției Blvd., 012194 Bucharest, R0
Iliescu.miruna@gmail.com
Abstract
The present paper is an exploratory study and it contributes to the growing body of literature on ERP
adoption and acceptance by small and medium enterprises in Romania. The research question was
formulated based on the quantitative data available on Eurostat. According to the latest Digital
Economy and Society Index, published in 2019, in Romania, only 22.3% of the SMEs have in use an
ERP software package, designed to share information between different functional areas. There is a
significant difference between SMEs and large enterprises where ERP systems are used by 59.1% of
the companies. This study attempts to better understand the challenges that Romanian small and
medium companies face when implementing an ERP system by collecting and analyzing data from
semi-structured interviews conducted with participants across the country. The key actors in this
research were senior ERP consultants who have significant experience in the market and are involved
in the IT professional community for more than 15 years. The research methodology consists of 9
people being interviewed, a sample consisting of senior professionals with experience in the ERP
software field and consultants that generated rich information on the phenomena. Since all senior
consultants were working on different projects with companies of different sizes, fields of activity,
and geographical region, they were selected to enhance generalizability and to provide reliable
explanations. To ensure accuracy, interviews were taped, transcribed and sent back to the
interviewees. Atlas.ti was used to code and to perform the analysis, to assign codes and to model the
relationships between them. The results revealed the complexity of the digitization processes, the
interdependence between the integration of digital technology by businesses and the level of digital
literacy of the individuals in Romania. For most SMEs across the country, the costs for adopting an
ERP system are too high and part of them consider they don’t need it. The high cost of customization
of an ERP system results in using an incomplete or inadequate product. Therefore, final users still use
a spreadsheet to complement the work done in their ERP systems. This study is a starting point in
understanding the slow integration of digital technologies in Romania, but it might become the base
for further investigation of a wider European approach.
Keywords
ERP system; Romanian SMEs; digital adoption; ERP implementation; digital literacy.
Introduction
In the context of globalization and digitalization of businesses, resource planning is

crucial. The Digital Agenda for Europe sets growth targets based on more than 100
indicators and, amongst them, the implementation of enterprise resource planning
(ERP) systems is one the most discussed in the recent organizational management
literature. ERP software plays an important role inside any business by bringing
together customer management, inventory, supply chain, HR, financial management, etc.
However, the adoption and acceptance of these emerging technologies in Europe are
slower than desirable and significant differences are noted across countries. The
454 Strategica 2020
integration of digital technologies is particularly slow in SMEs, yet they represent over
99% of all businesses in Europe. To bridge the current divide, we first should
understand the reasons behind the low percentage of companies using ERP systems in
Romania and the challenges during implementation.
DESI (The Digital Economy and Society Index) is a composite index published yearly by
the European Commission, from 2014 until the present. It focuses on the evaluation of
five dimensions (Connectivity, Human Capital, Use of Internet Services, Integration of
Digital Technology, and Digital Public Services) with different weights reflecting the EU’s
digital policy priorities. Integration of Digital Technology is the dimension with a
relatively high weight, 20%, and it captures the use of ICT by the business sector. It has
2 sub-dimensions: Business Digitalization and e-Commerce. Business Digitalization sub-
dimension is calculated as the weighted average of the normalized indicators: 4a1
Electronic Information Sharing (25%), 4a2 Social media (25%), 4a3 Big data (25%) and
4a4 Cloud (25%). The 4a1 indicator, Electronic Information Sharing refers to businesses
that have in use an Enterprise Resource Planning software to transfer data between
different functional areas.
Data published in DESI 2019 was collected between April and July 2019 and used as a
basis for sampling the Business Register updated in January 2019. To ensure
representativeness, the Neyman allocation was used and the sample within each
stratum was drawn without replacement. The sample size was 15.912 enterprises with
an overall response rate of 97%. The latest European reports evaluate the percentage of
Romanian companies using ERPs to be only 21,5%, ranking the 24th in the European
Union. In 2019, Bulgaria, Hungary, Romania, and Latvia are lagging in terms of the
adoption of ERP technologies.
Background
The role of digital transformation inside organizations
IT is changing the way all companies work and it impacts the entire business
environment. To deal with nowadays challenges, companies seek to improve their
efficiency and enhance their agility (Erkan & Rouyendegh, 2012). The success of a
company and its growth can be influenced by implementing software that integrates
core processes by collecting data and information. On one hand, these features ensure
better flow and ease the centralization of data across different departments inside the
company. On the other hand, companies that use technology to analyses sales data, for
example, know more about their customers and can provide more value for money, as
their product fits the needs and the preferences of their clients. There are proven
technical and strategic benefits of integrating module-based software and a wide variety
of benefits also include productivity, reduction of costs, acceleration of performance,
reduction of bottlenecks in communication, etc. According to numerous studies
(European Commission, 2017), companies with a high degree of digitization are more
productive (Strategy for Denmark’s Growth, 2018).
In the past years, the incredible growth of the business technological tools and systems
became an interesting topic for practitioners and researchers in the organizational
management field. The ERP adoption has been studied from both individual and group
perspective. If only a few years ago, AI, IoT, or Big Data technologies were only
mentioned in several academic circles, today they are broadly used technologies across
industries and business sectors. For Romania, the use of new technologies would make
the daily routine easier, but also may mean more efficient machines that lead to better
production, new jobs, better use of resources, and improvements in many industrial
sectors.
Unfortunately, implementing an ERP system costs a lot of time, money, and expertise
and the role of it is not always clear to the management team. Even in other European
countries, the most common barriers are the lack of IT skills, issues related to data
security and data protection, organizational management, and a bad Internet connection
(Zimmermann, 2018). Either is on-premise or on cloud implementation, there are a lot
of challenges that the implementation process might face. The digital transformation of
a company would also consider privacy protection and cybersecurity policies with a big
impact in protecting companies’ and employees’ rights.
The adoption of ERP systems
Frameworks to study the adoption of digital transformation
The increased use of digital technology will have an impact on strengthening

competitiveness and progress. The adoption of digital technologies varies according to
company size and large enterprises already have a scale advantage, with 75% of them
employing internal ICT specialists, according to DESI Report 2019. There are several
frameworks to study the adoption of digital transformation and they are mostly based
on big companies’ case studies or they are still lacking empirical evidence to test their
hypothesis.
In 2014, Corver and Elkhuizen proposed the Digital Business Transformation

framework, a model built on four key elements: the customer, the product, the
organization, and companies’ processes and systems. The authors argue that the “digital
transformation often begins with the customer” and they establish this mind-set as the
premise for the framework. The process follows a logical order from a better
understanding of the customers, then moving to improvements to service levels,
followed by the digitization of customer experience, coming to an end with a digital
transformation. The proposed framework could be a proper guide to companies that
are in the process of developing their digital vision. It may also help organizations to
build new business models that are based on digital opportunities.
The Digital Enterprise Integrative Management framework was developed by Bowersox

et al. (2005) from a supply chain excellence perspective. The authors stated that “true
supply chain excellence can only be achieved through digital business transformation.”
Hence, they consider it a transformation that leads the organization to the next level of
operations. This framework exploits all the capabilities that technology could offer and
the result is a “true collaboration” within the supply chain by asking for a digital business
transformation as a precondition. The Digital Enterprise Integrative Management
framework is based on splitting the transformation into three processes:
a) Enterprise core processes which are focused on the maximization of customer
value;
456 Strategica 2020
b) Shared real-time information and operational connectivity which creates a

response-based/demand-driven network of supply chain relationships among
participating business entities;
c) Commitment to operational excellence manifested in the form of customer
centricity
From the authors’ perspective, an integrated company is defined by five elements:
integrated operations, measurement and metrics, financial stewardship, customer
accommodation, and human resource development. The main limitation of this
framework, as for most of the other conceptual frameworks, is that it needs to be
validated and tested because there is no empirical evidence to support its practicability.
The digital dynamics in a company can be also addressed by using the Digital
Transformation Framework Matt and colleagues (2015) consider that the digital
transformation of an organization should be a central concept that would integrate the
entire coordination, prioritization, and implementation of digitalization within the
company. Therefore, the authors state that “digital transformation strategies should
encompass four essential dimensions: use of technologies, changes in value creation,
structured changes, and financial aspects.”
At the core of this model lies the financial aspect and it represents the primary driver.
This is a unique approach when trying to understand the dynamics of the digital
transformation of a business entity, considering that an organization’s strategic focus is
primary on sustainable growth and profit in the long run. The framework focuses on
describing the building blocks for digital transformation along four dimensions, but it is
yet to be validated in order to move on from the conceptual stage of development.
Factors that influence adoption and use of technology
ICT and the growth of the Internet provided the means for the organizations to improve
external communication and the relationships with the customers and other
stakeholders. In general, innovation impacts the efficiency and the performance of an
organization, but the adoption of digitalization brought even more and influenced the
industries’ growth considerably. In the past years, strategic innovation has played an
important role for most organizations and, in certain fields, it became imperative.
Therefore, technology is not the only disruptive force inside a company. There is a lot of
research in the past years focused on the links between the organizational culture and
competitiveness and innovation. Still, there are not many companies that exploit
internal marketing opportunities to forecast the upcoming changes in their competitive
environment (Gounaris, 2006). A competitive and innovative firm is a performant one.
Thus, we can argue that organizational culture is likely to impact an SME’s business
model development project activities, which can then lead to changes in its
organizational culture.
To adapt and succeed in digital competitiveness, SMEs must adapt and implement
strategies that support their development. This digital orientation extends the
previously analyzed market orientation. The digital orientation reflects the company’s
beliefs and activities, but public policies can also have a strong positive influence.
Barriers identified in European countries like Sweden, Germany, or Belgium were
related to company management, organization, and finances (European Commission,
2017). Low awareness of company management and a lack of understanding of
digitalization benefits is one of the main issues identified. The lack of resources, the
competence needed, and they inhibit access to financial support are also relevant
setbacks in implementing an ERP system.
There are several successful national policies adopted in European countries to address
these barriers. For example, the largest grant size can be found in Estonia, where an SME
can obtain up to 500.000 euro through the Enterprise Development Program. Other
initiatives include vouchers, project funding, tools, incubators (Germany), but also
coaching (Sweden) and networking (Denmark). These initiatives were based on the
involvement of private consultants or suppliers, but involve also public mentors, project
facilitators, and universities or research institutions.
One of the main factors that play a role in technology adoption inside the companies is
senior management (Alshamaila, Papagiannidis, & Li, 2013). When we refer to SMEs,
usually the senior management confuses with the owner-manager whose values and
skills cause a domino effect on the whole company. The level of IT knowledge of the
senior manager is a strong factor influencing the adoption of a digital orientation inside
the organization (Michaelidou et al., 2011). Avolio et al. (2014) theoreticized a co-
evolution between leadership and technology which they called eLeadership. Later on,
Li, Liu, Belitski, Ghobadian and O’Regan (2016) distinguish between eLeadership at
meso, micro and macro levels. At a meso level, eLeadership focuses on changes
occurring at work, at micro level, it focuses on communication inside remote teams and
at a macro level it aims to understand the implications of organizational transformation.
In a more recent study on leadership, Larjovuori, Bordi and Heikkila-Tammi (2018)
state that understanding and adapting leadership abilities to the digital age,
organizations need a holistic view of the environment in order to reach their goals. A
positive attitude towards change (Peltier, Zhao, & Schibrowsky, 2012) and risk taking
are also factors that influence the adoption of a digital oriented strategy. In a previous
study, Peltier et al. (2009) suggested that age and education of the owner-manager of
the SME can also influence the drive to embrace progress and digital technology. There
is still a lack of research in the field of eLeadership and there are no current theories or
models that cover the alignment between strategy and digital technology (Li et al.,
2016).
Design of research
Research question
As proven in past studies, the implementation of ERP systems is low amongst Romanian
SMEs and in the EU. The research question of this study is, therefore: “What are the
barriers in the ERP adoption and implementation in small and medium companies in
Romania?”
Research objectives and hypotheses
The aims of this study are twofold: (1) to better understand the reasons why Romanian
SMEs are not keen on adoption an ERP system; (2) to identify benefits of implementing
ERP systems to serve as arguments for managers interesting in implementing them. This
458 Strategica 2020
study hypothesizes that Romanian SMSs have a low understanding of digital

technologies and they fail to understand the benefits of using them.
Methodology
In-depth semi-structured interviews were conducted with 9 senior professionals with

experience in the ERP implementation field that generated rich information on the
phenomena. The senior consultants were in charge of different projects inside
companies of different sizes, field of activity and geographical region. Therefore, they
were selected to enhance generalizability and to provide reliable explanations. This
research addresses how Romanian SMEs reacted to the on-going digital transformation
requirements, what their level of digital technology is, and their perceptions of its
benefits or drawbacks for their organization.
To ensure accuracy, interviews were taped, transcribed and an English translation of the
original transcript was sent back to the interviewees. Each interview lasted between 20
and 30 minutes and it was taped with the explicit permission of the consultants. Atlas.ti
was used to code and to perform the analysis. Before all the documents were exported
in Atlas.ti, they were cleaned by repeated words (“yes, yes”), or utterances (“uhm”,
“ihm”). After being edited, cleaned, and prepared, the text documents were imported
into Atlas.ti for coding and modeling the relationships between codes. From a total of
nine participants, three were female and five were male.
Results
Data Analysis
Data were analyzed using the Atlas.ti program. The main coding categories are included
in the following themes: a) Current barriers in ERP implementation in Romania b)
Perceived benefits of using an ERP system c) Perceived disadvantages of using an ERP
system. The coding families made the process easier by being based on the interview’s
questions.
Results
The results reveal the complexity of the digitization processes, the interdependence
between the integration of digital technology by businesses, and the level of digital
understanding of managers in Romania. For most SMEs across the country, the costs of
adopting an ERP system are too high and part of the managers consider they don’t need
it. The high cost of customization of an ERP system results in using an incomplete or
inadequate product. Therefore, final users still use a spreadsheet to complement the
work done in their ERP systems.
All nine ERP consultants have international experience and they consider their work to
be similar to their colleagues around the world. The analysis of the codes for the first
theme revealed as general barriers in ERP implementation the lack of awareness at the
management level, the lack of understanding of data value inside a company, and the
high cost of implementation. From their personal experience, the consultants tended to
consider that the general perception in Romanian companies is that human labor and
manual tasks are less expensive than the automatization of a process: “Also, human
resources are still considered unlimited, as employees do overtime on regular basis and
this is considered normal and acceptable.”
A favorable attitude towards bringing digital transformation in SMEs was captured

when talking about companies in certain fields like commerce, retail or media: “Yes,
once they have clients which use digital tools, they are more interested in trying”, “we
noticed a rise in interest in building online businesses, based only on digital tools but a
lot of things still have to change to become a widespread situation.”
The analysis of the second theme exposed a nuanced and varied number of benefits that
an SME would have if adopting an ERP. A digital tool would help Romanian small and
medium companies to be more efficient, to have more accurate reporting activities, to
reduce the risks of human error in financial documents. “General benefits of using an
ERP for businesses are: keeping financial and basic HR data in the same place, having a
standardized flow of financial documents recording, reduce redundant tasks, reduce
employees' overtime. I think these benefits are the same in Romania as well.” All
respondents agreed that the advantages of using an ERP are similar, no matter the
geographical region or sector of activity.
Most of the participants considered that the main disadvantages that managers identify
when trying to implement an ERP in an SME are: the costs, the lack of understanding of
this kind of software, and the lack of expertise inside their company: “SMEs managers
do not realize they need it and that is why is hard for them to see the advantages of such
projects”.
Conclusions
This study is a starting point in understanding the slow integration of digital

technologies in Romania, but it might become the base for further investigation of a
wider European approach. The results are consistent with other findings in different
European countries. Ideally, the study can be followed by the next ones including
countries with cultural similarities. Understanding why the Romanian SMEs are not
implementing ERP systems might be a starting point in addressing these issues locally,
but also expand the knowledge to surrounding countries.
Limitations
This is an explanatory study and its purpose is to identify several new hypotheses for
new studies. Even if the participants were consultants with recognized experience in the
field, the low number of interviews makes it impossible to generalize the results. The
sample was neither random nor fully representative of the SMEs’ business environment.
Acknowledgments
This paper was financially supported by the Human Capital Operational
Program 2014-2020, co-financed by the European Social Fund, under the
project POCU/380/6/13/124708 no. 37141/23.05.2019, with the title
“Researcher-Entrepreneur on Labor Market in the Fields of Intelligent
Specialization (CERT-ANTREP)”, coordinated by the National University of
Political Studies and Public Administration.
460 Strategica 2020
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462 Strategica 2020
MODELLING THE IMPLEMENTATION OF HR BUSINESS

PROCESSES TO ACHIEVE SUSTAINABLE DEVELOPMENT IN A
TELECOMMUNICATION COMPANY
Ioana Miruna TATARU
University Politehnica of Bucharest
313 Splaiul Independentei St., 060042 Bucharest, RO
tataru.miruna@gmail.com
Elena FLEACA
elena.fleaca@upb.ro
Bogdan FLEACA
bogdan.fleaca@upb.ro
Abstract
One of the world-leading telecommunication companies has developed a sustainable business
strategy that includes women’s empowerment and raising awareness on sustainability among their
employees. This paper will analyze and model the main human resources (HR) business processes
that can contribute towards achieving these goals. To firstly identify the main HR business processes,
the authors will use the APQC Process Classification Framework, using the data sheets that report
their progress and the programs implemented by the company. The analysis will provide three HR
business processes that will be further analyzed: Development of human resources plans to support
women’s empowerment, managing women's retention within the organization and Informing
employees about the adoption of socially responsible behavior. As a research methodology, the
authors will first apply the value stream analysis method to provide an initial state of the processes,
using the APQC activities and a set of initial key performance indicators. Then, the activities within
the processes will be classified by their added value. For a future state of the processes, the non-value-
added activities will be eliminated and a new set of quality key performance indicators will be
proposed. This future state will be further modeled to provide a strategical view of the processes to
the stakeholders and the critical steps to pursue. This future state of the processes will be mapped
using Suppliers-Inputs-Process-Outputs-Customers (SIPOC) method. These processes will then be
modeled using the event-driven process chain method (EPC), which provides a comprehensive view
of the process, being adapted for business stakeholders. This modeling will provide a clear view of
the sequence of activities and the responsible units, allowing the stakeholders to identify the main
inputs and outputs of the HR processes modeled. Thus, this paper will provide an analysis of the key
HR business processes that can be improved to achieve woman empowerment and to raise awareness
in the sustainability domain. This paper is an enhancement to the existing studies on employees’
crucial role in corporate social responsibility (CSR) and the importance of women’s empowerment
to create a better society.
Keywords
Sustainable development; CSR; women’s empowerment; HR; processes.
Introduction
The human resources (HR) implications in corporate social responsibility initiatives are
significant, due to their role in sustainable development goals related to gender equality,
quality education, sustainable cities and communities, decent work, and economic
growth (Sustainable Development Goals Knowledge Platform, 2015). All these
sustainable development goals are included in companies’ corporate social
responsibility (CSR) strategy.
Chiara and Spena (2011) argue that multinational corporations tend to be more open to
responsible and sustainable business activities. Thus, this paper will analyze the state of
a multinational company from the telecommunication industry, Vodafone Group Plc.
Cohen (2017) considers that corporate social responsibility is a key element towards an
enhanced company brand image, new business opportunities, and better risk
management. For the HR department, it is a key element of the company culture and a
strategic objective. The human resources department leads the way towards a CSR
culture in any company, because it educates, engages, and empowers the workforce to
participate in the CSR agenda. Thus, HR plays an important role in creating responsible
leadership, meaning supporting the employees in a ‘relationally intelligent’ way and
engaging them to perform social activities (Pless & Maak, 2005).
Previous research investigates whether and how the HR department support

employees’ involvement in corporate social responsibility initiatives, by conducting a
survey among HR professionals, and discovering that their role is crucial in
organizations’ CSR culture (Pless & Maak, 2012). Another study emphasizes the core
role of employees in building sustainability in a company, by participating in CSR
activities (Rosca, Badulescu, & Bac, 2018). Brezoiu (2012) describes the implications of
a CSR program in HR, arguing that it brings a sense of belonging and recognition, it
develops communication and teamwork skills and it provides a better understanding of
corporate values for the employees.
As gender equality is a United Nations Sustainable Development Goal [SDG], women’s

empowerment has become an interest in many companies. As Sridevi (2015) argues,
women need to have access to well-paid jobs and influence so that they can contribute
towards a better society. Women’s empowerment is one of the pillars of Vodafone’s
sustainable development strategy (Vodafone Group Plc, 2019), thus the business
processes that will be analyzed in this paper will also be related to achieving this goal.
Thus, this paper is an enhancement of the previous studies because it analyses the main
HR business processes that contribute towards sustainability goals: women’s
empowerment and engaging employees in CSR activities. Value stream analysis is
performed on the processes, analyzing the activities on their added value. The proposed
future state of the processes is then modeled using Suppliers-Inputs-Process-Outputs-
Customers (SIPOC) and Event-driven Process Chain (EPC) methods. This allows
stakeholders to identify the main inputs and outputs of the HR processes that need to be
enhanced to drive sustainability within the company.
464 Strategica 2020
Research methodology and input data
The first step is to identify the input data, meaning to identify the human resources (HR)
business processes responsible for sustainability. As a methodology, authors will use the
APQC Process Classification Framework (PCF) for the telecommunications industry, the
CSR programs implemented by the company described in the 2019 Sustainable Business
Report, and the datasheet that reports the company’s progress towards achieving
sustainability (APQC, 2018; Vodafone, 2019; Vodafone Group Plc, 2019).
According to APQC, the HR processes are in Category 6. Moreover, environmental,

health, and safety programs need to be put in place to drive sustainability and the
responsible processes are in Category 10 (APQC, 2018).
The HR business process categories are summarized in Table 1.
Table 1. HR Business process categories

APQC Category Number APQC Category Name
C6 Develop and Manage Human Capital
C10 Manage Environmental Health and Safety
Authors’ contribution
Vodafone has reported an interest to support women’s empowerment, thus sustaining

gender equality, quality education and decent work and economic growth (Sustainable
Development Goals Knowledge Platform, 2015). It has two main ambitions: to become
the world’s best employer for women and to connect an additional 50 million women
living in emerging markets to mobile (Vodafone Group Plc, 2019). Thus, in Table 2 the
programs that sustain the women’s empowerment goal and the CSR awareness among
employees are identified and mapped with the corresponding APQC process (APQC,
2018; Vodafone Group Plc, 2019).
Table 2. HR Business process groups

APQC Category Process Program
Number
C6 Develop and manage human resources Human Resources Strategy
(HR) planning, available within the company
policies, and strategies
C6 Develop and implement human ReConnect
resources plans
C6 Reward and retain employees ConnectedSheCan
C10 Train and educate employees #RedLovesGreen
According to Vodafone’s CSR report, ReConnect is a program to recruit women after a

career break, providing coaching, flexible working time, and a phased return to work.
Supporting also women’s empowerment, ConnectedSheCan is a program to coach and
train senior leaders, preparing them to take the role. The #RedLovesGreen is a program
to engage employees in CSR activities, making them aware of the actions that they can
take to reduce their emissions both as individuals and within the business (Vodafone
Group Plc, 2019).
In Table 3, using Vodafone’s CSR programs and the data reported by the company, three
main HR business processes have been identified (APQC, 2018; Vodafone, 2019).
Table 3. HR main Business processes

Process Data
Development of human resources plans to support 40% women (around 36500 employed
women’s empowerment directly)
31% women in management and
leadership
310 women recruited through
ReConnect
Managing women's retention within the 15 senior leaders have been coached in
organization ConnectedSheCan
Informing employees about the adoption of a 7000 participants in #RedLovesGreen
socially responsible behavior
These processes will be further analyzed and modeled, to provide a better view of them
for the stakeholders. Although the data provided is from Vodafone, all companies
interested to enhance their human resources processes for a more sustainable business
can use this process analysis.
The initial state of the processes and analysis
An initial state of the process is necessary to identify process improvements. Key

performance indicators (KPIs) monitor process performance and different types of
performance can be measured, such as control or operation (Lindberga et al., 2015).
Waste is defined by any low-performance indicator such as waiting, over-processing,
defects (Pearson, 2014).
For the elaboration of the tables, the activities defined APQC have been used (APQC,
2018). The initial state of KPIs contains also the classification for each activity by their
added value: value-added activity, non-value-added activity, and essential non-value-
added activity, to enable process improvement (Atlassian, 2019; Eswaramurthi &
Mohanram, 2013).
Process activities will be divided by their added value along with the justification for the
status. The following notations have been made:
P1 = Development of human resources plans to support women’s empowerment
P2= Managing women's retention within the organization
P3= Informing employees about the adoption of a socially responsible behavior
Table 4 outlines the initial state of the “Development of human resources plans to
support women’s empowerment” (P1) process and the HR department is responsible
for the execution of all these activities. The analysis and evaluation activities are
necessary to ensure the alignment between the previous activities.
466 Strategica 2020
Table 4. P1 initial state
No. Activity KPI Value Justification
A1.1 Centralize skills and Skills list outlined VA Prevents repetition of
gender diversity 70% next activities
requirements
A1.2 Plan gender diversity Requirements list VA Define necessary
requirements per outlined 70% employees’ database
organizational unit
A1.3 Define workforce Needs list VA Align internal and
qualification needs outlined 70% market requirements
A1.4 Plan training and coaching Training list VA It is vital to have a HR
for women outlined 70% plan for coaching
women
A1.5 Analysis and evaluation Lists analyzed ENVA Alignment
A1.6 Plan female employees’ Benefit plan VA Benefits suited for
benefits package outlined 70% women
A1.7 Develop a reward plan for Reward plan VA To ensure gender
female employees outlined 70% equality
A1.8 Develop HR policies HR policies NVA A similar activity is
outlined 70% done in P2
A1.9 Analysis and evaluation Plans analyzed ENVA Alignment
A1.10 Improve the HR strategy HR strategy VA To include development
improved 70% of HR plans for women
A1.11 Analysis and evaluation HR strategy VA Alignment
analyzed
Table 5 outlines the initial state of “Managing women's retention within the
organization” (P2) process and the HR department is responsible for the execution of all
these activities. Some activities do not bring any value because they are done in a
previous process or they can easily be done along with upcoming activities.

A2.1 Identify reward Requirements list NVA Activity to be done
requirements based on outlined 70% with A2.9
financial resources,
benefits and HR policies
A2.2 Perform competitive List of company’s NVA Activity performed in
analysis of employee’s benefits vs P1: A1.6 and A1.7
benefits and rewards competition
outlined 70%
A2.3 Develop a work-life balance Work-life balance VA Essential for women’s
support plan plan outlined 70% retention
A2.4 Analysis and evaluation Plans analyzed ENVA Alignment
A2.5 Develop a family support Family support VA Essential for women’s
plan plan outlined 70% retention
A2.6 Analysis and evaluation Plan analyzed ENVA Alignment
A2.7 Examine motivation and Retention VA Prevents repetition of
retention indicators indicators next activities
outlined 70%
A2.8 Analysis and evaluation Lists analyzed ENVA Alignment
A2.9 Review the reward plan Reward plan VA Essential for women’s
reviewed 70% retention

A2.10 Analysis and evaluation Plan analyzed ENVA Alignment
A2.11 Improve HR strategy HR strategy VA To include women’s
improved 70% retention activities
Table 6 outlines the initial state of the “Informing employees about the adoption of
socially responsible behavior” (P3) process and both CSR (if exists) and HR department
must work together to execute the process activities.

A3.1 Examine internal Requirements list VA Prevents
requirements related to the outlined 70% repetition of
environment, health and next activities
safety (EHS)
A3.2 Examine motivation and Retention VA Prevents
retention requirements indicators repetition of
outlined 70% next activities
A3.3 Create a CSR training plan CSR training plan VA Prevents
outlined 80% repetition of
next activities
A3.4 Implement CSR training 60% informed VA To measure the
plan employees results
A3.5 Provide support for 100% employees NVA Activity can be
employees receive support done with A3.4
by CSR and HR
departments
A3.6 Measure results 50% involved VA To verify the
employees (from plan’s
the informed implementation
ones) results
A3.7 Take corrective actions Action plan VA Only if
outlined 80% necessary
A3.8 Standardize employee Plan outlined VA To ensure
training plan 80% sustainable
results
The future state of the processes
Proposed key performance indicators
The general process performance is defined as descriptive data of process activities and
it is not related to quantitative parameters such as time or costs (Looy & Shafagatova,
2016). To propose the future state of the processes, the non-value-added activities will
be eliminated (NVA). For the quality, KPIs set the results are subjective and it can be
adapted for each company applying them.
For the first process, the A1.8 activity can be eliminated, and the development of an HR
strategy for women empowerment implies a complete HR strategy (100%) that outlines
the steps towards achieving this goal. For the second process, the A2.1 and A2.2
468 Strategica 2020
activities can be eliminated, and a high women’s retention within the organization can
be achieved if a reward plan, a work-life balance support plan, and a family support plan
are put in place and included in the HR strategy (100%). For the third process, A3.5
activity can be eliminated and the proposed KPIs are: 100 % informed employees and
75% employees to engage in CSR activities. Employees can be engaged via an internal
social media platform, sharing stories and information, and by proposing sustainability
solutions for the business operations.
Modeling the HR business processes
A process describes a flow of activities that transforms input elements into outputs and
Suppliers-Inputs-Process-Outputs-Customers (SIPOC) is a graphical process
representation method (Fleaca, Fleaca & Maiduc, 2018; Furterer, 2009; Michael, 2003).
The Event-driven Process Chain (EPC) method will be used to describe the sequence of
process activities to give a strategical view for stakeholders (Aris Community, 2009).
For the “Development of human resources plans to support women’s empowerment”

(P1) business process, the input data is market requirements, employee data, and the
current reward plan. The process execution will generate an approved skills and
diversity plan, an approved reward plan, and an updated HR strategy that includes the
percentage of women in the workplace filling different roles. These outputs will be used
by the HR department, the management, the employee, and also in the second process
(managing the women’s retention in the workplace). P1 is depicted in Figure 1.
Figure 1. Modeling the P1 business process

(Authors’ contribution)
For the “Managing women's retention within the organization” (P2) business process,
the input data is the updated HR strategy from P1, the approved reward plan, and
employee data. The process execution will generate two new HR plans (work-life
balance and family support plan), an updated reward plan, and an updated HR strategy
to include strategies for women’s retention and the projected turnover rate. The process
outputs will be used by the HR department, the management, the employee and also by
the third process (informing employees about the adoption of a socially responsible
behavior). P2 is depicted in Figure 2.

For the “Informing employees about the adoption of socially responsible behavior” (P3)
business process, the HR strategy updated from P2 and the CSR program developed by
HR and CSR department are used as input data. The process execution will generate a
CSR training plan for employees, that will be used in the HR department, in the CSR
department (if it exists separately or the function is embedded in HR or Marketing
departments) and by the management of the organization.
P3 is depicted in Figure 3.
470 Strategica 2020

Conclusions
This paper, through problematic, approach and results, models the implementation of
human resources business processes to achieve sustainable development in a
telecommunication company, Vodafone Group Plc. The following HR business processes
have been identified using APQC, implemented CSR programs and report data:
Development of human resources plans to support women’s empowerment, managing
women's retention within the organization and Informing employees about the
adoption of socially responsible behavior. The modeling of these processes
demonstrated that the HR department plays the lead role in women’s empowerment in
the workplace (senior leadership, percentage of female workers, retention ratios) as
well as the employees’ engagement in CSR activities. The proposed quality KPIs indicate
that, to achieve sustainable development in the company, is it necessary to have a
complete HR strategy to include women’s retention in the workplace and to spread the
word about CSR among all the employees, so that they can involve in CSR activities if
they are interested in. The HR department, as well as the CSR department (if exists) play
the lead role and they are the direct beneficiaries of the processes’ outcomes, as the
SIPOC/EPC diagrams demonstrated.
Companies can develop several mechanisms to support women’s empowerment and

employee retention. In the current context, to ensure employees' safety some
organizations have implemented telework. It is expected that telework becomes a
retention mechanism because it provides advantages for both parties. Employees can
achieve work-life balance as they have a flexible schedule and possibly improved
morale. Their productivity increases, as there is no commute time and they have more
time available for work. Companies can reduce their administrative expenses such as
energy, heating and office supplies, ensuring program continuity at the same time.
To further develop the research, the authors will expand the study by designing
appropriate business process control measures to achieve lasting results.
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inablebusiness2019.pdf
SUSTAINABILITY REPORTING IN UNIVERSITIES. COMPARISON

BETWEEN TWO EUROPEAN UNIVERSITIES
Luana LA BARA
University of Rome “Tor Vergata”
Via Columbia 2, 00133, Rome, IT
luana.la.bara@uniroma2.it
Irene LITARDI
litardi@economia.uniroma2.it
Gloria FIORANI
fiorani@economia.uniroma2.it
Abstract
Universities, for their role in training future generations of decision-makers and professionals, play
a key role in ensuring access to inclusive and equitable quality education and promote lifelong
learning opportunities for all in line with the Sustainable Development Goals. This research aims to
analyze the state of the art of the sustainability reporting initiative and communication in
universities. In particular, the research proposed a comparative case study analysis between two
young European universities (the University of Rome "Tor Vergata" - Italy and the University of
Lisbon NOVA) analyzing the best practice actions and the governance model adopted to promote
sustainability. The two Universities have moved differently to achieve the goal of Agenda 2030:
University of Rome “Tor Vergata” uses a top-down model, while the University NOVA of Lisbon uses
a bottom-up approach.
Keywords
Agenda 2030, Universities, Sustainability Reporting, Communication, Governance.
Introduction
Education is one of the most important economic sectors, it promotes economic growth,
employability and contributes to individual and collective development, and reduces
social inequality (Sustainable Development Goals 4, 10, and 17 of Agenda 2030). During
the Coronavirus pandemic in 192 countries, the Government closed the school and
university, interrupting learning for nearly 1.58 billion students (91.4% of the total
number of students enrolled) and pushing almost all education systems to implement
another kind of learning solutions. The outage also affected the work of over 63 million
primary and secondary school teachers, as well as education support staff, early
childhood education staff, technical training staff, and higher education, teachers. An
evolving university cannot neglect its task (Tanese, 2004) to provide citizens with an
account of the results obtained with the use of public resources and communicate the
efforts made to promote sustainable sectors and communities, and the results that the
education system got during the pandemic emergency. The sustainable reporting of
474 Strategica 2020
universities represents a primary element of the communication policies to

stakeholders about the commitment and pro-active vision for the achievement of a more
sustainable future. Through the drafting of a sustainability report, universities can
promote and improve: the process of interaction with their stakeholders; activities, and
results achieved; support decision-making processes; set outcome objectives to be
pursued with adequate governance and strategy. As part of this process, accountability
is, therefore, a functional mechanism also for organizational learning and continuous
improvement.
This contribution aims to provide an overview of Universities’ sustainability reporting.

Therefore, after a brief introduction of the tool to communicate the sustainability action
promoted by the Universities, is conduct a comparative case study analysis of the two
European experiences: The University of Rome "Tor Vergata"-TVG (Italy) and the
University of Lisbon NOVA (Portugal). The data was acquired on websites (in specific
sustainable section or page), reports (Sustainable Report for TVG; Strategic Plan TVG
and NOVA), ad-hoc interviews for the referents of the University of Lisbon NOVA
(conduct in November 2019 by the authors during the research visiting in the
University).
Literature review of Sustainability Report (SR) and Integrated Report (IR)
The institutions that operate in the fields of education, training, and research and, more
generally, the development of human and intellectual capital in the various national
contexts, such as universities, use different models and practices at the national and
international levels. The university, in particular, needs to communicate to stakeholders
the efficient use of public resources (Guthrie, Ball, & Ferneti, 2010). The development of
new forms of reporting goes beyond the limits of the traditional one (Ball & Osburne,
2011) and at the same time boosts the spread of sustainability paradigms (Williams,
Wilmshurst & Clift, 2011; Farneti, Guthrie & Siboni, 2011). The resulting tools are
increasingly aimed at integrated management of the organization's performance
(Giusepponi, 2004; Farneti et al., 2011) to make public bodies more aware of their work
through a growth process (Hinna, 2004). In recent years, increasing attention has been
paid to the topic of social accountability, although the literature only highlights some
empirical studies on the subject, underling a significant gap (Moggi, 2016), because
sustainable reporting is considered as a final reporting phase of one's work, neglecting
tools aimed at its communication and dissemination to stakeholders (Velazquez et al.,
2006; Fonseca et al., 2011) draft one of the first studies on the reporting of universities
based on Canadian experience. The research results are an imbalance in the drafting of
the reporting, detecting a prevalence of reporting on environmental issues compared to
social and economic ones. Lonzano (2011) makes up for these shortcomings with a
sample-based and weighted analysis.
In Italy, the first studies of accountability in University analyzed in which are the
characteristics of the first published reports (Frey, Melis, & Vagnoni, 2010; Del Sordo et
a.l, 2010) and the main critical factors of their implementation (Milon & Melchiori,
2011). These studies show that in the Italian panorama the social reporting of
universities is almost focused on the development of the Social Report, in its largest
sense. As suggested by Moggi (2016), the forms of reporting can be summarized in the
following categories (Figure 1).
Figure 1. Reporting: From Social Report to Sustainability Report

(Author’s elaboration)
The implementation of a form of sustainable reporting for the university means

presenting to its stakeholders the commitment of the organization in the economic,
social and environmental fields (triple bottom line; Elghinton1997; Gray, 2001) and the
results achieved. The reporting activity is explicit through the adoption of the
Sustainability Report. Sustainability reporting, therefore, consists of balanced
accountability towards stakeholders, both internal and external. The model recognized
as an interaction benchmark and most commonly used and for sustainable reporting is
that proposed by the Global Reporting Initiative (GRI). Another relevant reporting
model is the one proposed by the "Social Report Group" (GBS).
Figure 2. Reporting: From Social Report to Sustainability Report

(Author’s elaboration)
GRI Standards make common language on sustainability reporting. Moreover, this

Report is subject to assurances that will verify the compliance of the report to the
476 Strategica 2020
guideline. In Italy the non-financial declaration for all public interest entities with over
500 employees is mandatory (DL n.254/2016, Comm. n. 2015/95/EU). So, the GRI has
published a document to fulfill the disclosure obligations of the Non-Financial Reporting
Directive using the GRI Standards.
A standard report is fundamental for the achievement of Sustainable Development Goals

(SDGs) promoted by Agenda 2030, a large and complex system where everyone is called
upon to contribute. The role and potential of SDGs in governments, companies, and civil
society towards shared and lasting development has been widely recognized in
governance and accounting studies (Hajer et al., 2015). Numerous contributions have
filled the scientific debate on sustainable development (Lozano, 2015) and Corporate
Social Responsibility (CSR). Maybe different concepts (Ebner & Baumgartner, 2006) but
recall the role of companies to support Sustainable Development (Agenda 2030).
Besides, it is important to integrate the SDGs into corporate strategies (Boons and
Lüdeke-Freund, 2013).
The prevailing studies on SDGs and sustainable development have been mostly focused
on management (Annan-Diab & Molinari, 2017; Storey et al., 2017), accounting, and
accountability (Gray, 2010).In particular, since the time of the Brundtland Report
(UNWCED, 1987), these studies have had the task of supporting the implementation of
the SDGs at a political and managerial level both at the company and context level
(Bebbington et al., 2017; Bebbington & Unerman, 2018), raising awareness among
practitioners and regulators, starting from professional bodies and large companies, on
the issues in question and the potential inherent in the declination of the SDGs.
In the begging the studies have focused on the contingent factors that influence the
implementation of the sustainable development objectives and the related SDG
reporting (Hàk et al., 2016), investigating the exogenous and endogenous variables, i.e.
the external and internal contingent factors (organizational) that facilitate the decision
of organizations to pursue and report on sustainability objectives (Moggi et al., 2018;
Hahn & Kühnen, 2016; Liu & Anbumozhi, 2009).
The Integrated Report is a virtuous reporting model which aims to link the traditional
“Consolidated Report” (accounting) with “Sustainability Reporting” (accountability), by
inserting the performance data related to the Creation of Value within the company
results. According to the International Integrated Reporting Committee (IIRC-2013), the
Integrated Reporting (IR) can be defined as the new frontier of reporting. The
International Integrated Reporting Council (IIRC 2013; Higgins, Stubbs, & Love, 2014;
King, 2016) is a global body made up of regulatory bodies, investors, companies,
regulatory bodies, professionals working in the accounting sector, and NGOs. All the
members of the institution agree that communication on the creation of value should be
the next step in the evolution of corporate reporting. Integrated Reporting means a new
approach to corporate reporting which demonstrates the link between strategy,
financial performance, and the social, environmental, and economic context within
which the organization operates. This type of approach, which is still being defined
internationally, requires documenting financial, environmental, social and governance
results through a single tool, to increase transparency towards the whole community
and all stakeholders. The Integrated Report differs from the previous financial
statements analyzed in that it does not just give information, but highlights the
relationships between the economic, social and environmental variables. In this way, the
organization communicates its identity, its role, and its value more effectively to
stakeholders.
The Italian experience
To guide universities along this path, in Italy the Social Report Study Group (GBS) and
Network of Universities for Sustainable Development (RUS) are drafting a sustainability
standard for universities in partnership (SDG 17) and to ensure strong institutions (SDG
16), it is essential to guide universities towards sustainable reporting. The GBS is a
Research Group (born in 1988) that defined a standard for the Social Report. This must
be divided into at least three fundamental parts: 1) company identity, 2) calculation and
distribution of added value, 3) social relationship. The RUS - Network of Universities for
Sustainable Development, is the first experience of coordination and sharing among all
Italian universities involved in the issues of environmental sustainability and social
responsibility, promoted by CRUI - Conference of Italian University Rectors since July
2015.
The research of the working group GBS-RUS starts from an assumption document n. 7
on "The social reporting of universities", published by GBS in 2008 and already adopted
by some Italian universities since the first approaches to social reporting. The content
of this document has been integrated and modified to consider both the regulatory and
institutional innovations that have occurred since its publication (university missions,
indicators, accounting, etc.), and the practices and standards, developed at the national
level and international, on the issues of socio-environmental commitment required of
organizations (SDGs, reduction of emissions, gender equality, etc.). The sustainability
reporting standard of universities was designed as a content standard, capable of both
guiding the implementation process of the university's social responsibility
management systems and proposing the structure and content of the reporting. The
standard will also propose elements of connection with the planning and programming
systems of universities and with the system of indicators already present, to promote
functional reporting for the strategic planning of the university and its three main
missions (teaching, research, and third mission). The standard consists of an
introductory part and a more technical part. In the first, the objectives and principles of
drafting the sustainability report are defined, as well as elements that present the
identity characteristics of the University, such as the governance structure and its
mission. In the second, the real heart of the sustainability report, sets of indicators
(qualitative and quantitative) are presented aimed at measuring the university's
activities considering environmental, social, and economic impacts. In concert with the
metrics deriving from the works of the other RUS tables, the dimensions to be measured
and monitored will be presented considering the peculiarities of the measured variable.
It will then be the task of each university to adapt the structure and measurements
proposed by the standard to its peculiarities. To limit the risk of self-referencing of the
statement and to increase its credibility, the document recommends the use of the
statement's assurance by an independent third party.
The Sustainability Reporting Standard for universities will be accompanied by an

Operating Manual useful to support universities in drafting the various sections
proposed by the standard. The Operating Manual is a document that intends to assist
those involved in drafting the report by providing explanations on the various aspects
478 Strategica 2020
of structure and content present in the standard, proposing indications on the reporting
process, suggesting stakeholder engagement methods, and offering ideas for the process
assurance. The standard aims are:
a) provide a balanced and reasoned summary of the socio-environmental and
economic aspects of university operations;
b) highlight the current and future contribution of the universities to the
achievement of the sustainable development goals set by the UN 2030 Agenda;
c) guide and strengthen the commitment of universities towards the national and
international challenges that the institutional and social context will require of
them.
Comparative case study analysis of two Young European Universities: “Tor

Vergata” of Rome and NOVA of Lisbon
The University of Rome "Tor Vergata" and the University of Lisbon NOVA are two young
universities (less than 50 years old) sensible at the topic of sustainability. Another, they
collaborate to achieve the SDGs, with common projects or Network like YERUN (a
network composed of young research universities that have the mission to strengthen
and develop cooperation in the areas of research, academic education and service to
society among a cluster of highly-ranked, young research universities in Europe on an
equal basis and for their common benefit).
 University of Rome “Tor Vergata”
The University of Rome “Tor Vergata” is a young university in Italy, founded in 1982. Its
mission is to contribute to people's education and training, to scientific research and to
the technological, organizational and social innovation needed to achieve truly
sustainable development in Italy, Europe and worldwide pursuant to the Sustainable
Development Goals approved by the United Nations in September 2015. As the
implementation of the actions needed to accomplish such an ambitious purpose
requires high skills and management of complex processes, not only is the University of
Rome Tor Vergata deeply committed to excellent education and scientific research, but
it also closely cooperates with the private sector, public institutions, and non-profit
organizations at national and international level. These aims are favoring the adoption
of policies and behaviors focusing on sustainability both in terms of well-being for
people and ecosystem conditions. The “Tor Vergata” University in 2019 established the
Office for Sustainable Development, directly submitted to the Rector, in full top-down
logic. The office is supported by the Committee for the implementation of the Mission
and the University vision to sustainable development a working group made up of
representatives of each Department, which changes the top down to top-down
governance structure with participatory actions. The Committee has a dual mandate:
 give substance to the University's "mission" and "vision", based on the choice
for sustainable development and based on a broad approach: Teaching,
Research
 collaborate with the "Italian University for Sustainability Network" (RUS)
created by CRUI (National Network of Rector of Italian Universities) and Yerun.
The University, in line with the global objective promoted by Agenda 20230, has chosen
to draw up a Sustainability Report since 2017 on an annual basis, defined based on the
GRI4 criteria, to disseminate and better understand the strategies, the objectives, the
performances achieved, the improvements that can be made, the actions taken in
response to the feedback received. The Report is drawn up with the support of one from
the Office for Sustainable Development and a specific working group specifically made
up of Professors, Researchers, Ph.D. students, and University staff experts in the subject.
The Sustainability Report represents, for “Tor Vergata”:

• a tool for communicating your commitment to sustainable development and
taking note of your responsibility towards all stakeholders by the University;
• a method to account for the efforts made and the progress made with a view to
sustainable development and innovation in the community of reference;
• a channel for listening and acknowledging the requests of the stakeholders,
with a goal of continuous improvement.
“Tor Vergata” has launched several partnerships and networks for sustainable
development. The University is part of UNICA - Network of Universities from the Capitals
of Europe, which in 2011 created UNICA GREEN a platform to discuss and exchange
experiences and practices for the implementation of environmental sustainability
strategies in universities. TVG is also a founding member of the RUS.
The University is active in the realization of Projects, Activities, and Good Practices in
Partnership, according to the quintuple helix approach, converging to the Sustainable
Development promoted by the 2030 Agenda, initiating various Third Mission activities
and stakeholder engagement and creation of shared value.
 University NOVA of Lisbon
Founded in 1977 as part of a Portuguese expansion of its tertiary education system, to

this day this law and sciences university is known as the 'Nova', or new University of
Lisbon. The mission of the University of NOVA Lisbon is to serve the society at the local,
regional and global level, through the progress and dissemination of knowledge and
understanding between cultures, societies, and people, by way of teaching and research
of excellence and of a provision of services based on a strong sense of community and
with the following components:
 an international profile with an emphasis on second and third cycles, but
founded on solid first cycles, focused on its students and providing them
rigorous knowledge, creativity, critical spirit and sense of citizenship and
justice that enables professional success and leadership;
 collaborative research, responsible and internationally relevant, concentrating
on interdisciplinary areas and including an investigation targeting the
resolution of problems that affect society;
 service that promotes solidarity and sustainable development in the health,
economic, technological, cultural and social plans, founded in the region of
Lisbon and compromised on a national and international level, dedicating
special attention to the countries where the Portuguese Language is spoken;
 a wide base of inter-institutional participation, oriented to an integration of
different scientific cultures to create innovative synergies for teaching and
research.
480 Strategica 2020
To agree on SDGs, NOVA uses a Governance Bottom-up model through the creation of
the NOVA 4 The Globe - NOVA Institute for Global Development. It is one of NOVA's
strategic initiatives that is designed to work as a center across the institution that
promotes the collaboration and interdisciplinary of areas and that is guided by the
United Nations Sustainable Development Goals (SDGs). NOVA does not draw up a
Sustainability Report but communicates its work on the website indicating the progress
towards each SDGs.
Nova doesn’t redact a continuative reporting but defines to communicate their activities
and project for the Agenda 2030 on the website, an overview of NOVA’s initiatives and
academic contribution to support the SDGs. The list does not claim to be comprehensive
but illustrates NOVA’s commitment to the implementation of the 2030 Agenda.
Moreover, the University aims to achieve an ambitious project: the EcoCampus FCSH, by
joining the Eco-Schools program, a tool for the implementation of the Sustainable
Development Objectives (SDG - Agenda 2030). This program of the Foundation for
Environmental Education (FEE) is recognized by UNESCO as the world's largest
sustainability education network. This multi-level coordination, according to the
Bottom Up logic, allows the confluence with common objectives, methodologies, and
criteria to respect the specificity of each school in relation to its students and the
characteristics of the surroundings.
According to the NOVA Organizational Team, the creation of the Eco campus will impact
in that achieves the SDGs: 3 (Education), 4 (Gender Equality), 6 (Clean water and
sanitation), 7 (Renewable energy), 11 (Sustainable cities and communities), 12
(Responsible consumption), 13 (Climate action), 14 (Life below water), 15 (Life of land)
and 17 (Partnership for the goals). The EcoCampus project is oriented towards the
implementation of local Agenda 21, to apply environmental education and management
concepts and ideas to the daily life of schools following the proposed methodology:
 management of the school space in terms of sustainability (environmental,
economic, social);
 promote the change in behavior and attitudes in the rigorous and wide-ranging
community in which the educational institution is inserted.
The EcoCampus FCSH project is defined by a coordination group and a working group,
noting once again the Bottom-up governance approach. Therefore, the project is defined
by Project coordination and the Working Group “NOVA FCSH Ecological Schools
Council” of 15 members, that consisting of 3 teachers, 3 officials, 8 students, and external
entities, e.i. New Avenue Parish Council. So, it stimulates empowering the community to
participate, discuss and implement projects for a more sustainable Faculty and society.
Table 1 shows that the two young universities are moving to achieve the objectives of
sustainable development, raising awareness of the territory.
Table 1. Comparison of two Young European Universities

Tor Vergata-Rome (Italy) NOVA-Lisbon (Portugal)
A. Mission In both, the mission is clearly linked and compressive of the
concept of sustainable development
B. Stakeholder both, dynamic for the promotion of activities of stakeholder
Engagements engagements
C. Report comprehensive and annual In the website, reporting

reporting based on the GRI the academic contribution
standard: to support each SDG, this
- -Office for Sustainable list does did not claim to be
Development comprehensive - however,
- -specific working group it illustrates NOVA’s
(Professors, Researchers, Ph.D. commitment to the
students, and University staff implementation of the
experts in the subject). 2030 Agenda;
Institution of NOVA 4 The
Globe-NOVA Institute for
Global Development.
D. Communication Specific web-page of Specific web-page of
sustainability and specific logo sustainability
E. Network YERUN and many other networks
F. Governance Top-Down (with elements of Bottom-up
participation).
Conclusions and future reflections
The analysis shows that the two young universities are moving to achieve the objectives
of sustainable development, raising awareness of the territory, similarly at the best
practices. In both, the mission is clearly linked and compressive of the concept of
sustainable development and is more dynamic for the promotion of activities of
stakeholder engagements. Therefore, the universities communicate and reporting their
activities with different instruments.
Tor Vergata University uses comprehensive and annual reporting based on the GRI
standard. The Report is drawn up with the support of one from the Office for Sustainable
Development and a specific working group specifically made up of Professors,
Researchers, Ph.D. students, and University staff experts in the subject. The University
publishes its activities on a special page sustainable Tor Vergata has defined a specific
logo. Italian University collaborates with many networks like RUS, YERUS, and work
with GBS to promote a new standard of reporting. This report is published on a specific
sustainable website. Therefore, the university uses a top-down approach with elements
of participation.
NOVA-Lisbon adopted like an instrument of communication and report the website,

reporting the academic contribution to support each SDG, this list does did not claim to
be comprehensive - however, it illustrates NOVA’s commitment to the implementation
of the 2030 Agenda. To achieve the SDGs, it created NOVA 4 The Globe (NOVA Institute
for Global Development), a strategic initiative that is designed to work as a center across
the institution that promotes the collaboration and interdisciplinary of areas. The
approach of NOVA is more practical and directly at the communities, so it uses a bottom-
up approach.
However, the study evidence that the two case studies (Tor Vergata-NOVA) have
adopted different approaches to achieve the SDGs. An answer to this different approach
could be associated with different socio-economic contexts. The interaction with
482 Strategica 2020
different environments leads to the adoption of different actions of reporting and

communicating, hence they don't start from the same starting point to do sustainability
education.
Lisbon, indeed, was announced as the winner of the European Green Capital Award for
2020 in June 2018. For this reason, the logical deduction is that the starting point of the
NOVA is advanced (understood as a very good level of culture and sensitivity to
sustainability). So, the approach of governance bottom-up is well-fitting. Instead, Rome
(and Italy) need an approach of governance top-down because (although is on the good
right, related to the SNSD and BES), It should be guided on the achievement of SDGs.
Although excellent communication was found with its stakeholders, the approach is
different a convergence towards a common model of sustainable reporting is desirable
and not impossible. Convergence towards a common model of sustainable reporting is
desirable and not impossible. However, it requires collaboration between the
Universities and an organization of every single University that goes from defining a
specific sustainable workgroup that works continuously and constantly to reporting, for
the preparation of an annual report, of any form (traditional or web reporting) and
methods (sustainability report or budget statement).
Furthermore, it is necessary to start a specific communication activity with a specific

communication plan (possibly with the definition of a specific workgroup, since the
ultimate goal of social reporting is not the report but the knowledge of the activities put
in place by these. The knowledge can be acquired by the local community even without
the need for a report, see Nova di Lisbon, but with the limit of local communication
(acquired from experience) and not open to the whole community (comprehensive
available from the web, report of public).
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486 Strategica 2020
INTERNET OF THINGS AND EMPLOYEE HAPPINESS IN THE

DIGITAL ERA
Alina-Alexandra GOROVEI
University of Alexandru Ioan Cuza
11 Carol I Blvd., 700506 Iași, RO
alina.gorovei@outlook.com
Abstract
How we work, who we work with, and even what we define as work is rapidly changing, but the most
transformational change may be occurring at the intersection of data, sensors, and artificial
intelligence. Companies in all fields are beginning to dive into the world of big data to increase the
health and happiness of their employees, along with boosting productivity and overall output.
Employers now have more information than ever about their employees by using a variety of
methodologies including workplace wearables. They are beginning to take on more interest and
responsibility in their employees’ mental and physical health. There are a variety of reasons for this,
and one of them is the growing acknowledgment of the link between happy employees and better
business performance. The future holds even greater things for the Internet of Things, especially in
the workplace. In today’s highly competitive work environment, developers are constantly thinking
of new ways machines can help even more. Now the Internet of Things empowers employees to take
control of their work lives, and more of them are now working from home, using IoT platforms to
stay connected to their teams at the office. IoT solutions make workdays smoother and increase the
well-being of employees. Methodologically, qualitative research was undertaken, resorting to a
descriptive and exploratory literature review. In this paper, I have analyzed the concept of the
internet of things, explained the connection between job satisfaction, motivation, and involvement. I
also analyzed the advantages and disadvantages of this concept of the Internet of Things (IoT) on
the employees in companies and how the workplace and quality of life directly influence employee’s
productivity. This paper examines the current state of this technology and multi-dimensional
applications by surveying the relevant literature. The paper also evaluates the various possible future
applications of IoT and foresees further developments and how these will change the way that life
will be in the future.
Keywords
Internet of Things, happiness, employee engagement, job satisfaction, digital era
Introduction
We are living in a world where the emphasis is on technology, but we are still at the
beginning of what will become an interconnected world. Gradually, we accept and
embrace the changes brought about by this new concept of the Internet of Things that
will be incorporated into every aspect of our daily lives. The concept “Internet of Things”
is also shortly well-known as IoT which is coined from the two words i.e. the first word
is “Internet” and the second word is “Things” (Madakam, Ramaswamy, & Tripathi, 2015,
pp. 164-173). Enlightened minds of academics, researchers, practitioners, or innovators
have tried to define this concept as well as possible, but the most appropriate definition
is the following: Internet of Things (IoT) is defined as an open and comprehensive
network of intelligent objects that can auto-organize, share information, data and
resources, acting and reacting in certain situations and changes in the environment
(Madakam, 2015, pp. 250-253).
The future is the Internet of Things, which will transform the real world objects into
intelligent virtual objects. Numerous intelligent object interconnection solutions were
developed in systems with different scales and objectives. There are already mentions
of smart cities, smart homes, or digital health. The IoT aims to unify everything in our
world under a common infrastructure, allowing us not only to control things around us
but also it keeps us informed of the state of things (Madakam, Ramaswamy, & Tripathi,
2015). IoT solutions make workdays smoother and increase the well-being of
employees. It is a human-centric digital service that focuses on improving employee
well-being and happiness and increasing productivity by automating time-consuming
and non-productive tasks of in-office communication and administration, it encourages
employees to straight-forward human interaction, collaboration, and co-innovation.
With the help of IoT sensors and software solutions, employees can easily find a suitable
space for their work at a flex office (IoT solutions at workplaces increase the well-being
of employees, 2018).
Today, this landscape is changing. The desire to improve experiences and cybersecurity
initiatives driven by executive management, IT, Corporate real estate, HR, and other
business functions is one of the drivers of IoT deployment and integration in the
enterprise. Organizations need to realize the importance of restructuring the way the
organization work, from the production management, human resources department,
and all the other departments. Retaining employees and ensuring the engagement levels
of employees will change the performances of the organizations without the need to
implement other drastic changes (Bakker, 2015, pp. 723–732).
Erdogan et al. suggested a state view of workplace happiness which depends on

satisfaction with the environment, and that leadership, career development, job
characteristics, and person-environment fit contribute to an understanding of
happiness or well-being at work (Erdogan, Bauer, Truxillo, & Mansfield, 2012, pp. 1038-
1083). Employee engagement has become a key concern of scholars and practitioners
because engaged workers are more motivated, more involved in their jobs and
organizations, more productive, and more willing to go above and beyond what is
expected of them to help their organizations survive and thrive (Bakker & Demerouti,
2008, pp. 209-223).
According to Schneider and Macey, employee engagement can be defined as having an

organizational purpose, being involved, passionate, enthusiastic, and having the energy
to perform work (Schneider & Macey, 2008). Because of that, it’s important to know that
when the needs of an individual are met, individuals will be emotionally and cognitively
engaged. Thus, employees that receive sufficient continuous growth opportunities in
any organization will feel a sense of belonging, involvement, and growth towards the
organization. Individuals will tend to stay loyal to the organization (Nor, Arokiasamy, &
Balaraman, 2018).
Another concept that we talk about in this paper is job satisfaction, which is a
combination of psychological, physiological, and environmental circumstances that
causes a person to say honestly that he or she is satisfied with his or her job (Hoppock,
1935). Job satisfaction is influenced by many external factors, but there is still something
internal that has to do with how the employee feels. This means that job satisfaction has
a set of factors that cause a sense of happiness (Vroom, 1964).
488 Strategica 2020
How the Internet of Things can improve employee happiness at the workplace
The Internet of Things made it possible to integrate and communicate between the
current devices and even future devices to ensure that users will receive all the data that
are necessary from all of their devices (Agrawal & Vieira, 2013, pp. 78–95). The devices
will enable organizations to develop better products and services where maintenance
and development can be done based on actual requirements. The software of the
connected devices can also be updated easier compared to when they are not connected
(Saarikko, Westergren, & Blomquist, 2017).
IoT enables higher levels of user enjoyment, creating an engaging work experience. IoT
in the workplace is a powerful innovation, resulting in happier workers, more efficient
employees, and which creates a better workplace to work (Kumar, 2018).
Now let’s see how exactly IoT technology will improve employee happiness:
- Intelligent lighting systems - offer the possibility that light only goes on in a section
of a facility or is dimmed at a certain level or rate depending on staff utilization,
occupancy, or availability of natural light, which makes for a friendlier, less distracting
environment (Rosencrance, 2016).
- Ambient Temperature Control – the monitoring of environmental conditions of cities
can help to adapt to the indoor locations of the workspaces to be more comfortable for
people who stay there. A way to improve the indoor conditions is an efficient
temperature control; however, it depends on many factors like the different
combinations of outdoor temperature and humidity (Meana-Llorián et. al., 2016, pp.
275–284).
- Ergonomics and Wellness - IoT devices are changing the way companies design office
environments to support employee health and wellness. Now we talk about standing
and sitting desk controlled via a touch screen and using cloud-based architecture to
store individual profiles and preferences and smart chairs with sensors to alert
employees when their posture is bad and provide recommendations for improvement
(Nair, 2019).
- Live Mapping – live mapping technologies use a mix of beacons and sensors to help
users more effectively navigate their offices. Several different technologies help us
better understand how spaces are used and occupied. The data helps commercial real
estate professionals optimize the tenant experience and helps the average worker
seamlessly move through their day while cutting out unnecessary steps (Nair, 2019).
- Room booking, availability, and management - IoT enhances meeting planning and
schedule visibility by making conference rooms smart. It means that employees can
schedule a meeting in the most suitable room remotely, book the equipment required,
and confirm one’s presence or absence, all without a verbal agreement (Mikhalchuk,
n.d.).
- Flexible work environment - it is important to equip all the employees with laptops
to enable them to work from home and go a step further, to encourage home working
(Kumar, 2018).
- Access control systems - IoT technology can even smartly replace the typical system
of locking and controlling accesses. Many companies have already provided advanced
electronic access control systems that do not need any sort of key. They do not even need
any passcode or access card to provide access to workers and employees in a specific
area or facility and they can be programmed to provide access to specific people or
specific accesses that can be secured only for specific people (Coppol, 2018).
- Mobile phones and tablets – The phones and tablets are the central hubs in IoT. They
give us easy access to each other and our favorite things. We can review any product and
service, and share our thoughts via social media. So far, business as usual for many of us
as consumers (Willer, 2016).
- VR and AR - Virtual reality and augmented reality create a fast-track to digitalization.
These technologies are creating breakthroughs in businesses. The latest iteration in this
innovative arena is virtual chat rooms. Along with real-time 3D capturing and AR lenses,
real-world experiences can be created in any environment. Meetings can now be made
more interesting and interactive. Time and money can be saved in physical
transportation, and a virtual meeting room can be created anywhere and at any time
needed (Bhattaram, 2018).
- Increased Energy Efficiencies – Businesses use an enormous amount of energy each
day to keep operations running smoothly. By working seamlessly together to maximize
efficiencies, these examples highlight how IoT helps businesses save money while
keeping employees and guests comfortable throughout the day (Stradley, 2018).
With the help of the Job Characteristics Theory framework, created by Richard Hackman
and Greg Oldham (Hackman & Oldham, 1975, pp. 159-170) we can see that through
applying automation via the Internet of Things there will be an actual increase in
employee satisfaction in skill variety, task identity, task significance, and autonomy:
- For skill variety, we understand more diverse skills used and fewer rote tasks
performed leading to higher satisfaction, and with IoT solution, sensors can take over
rote observation and monitoring tasks from employees. In this case, the employee is
freed to focus on higher-skilled activities (Friedman, 2018).
- Another IoT solution is to collect sensors data and displays, showing process-wide
key performance indicators for more insight into the big picture, which leads to higher
satisfaction. In this case, employees will be able to feel connected beyond their
contribution to the entire process (Friedman, 2018).
- For a positive impact on the company or others leading to higher satisfaction, the
IoT solution is to collect sensors data and displays, showing live financial key
performance indicators for the employees to be able to feel connected to the big picture
and see how they impact the business (Friedman, 2018).
- For autonomy job characteristics, meaning more personal decision-making leads to
higher satisfaction, the IoT proposed solution is to show workers the information they
need such as historical data and trend lines. The IoT impact for the employee is to be
able to make informed decisions (Friedman, 2018).
HR departments should devise strategies to absorb the impact of the Internet of Things
(IoT) on multiple aspects of Human Resources. William R. Tracey, in The Human
Resources Glossary, defines Human Resources as the people that staff and operate an
organization (Tracey, 1991). Human Resources is also the function in an organization
that deals with the people and issues related to people such as compensation and
benefits, recruiting and hiring employees, onboarding employees, performance
management, training, and organization development and culture. Human Resources
evolved from the term: personnel, as the functions of the field, moved beyond paying
employees and managing employee benefits (Heathfield, 2019). As an organization's
most significant asset, employees must be hired, satisfied, motivated, developed, and
retained.
490 Strategica 2020
Information Technology is crucial to enable organizations to deliver state of the art HR

services and with reduced costs, that have enabled companies to purchase or rather opt
for HR technologies (Ball, 2001, pp. 677-693). The Internet of Things is all set to
transform not only life at home but also human resource management at the workplace.
Internet of Things will set up the ecosystem for the organization to connect, track and
measure the effectiveness and efficiency of humans in the digital work environment and
enable the employers to make appropriate HR decisions to benefit organizational
growth with the availability of easy and cost-effective employee data (Venkatesh, 2017).
One of the impacts of IoT on Human Resources is: IoT improves employee experience.
Employees, managers, and HR carrying Internet-enabled mobile devices are connected
round-the-clock (HR Trend: Make Employee Experience a Top Priority in 2018, 2018).
For instance, they can instantly book meeting rooms, communicate with any team
member, exchange ideas, and do a lot more. In this way, IoT optimizes the effectiveness
of employees’ workday and offers a better work experience. Also, employee wellness
can be monitored and measured on an ongoing basis through the same technology. If
corrective steps are taken on time to improve employee health, the purpose of
introducing technology would succeed (How Internet of Things (IoT) Will Impact HR?,
2018).
IoT enhances the productivity and the effectiveness of the employees in different ways.
First, it provides various means of gathering better data which could have been tallied
up manually, making it prone to human error. The better data collected through the IoT
devices assist the HR managers in making better decisions during scheduling,
maximization of the employees, and so on (Savaram, 2019).
The potential risks of the Internet of Things
IoT can be integrated into anything, from coffee machines to fitness watches, leading to
making our lives more convenient. But what happens if they turn bad? When being
unwillingly infected or hacked, these blessings can certainly turn into huge threats.
Collecting Information by hacking a webcam, another person can see what they are
pointed at without you even knowing it, smart TVs and personal assistants can pick up
sound, and smart cars can give clues to whether or not someone is home (Richard, n.d.).
Another issue is security, which is a dynamic game, the more updated the smart objects
are, the more protected they are. Of course, software updates only partially solve the
problem and represent a temporary patch. We know that through the IoT we can both
detect environmental conditions and remotely control most common devices used in
everyday life. Questions that arise: Are internet data communications 100% secure? Do
the devices have a degree of security that cannot be penetrated?
Privacy is another issue behind the IoT. All data should be encrypted so that data about
your financial situation or what food you eat is not shared with other people who should
not have access. According to The Economist magazine, computer security is a myth, and
computers will never be safe without significant changes in the way computer software
vulnerabilities are treated by consumers and the industry (The Economist, 2017).
Liviu Arsene, Global Cybersecurity Researcher at Bitdefender says that IT security

specialists have discovered and continue to discover vulnerabilities that can be
exploited remotely by attackers and that it can compromise both users' data and the
security of the home network to which other devices are connected. The fact that so
many IoT devices are vulnerable makes them the perfect target for attackers, as they can
be used as access points in the home network (to which they are connected), or in the
workplace network in our case, and from there, attackers can pivot on other devices
(China-Birta, 2018).
Future applications of the Internet of Things
What was once the field of science fiction, today is a reality that is developing day by day.
This will improve the quality of our lives, but it will also change the way we work, which
means that we will have to assimilate new knowledge and skills to keep up with a world
in constant motion and innovation. In the future, employers will be interested in
technology and how it can influence employee happiness because we already know that
a happy employee is also a productive employee. Based on some past researchers,
internet technology has the potential to improve the economy, social life, culture and
enhance the performance of organizations (Isaac et al., 2017, pp.210–241). Currently,
smart devices have been changing our daily lives making it more interactive and
informative (Gubbi et al., 2013, pp.1645–1660).
Consumers won’t be the only ones using IoT devices. Cities and companies will
increasingly adopt smart technologies to save time and money. This means cities will be
able to automate, remotely manage, and collect data through things like visitor kiosks,
video camera surveillance systems, bike rental stations, and taxis (Patras, 2017).
The arrival of 5G will shift the auto industry into a higher gear. The development of
driverless cars, as well as the connected vehicles already on the road, will benefit from
data moving faster. The new cars will increasingly analyze our data and connect with
other IoT devices including other high-tech vehicles on four wheels (Ngoc, 2020).
Conclusions
The IoT has gradually brought multiple technological changes into our daily lives,
making our lives simpler and more comfortable by accessing various technologies and
applications in all areas, including medical services, manufacturing, industry,
transportation, education, or even the workplace. We can say that any evolution of
technology is beneficial, but we must also be aware of the associated risks.
It is already known that the old systems of punishment and reward no longer work in
the long run in modern society, and performance depends more than ever on hedonistic
principles. This means that the employer needs to pay more attention to building a
pleasant work environment, involving staff in challenging and rewarding activities, and
rewarding them with methods that are more about the right hemisphere of the brain
than rational arguments.
The benefits of integrating the IoT into the workplace are numerous and speak for
themselves: significant cost savings, improved productivity, increased energy efficiency
and streamlined operations are all top of mind for business owners. The bottom line is
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that the IoT provides advanced solutions for workplace and distribution challenges,
reducing time spent troubleshooting issues and empowering leadership with more time
to focus on serving their customers well (Stradley, 2018).
Finally, I believe that company management should focus on employee productivity

through the Internet of Things technology. This means that we can talk about smart
buildings and services that have direct implications for employee happiness and
satisfaction at work. Employee productivity directly impacts good work and therefore
an organization’s success, and a smart ecosystem can also make for a smart management
decision.
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DIGITAL TALENT IN A LEARNING EUROPEAN UNION

Carmen SĂVULESCU
30A B- Expozitiei Blvd., 012104 Bucharest, RO
carmen.savulescu@administratiepublica.eu
Corina-Georgiana ANTONOVICI
30A B- Expozitiei Blvd., 012104 Bucharest, RO
corina.antonovici@administratiepublica.eu
Abstract
In the current era of digital transformation, the European Union countries are facing challenges
related to digitalization of businesses, attracting digital talents, digital divide, digital skills, low
number of digital champions, lack of cybersecurity readiness, trust in digital transformation, lack of
investment. For the time being, we witness at international, European, national, regional, and local
level the race for attracting digital talents as they are essential for a successful digital transformation
in the EU. Digital talents are crucial for companies, local governments, universities, and countries as
a whole for social and economic development and increasing competitiveness. The European
countries should be able to attract, to invest, and to retain the most talented employees, thus to have
competitive advantages. The idea of the paper is to explore how digital talents can better foster the
development of countries and the way they could address the current worldwide challenges. The
paper reveals the landscape of digital competences in the EU Member States as well as the main
challenges of digital talent management. It also presents a comprehensive roadmap for enhancing
successfully the digital competences in Romania. The empirical analysis of digital competencies
emphasizes the necessity to develop digital competencies in all the EU countries and especially in
Romania by modernizing the education and training systems. The current paper explores the
statistical connection between digital competence and talent competitiveness. The research
methodology comprises bibliographic syntheses, socio-innovative empirical researches, analyses of
correlation, and regression.
Keywords
Digital transformation; digital competences; correlations.
Introduction
For the time being, the coronavirus pandemic represents an outstanding challenge to
the whole world. According to UNESCO (2020), “over 1.5 billion learners and 63 million
teachers are affected by system-wide closures in 191 countries”. In this context, digital-
based innovation is important both in healthcare and education and all governments
have taken measures in view to ensure health protection and learning continuity by
alternative tools, i.e. digital platforms, television, and radio.
The European Commission is providing a common European response to the outbreak

of COVID-19, taking measures and actions in view to improve the healthcare, education
and diminish the socio-economic impact in its Member States.
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The landscape of digital competences in the EU
In the EU countries, the benefits of digital transformation relate to enhancing

productivity, fostering innovation, triggering the creation of new jobs related to artificial
intelligence, data analytics, robotics, cybersecurity.
The European Union is committed to boosting the digital transformation, representing

a key priority for its future economic growth. The White Paper on the Future of Europe
highlights “the challenges of digital transformation that will influence all jobs,
governments, and businesses” (European Commission, 2017). The European
Commission is evaluating the impact of digital transformation on its labor market in
view to develop relevant measures and actions. The Digital Europe program, the first EU
program designated to digital transformation represents “a component of the 2021-
2027 MFF proposals, with a proposed overall budget of €9.2 billion, in view to trigger
investments mainly in supercomputing, artificial intelligence, cybersecurity, digital
public services and advanced digital skills and to ensure the wide use of digital
technologies” (European Commission, 2019).
Ferrari (2012) states that digital competence represents “the set of knowledge, skills,
attitudes, abilities, strategies and awareness that are required when using information
and communication technologies and digital media to perform tasks; solve problems;
communicate; manage information; collaborate; create and share content; and build
knowledge effectively, efficiently, appropriately, critically, creatively, autonomously,
flexibly, ethically, reflectively for work, leisure, participation, learning and socializing”.
According to Ilomäki et al. (2016), digital competence comprises “the skills and
literacies needed for the average citizen to be able to learn and navigate in the digitalized
knowledge society”.
Researchers as van Deursen and van Dijk (2014), Helsper and Eynon (2013) highlight
that digital competences and the ability to make use of digital media autonomously and
strategically are of increasing importance to ensure users’ full societal participation.
Wastiau et al. (2013) emphasize “the comprehensive organization of policies, leadership
and supportive organizational infrastructures when trying to achieve technology
integration and development of the digital competencies needed”.
“Digital competence involves the confident, critical, and responsible use of, and
engagement with digital technologies for learning, at work, and for participation in
society. It includes information and data literacy, communication and collaboration,
digital content creation (including programming), safety (including digital well-being
and competencies related to cybersecurity), and problem-solving” (European
Commission, 2017). The Council Recommendation on Key Competences for Lifelong
Learning (European Commission, 2018) states that “digital skills are one of the top
priorities for transversal/basic skills development in Europe” and “the Member States
should pay special attention to increasing and improving the level of digital
competences at all stages of education and across all segments of the population”.
According to this Recommendation, the digital technologies develop “more flexible
learning environments adapted to the needs of highly mobile societies”. It is
acknowledged that digital transformation is at the same time creating opportunities
both for the economy and society. But the European citizens should acquire and develop
digital competences in view to valorize the above opportunities. The basic digital skills
are important to use health services, online educational programs, e-Government

services as well as to protect against cyber threats.
According to EC Digital Skills for All Europeans, “83% Europeans use the internet
regularly but 43% do not hold basic digital skills for searching information, sending e-
mails, video calls, or paying online. Nine million Europeans are employed as ICT
specialists, of which over a half are working in banking, healthcare, and production. 90%
of jobs in all sectors of the economy require digital competencies but 35% of employees
do not have basic digital skills. 53% of companies searching for ICT specialists report
difficulties in recruitment, while Europe faces one million vacancies for ICT specialists”
(European Commission, 2019). The increasing number of ICT vacancies in the EU
reveals a gap between demand and supply of ICT specialists.
In the EU, the members of the Digital Skills and Jobs Coalition provided 7.4 million digital
skills training courses, 1.9 million certifications, and 1.6 million persons were involved
in awareness-raising campaigns.
The European Commission (2018) is highlighting “digitization, cybersecurity, media

literacy and artificial intelligence, the need for a lifelong learning-based and innovation-
driven approach to education and training”.
Strengthening European Identity through Education and Culture (European

Commission, 2017) mentions “the existing shortcomings concerning teaching digital
skills such as coding or cybersecurity skills, media literacy and entrepreneurship skills”.
Therefore, the European Commission focuses on cooperation in view “to develop digital
skills, digital learning strategies and exploit the potential of state-of-the-art technology,
including learning analytics, accompanied by guidance on open education initiatives, as
well as to strengthen Erasmus+ business consortia” (European Commission, 2017).
Digital talent management
In a globally interconnected world, digital talent represents a crucial issue. According to

Capgemini (2017), digital talent comprises “hard digital skills (such as data analytics),
soft digital skills that constitute a ‘digital-first mindset’ and are necessary for a
successful digital transformation”. The digital talent gap is widening. The talent gap in
soft digital skills is more pronounced than in hard digital skills. The two soft digital skills
most demanded on the labor market are customer-centricity and passion for learning
while the two hard digital skills relate to cybersecurity and cloud computing.
Digital talent management refers to the activities and processes focused on selecting,
attracting, developing, retaining talented human resources that bring added value to any
organization, and create competitive advantages.
According to Dries (2013), talent is considered a “unique strategic resource”. “Sourcing
and retaining the quality and quantity of talent has been a continual challenge for
organizations” (Vaiman et al., 2017).
Around half of the labor force is represented by millennials and amazingly “they are
perceived to be lacking analytical skills” (Capgemini, 2017). In the digital era, the
demand for new technical skills is evolving exponentially. Mobile skills refer to “design
498 Strategica 2020
skills, e.g. platform-design, user-interface and gamification as well as technical skills

such as app development, cloud services, mobile device management, and security”.
The main challenges for human resource management related to the fast development
of information technology, artificial intelligence, remote working, community-thinking
(PricewaterhouseCoopers, 2018). In this context, human resource management should
focus on leadership in view to boost talent and develop an innovative culture. It should
also focus on talent development by coaching, mentoring, on the job training, and
community learning by sharing knowledge and experience as well as on creating a
culture of innovation, by involving employees in innovative activities and stimulating
their creativity, offering the opportunity to generate brilliant ideas. At the same time,
human resource management should encourage open thinking, job crafting. The most
talented employees should be compatibilized with the right roles and teams. The
forthcoming skills gap that will influence all organizations “will disturb the global
economic power and result in a shortage of 85.2 million skilled workers, 8.452 trillion
in unrealized revenue” (Korn Ferry, 2019). Also by 2030, “the Technology, Media and
Telecommunications sector will experience a labor skill-shortage of 4.3 million workers
and unrealized revenues of $449.70 billion. This deficit is problematic in such a sector
that is currently booming with a supposedly promised growth in companies such as
Apple, Google, and Amazon”.
The key to addressing the above challenge is an investment in talent development, in

view to prepare for future complex jobs while the organizations should strengthen their
learning and development activity.
At the same time, the organizations should concentrate on continuous improvement of

staff personal development, on innovative means, on strengthening the organizational
culture, so that their employees will be creative, will learn new skills, and acquire
experience. The principles and values of an organization will foster the attraction and
loyalty of employees.
Robots and robot process automation are playing an important role in supporting vital
activities in all countries facing an aged population and lack of labor force.
Concluding, what can organizations do to decrease the digital talent gap?

Attracting digital talent, identifying and recruiting best talents, developing the digital
talent pool, creating an environment that triggers learning, designing career
development path, retaining digital talent, offering collaborative ways of working,
developing cloud technologies, establishing key performance indicators could be
success factors.
Roadmap for enhancing successfully the digital competences in Romania
According to McKinsey (2017) analysis, “54% activities could be automated using the
existent technology by 2030”.
Romania has a large STEM graduate talent pool that will transpose into an ICT specialist
pool in the labor market, but the share of ICT specialists in the labor force is only 4.8%.
The adult participation rate in training is 7% for people aged 25-64 while in the Nordic
countries is 54%. The brain drain is 6 times higher than the average of top IT country
performers. In this context, attracting talents represents an outstanding challenge.
Taking into consideration the fast development of automation, artificial intelligence, and
advanced robotics, the demand for skilled persons will increase, demand in terms of
basic and advanced technological skills. Data analysts, IT specialists, programmers, IT
engineers, IT designers, specialists in the interaction human being – robot, scientific
researchers represent just a few occupations that need advanced technological skills.
Especially for Romania, advanced technological skills are crucial in view to enhance the
digital economy. Thus, it is imperative to promote lifelong learning for all the citizens as
it represents a success factor for the digital transformation. It is well known that the
digital readiness of the population in any country depends on the performance of
education.
Romania should create its vision and identify the future needs in terms of digital
competences, should accomplish an analysis on the skills gap, should identify the best
methods and techniques in view to overcome this gap, should develop a performance-
centered approach focused on key performance indicators and of course should invest
in education, research and development, and innovation. It is important a network
collaborating model, involving universities, research institutes, businesses, NGOs, and
local governments to identify the needs for skills, competences and to provide
consultancy and training programs. The universities should play an essential role in
fostering the development and delivery of relevant training programs.
In Romania, the key enablers for digital transformation should focus on digital
authentication of users, electronic signature, single databases for users, electronic
correspondence between authorities and citizens.
Speeding up the digital services triggers improvement of competitiveness, an attractive

environment for investments, optimization of the use of human resources. IT ensures
transparency, increasing productivity, a decrease of fiscal evasion, a decrease of
corruption, a decrease in costs in public administration, making more efficient the
activity of central and local governments. The digital transformation is a long process
involving several challenges that should take into consideration the voice of customers,
the government should be more connected and responsive to citizens’ needs,
expectations. Also, it should be an agile approach for a gradual digital transformation by
prioritizing the citizens’ needs based on a mechanism of consultation. The leadership
and innovative governance are essential for a common vision on digital transformation
so that this would be continuous. Data interoperability and integration are crucial for
decision making and improvement of efficiency, the effectiveness of central and local
governments.
And of course, the government should demonstrate will and capability to accelerate
digital transformation in Romania, by a focus on the development of the digital public
sector, using more cloud services, collaborative working, strengthening cybersecurity.
The enhancement of digital competences both for employees and citizens represent
maybe the most important pillar for digital transformation. For Romania, the key
success factors could be the following:
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 Forecasting the set of competencies for the future.

 Analyzing the current and future skills necessary on the labor market taking
into consideration IT dynamics.
 Encouraging all citizens to acquire and develop digital competencies and
enhancing the digital competencies across the whole society by developing
programs for lifelong learning, with a focus on reskilling and upskilling of the
labor force.
 Adapting the best practices from successful countries.
 Endowing the pre-university schools with digital instruments and online
resources (online courses, virtual reality).
 Developing the skills of teachers.
 Updating the curricula with a focus on programming, entrepreneurship,
communication skills.
 Promoting STEM disciplines in view to create an ICT talent pool.
 Attracting students who study abroad by providing incentives and dedicated
programs for starting a career in Romania.
 Encouraging the cooperation of universities with other European higher
education institutions in the Erasmus+ program.
 Encouraging universities to cooperate with the private sector in view to
develop joint applicative programs.
 Increasing the number of ICT specialists and attracting ICT specialists from all
over the world.
 Promoting the start-ups in view to attract local digital talent.
 Attracting EU Funds by developing digital projects.
 Public-private partnerships for projects in artificial intelligence, cybersecurity,
e-Government services, advanced digital skills.
An empirical analysis of digital competences in the EU Member States
The empirical analysis of the digital competences of the EU population is based on the
information retrieved from the Digital Agenda Scoreboard 2019. DESI Human Capital
dimension is calculated as the weighted average of the two sub-dimensions: Internet
User Skills (IUS) and Advanced Skills and Development (ASD).
Table 1. Internet User Skills and Advanced Skills and Development in the EU
Country IUS ASD Country IUS ASD
Austria 32.24 23.41 Latvia 22.93 17.52

Belgium 28.42 21.20 Lithuania 26.69 15.49
Bulgaria 12.86 15.65 Luxembourg 42.67 27.21
Croatia 27.48 19.62 Malta 28.74 26.31
Cyprus 22.18 12.46 Netherlands 38.74 23.04
Czech Rep 26.46 18.35 Poland 21.21 15.64
Denmark 35.84 25.66 Portugal 25.25 9.98
Estonia 29.10 33.35 Romania 12.66 18.43
Finland 36.71 40.83 Slovakia 28.66 15.53
France 26.95 20.07 Slovenia 25.99 20.34
Germany 32.33 22.10 Spain 26.76 17.74

Greece 21.85 10.89 Sweden 37.63 34.00
Hungary 23.45 18.67 United Kingdom 35.53 26.10
Ireland 23.19 30.64 European Union 27.41 20.60
Italy 20.76 11.88
Source: European Commission, Digital Agenda Scoreboard 2019
Luxembourg, Netherlands, Sweden, Finland, Denmark have the best scores for Internet
User Skills while Finland, Sweden, Estonia, Ireland are top performers for Advanced
Skills and Development. The Advanced Skills and Development “is calculated as the
weighted average of the normalized indicators: ICT Specialists, Female ICT specialists
and ICT graduates”.
Table 2. Advanced Skills and Development in the EU

ICT ICT ICT S ICT
Country ICT Spec ICT S F Country
Grad Spec F Grad
Austria 20.95 12.20 13.67 Latvia 10.95 8.08 16.00
Belgium 21.90 15.15 5.33 Lithuania 12.86 11.45 6.67
Bulgaria 10.95 10.69 9.67 Luxembourg 23.81 11.27 19.33
Croatia 15.71 7.85 15.67 Malta 20.48 9.47 22.67
Cyprus 10.95 5.98 8.00 Netherlands 23.81 15.05 7.23
Czech Rep. 17.14 6.23 13.33 Poland 13.33 7.61 10.33
Denmark 20.95 15.36 15.00 Portugal 10.48 5.49 4.00
Estonia 26.67 18.70 21.33 Romania 10.00 10.52 16.33
Finland 32.38 25.61 23.67 Slovakia 13.33 7.06 10.67
France 17.62 12.51 10.00 Slovenia 18.10 10.93 11.67
Germany 18.10 11.11 15.00 Spain 13.81 8.67 13.00
Greece 7.62 3.50 10.67 Sweden 31.43 24.24 12.33
Hungary 17.14 5.86 14.33 United Kingdom 24.29 15.92 12.00
Ireland 20.95 16.99 23.33 European Union 17.62 11.53 12.05
Italy 12.38 8.04 3.33
Source: European Commission, Digital Agenda Scoreboard 2019
We remark that for ICT specialists, the top countries are Finland, Sweden, Estonia while
at the other extreme we find countries such as Latvia, Portugal, Romania, Greece. Why
Romania is among the weak performers? A main reason refers to the whole education
and training system. It is necessary to foster smart education and training system, based
on critical thinking, computational thinking, and problem-solving, inspiring creativity
and innovative ideas, on a reflective attitude. Concerning female ICT specialists, again
Finland, Sweden, and Estonia are recording the best scores, Romania is in the 16th
position. For ICT graduates, Finland, Ireland, Malta, Estonia, Luxembourg, and Romania
are the best performers.
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Relationship between digital competence and talent competitiveness for the EU

Member States
The current paper explores the statistical connection between digital competence (DC)
and talent competitiveness (TC) in the EU Member States. It presents descriptively the
relationship between the associated two indicators. The paper presents the analysis of
correlation and regression concerning the digital competence indicator from Pillar 2 of
the Global Competitiveness Index and talent competitiveness indicator of the Global
Talent Competitiveness Index.
Table 3. Digital competences in the EU

Country DC Country DC Country DC
Austria 4.8 Germany 5.1 Poland 4.3
Belgium 4.8 Greece 4.1 Portugal 4.5
Bulgaria 4.7 Hungary 4 Romania 4.5
Croatia 3.7 Ireland 5 Slovakia 4.6
Cyprus 4.9 Italy 4.2 Slovenia 4.8
Czech 4.8 Latvia 4.8 Spain 4.3
Republic
Denmark 5.4 Lithuania 4.9 Sweden 5.7
Estonia 5.4 Luxembourg 5.2 United Kingdom 4.9
Finland 5.8 Malta 4.7 EU average 4.79
France 4.5 Netherlands 5.6
Source: Schwab, K., 2019, World Economic Forum, Global Competitiveness Report
According to the data from Table 3, the Nordic countries are most successful, having
innovative educational systems, embracing new digital methods: Finland, Sweden, the
Netherlands, and Denmark. Estonia is also a top performer.
The Global Talent Competitiveness Index is based on an Input-Output model, comprising

six pillars. “The Input sub-index presents four pillars concerning “policies, resources,
and efforts that a particular country can harness to foster its talent
competitiveness: Enable, Attract, Grow, Retain talent”. The Output sub-index aims “to
describe and measure the quality of talent in a country that results from the above
policies, resources, and efforts”, comprising Vocational and Technical Skills (VT) and
Global Knowledge Skills (GTCI, 2020).
Table 4. Global Talent Competitiveness, Vocational and Technical Skills in the EU, 2019
Country GTCI VT Country GTCI VT
Austria 68.87 69.95 Latvia 54.4 55.68
Belgium 68.87 65 Lithuania 53.32 46.15
Bulgaria 45.76 45.74 Luxembourg 73.94 65.68
Croatia 43.53 47.35 Malta 62.02 55.45
Cyprus 57.47 59.58 Netherlands 74.99 71.88
Czech Rep 60.91 63.49 Poland 49.48 54.31
Denmark 75.18 69.2 Portugal 57.8 52.31

Estonia 61.97 58.78 Romania 42.14 41.79
Finland 74.47 75.91 Slovakia 52.08 54.92
France 64.83 65.16 Slovenia 57.42 59.84
Germany 72.34 80.27 Spain 55.7 47.77
Greece 47.51 47.84 Sweden 75.82 71.77
Hungary 46.62 49.13 United Kingdom 72.27 62.8
Ireland 70.45 69.07 European Union 60.47 59.41
Italy 52.91 56.67
Source: Global Talent Competitiveness Index 2020
According to Table 4, again the Nordic countries demonstrate a stronger power in

attracting, developing talent at the same time with making remarkable investments in
the education and training of their citizens as well as high vocational and technical skills.
Table 5 presents the analysis of correlation, revealing a global image at the European
Union level, a static one for 2019.
Table 5. Analysis of correlation

DC TC VT
Pearson Correlation 1 .686** .665**
DC Sig. (2-tailed) .000 .000
N 29 29 29
Pearson Correlation .686** 1 .907**
TC Sig. (2-tailed) .000 .000
N 29 29 29
Pearson Correlation .665** .907** 1
VT Sig. (2-tailed) .000 .000
N 29 29 29
**. Correlation is significant at the 0.01 level (2-tailed).
Taking into consideration the structure of the statistical database as well as how the
indicators are measured, the correlations are powerful for a 0.01 level of significance.It
is worth to note the powerful correlation between digital competence and talent
competitiveness (0.686), as well as between digital competence and vocational and
technical skills (0.665). The conclusion of the analysis of correlation is also confirmed
by an analysis of regression.
Table 6. Analysis of regression
Variables Entered/Removeda
Model Variables Variables Method
Entered Removed
1 VT, TCb . Enter
a. Dependent Variable: DC
b. All requested variables entered.
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Model Summary
Model R R Square Adjusted R Std. Error of
Square the Estimate
1 .694a .481 .442 .4622660
a. Predictors: (Constant), VT, TC
ANOVAa
Model Sum of Squares df Mean Square F Sig.
Regression 5.158 2 2.579 12.070 .000b
1 Residual 5.556 26 .214
Total 10.714 28
b. Predictors: (Constant), VT, TC
Coefficientsa
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
(Constant) 2.240 .533 4.204 .000
1 TC .028 .020 .470 1.404 .172
VT .015 .021 .239 .714 .481
Table 6 presents the analysis of regression for the indicators related to digital
competence, talent competitiveness, vocational and technical skills in the EU Member
States in 2019. The role of regression is to reveal the causality between variables.
Obviously the value of regression is important as it shows how one variable influences
the other. Within the analysis of regression, the dependency between digital
competence and talent competitiveness, vocational and technical skills is moderate
taking into consideration the coefficients from the equation of regression (0.028 for
talent competitiveness and 0.015 for vocational and technical skills). The conclusion of
this statistical analysis reveals the fact that there is a powerful relationship between
digital competence, talent competitiveness, vocational and technical skills. This
conclusion is valid for an overview of the two processes at the EU level, while analyzing
them at each EU country level, sensitive differences could emerge.
Conclusions
Worldwide, the lack of digital competencies represents an outstanding challenge but

there are huge differences between the countries. The smart and learning European
Union is facing a growing need for digital competencies, new typologies of talent to meet
the current and future challenges. In Europe, a successful digital transformation will be
based on improving the organizational adaptability, a structured approach to digital
services development, a holistic approach to analytics and ecosystem engagement,
talent management, robot process automation. European digital citizens should also
change their mindset and way of interaction. Digital transformation is triggering
changes like work and labor markets, and for the time being, teleworking is the key. In
view of addressing the gap of digital competencies, the EU Member States are joining
their efforts in light to ensure a digital skilled labor force that will trigger the
improvement of EU competitiveness. At the same time, the decrease of the digital
competence gap could be accomplished by sharing the best practices across the EU in
areas of education, training, awareness increasing.
The current paper presents a comprehensive roadmap for enhancing successfully the
digital competencies in Romania. At the same time, the paper emphasizes the necessity
to develop digital competencies and digital talents in all the EU countries and especially
in Romania by modernizing the education and training systems.
Acknowledgement
This paper was achieved in the framework of the Exploratory Research project
financed by the National University of Political Studies and Public
Administration: “The learning organization - the result of paradigmatic
transformations from the public sector. A socio-empirical study”.
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TELEWORKING IN ROMANIAN SMEs AFTER COVID-19 PANDEMIC

Adriana GRIGORESCU
30A Expoziției Blvd., Sector 1, 010324Bucharest, RO
54 Spl. Independentei, Bucharest, 50085, Romania
Andreea MOCANU
30A Expoziției Blvd., Sector 1, 010324Bucharest, RO
andreeamocanu_94@yahoo.com
Abstract
The COVID-19 pandemic and all the circulation restrictions that came with it changed our
lives forever. In the 21st century, the century of speed, technology, and information, the
mandatory self-isolation and quarantine irremediably changed our perception of our lives
and on the way we want to live them. These restrictions have also hurried the changes that
would have eventually come anyway and that took decades in the past. The Industrial
Revolution took the world from the agricultural economy to the industrial one, then it came
the transition from the industrial age to the information age, and now, the era when
humans are replacing almost everything with its virtual correspondent. Although
telecommuting is not a new concept, as it was coined in 1994 by Nilles, for many years
there was resistance to it both from employers and employees. In the latest years, due to
technology’s immense evolution and due to the increased need for flexibility of the now
working millennials, teleworking has known an increased appreciation in the work market
and got from being considered an informal bonus to being incorporated in Romanian
legislation, since 2018. This article has set the objective to analyze the Romanian
Classification of Activities in the National Economy (CAEN) to find out which domains are
preferred by Romanian SMEs and which of these economic sectors are more susceptible to
implementing day to day teleworking. After selecting the statistically relevant data to find
out the spread of SMEs in each economic sector, an empirical analysis of every domain will
be complemented by the results of a survey to verify the applicability of telecommuting in
Romanian SMEs after the Coronavirus pandemic.
Keywords
COVID-19 pandemic, teleworking, SMEs, restrictions, change, opportunities
Introduction
After a few months of the COVID-19 pandemic, still little is known about this deadly
virus, and experts from all countries and specialties are constantly analyzing the current
situation as it develops rather unpredictably.
As can be seen below (Figure 1), the official World Health Organization (WHO) timeline
shows that on 31 December 2019 “a pneumonia of unknown cause” in Wuhan, China was
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reported to WHO in China. Only on 30 January 2020 it was announced a Public Health
Emergency of International Concern that received a name on 11 February 2020: COVID-
19. (World Health Organization, 2020)
Figure 1. World Health Organization COVID-19 Timeline

Authors’ representation of WHO Timeline - COVID-19
In parallel with the response of WHO to the COVID-19 pandemic, EU Council took its
own actions. First, after WHO raised the concern of a highly transmissible disease, EU
Council activated the information-sharing mode for the EU's Integrated Political Crisis
Response Mechanism (IPCR). Based on the discussions WHO had on 11-12 February, on
13 February, the Extraordinary Health Council formulates some conclusions on COVID-
19. Implications on the economy are discussed by Eurogroup on 4 March.
After COVID-19 is declared a pandemic on 11 March, the EU Council approves the

decision to support countries in need from the EU budget on 18 March, on 19 March
social and employment implications are discussed, on 23 March, EU fiscal rules are
eased and on 30 March measured for the release of cohesion funds are adopted. (World
Health Organization, 2020)
In April large sums were put together as a global crisis response package: development
ministries put forward €20 billion on 8 April, Eurogroup launch €500 billion on 9 April
and EU €3.1 billion on 14 April. In April are discussed COVID-19 impact on the tourism
sector, on energy, on home affairs and transportation.
A political agreement is reached in the Council on 15 May, regarding a safety net for
employees and on 19 May a temporary scheme is adopted to support workers and a
special discussion targets the creative sector.
On 9 June the elasticity of the labor market in the recovery phase was the main subject
of interest, and a few of the solutions discussed regard flexible working program, remote
work and innovative technology, upskilling and/ or reskilling, protection of vulnerable
groups. (European Council, 2020)
Vesna Bedeković, the Croatian Minister for Demography, Family, Youth and Social Policy
said during the video conference of employment and social affairs ministers of 9 June
that “In these challenging times, nurses, healthcare and social workers, and informal care
workers, most of whom are women, have been on the frontline. In this situation, the issue
of gender equality becomes even more challenging. Our discussion today showed that, in
order to recover from the crisis, we need adequate policies to tackle long-term problems,
such as the unequal distribution of care responsibilities and the gender pay gap.”
(European Council, 2020)
Teleworking
Through the measures proposed to maintain and even enhance the resilience of the
labor market during and after the COVID-19 pandemic, teleworking is the most popular,
as it helps both the businesses and the workers to continue their activity in the safest of
conditions.
The huge technological advances and the fact that technology is well integrated into our
day-to-day lives, so that almost everyone own at least a PC, if not a laptop, making it very
easy to make this transition. Also, many people were already used to this concept as: (1)
it is not new, but coined in 1994 by Nilles, and (2) companies were already promoting it
as a benefit.
As the Croatian Minister for the Sea, Transport and Infrastructure, Oleg Butković said in
a press release, “The COVID-19 pandemic and its consequences on our lives and economies
have highlighted the importance of digitization across all areas of the economy and society
in the EU. New technologies have helped us all to stay connected, to work from our homes,
and to facilitate our children’s distance learning. They have been instrumental in keeping
our businesses and public services running. The digital transformation will not only help
address the current health crisis, but will also be a key engine for economic recovery, green
growth and the strategic autonomy of the EU.” (European Council, 2020)
Telecommuting has at least 3 versions, depending on the location where the employee
works, and they have very different implications from other points of view as well. Street
work refers to situations when the worker has to work while traveling or in a public
place, with nothing more than access to the Internet and a mobile device. Of course, this
form of telecommuting is not suitable for any kind of job as it raises high cybersecurity
concerns. Satellite center is a specific form of telecommuting that is applicable mostly
when the employees are supposed to work on other premises that are established by
the employer. Again, not many jobs are suitable for this kind of telework. Home offices,
the last of the 3 versions presented, were the most popular during the COVID-19
pandemic, as it is suitable to many activity sectors like information and communications,
real estate transactions, retail, professional, scientific and technical activities,
administrative and support service activities, etc. Of course, teleworking also implies
higher risks when it comes to sensitive information, cybersecurity, etc. so the European
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Cybersecurity Competence Centre and the Network of Coordination Centers in

collaboration with other institutions, helped shape Europe’s digital future by deciding
to use a written procedure. (European Council, 2020)
Teleworking in Romania
The Ministry of Labor and Social Protection from Romania has recommended 3
measures to increase the flexibility of working relations: telework, work from home, or
individualizes work programs. When the activity sector allowed it, the main response of
companies to the Coronavirus pandemic was to ask their employees either to work from
home on an undetermined period, either to telework and/ or to take a few days off each
month.
In Romania, work from home is regulated by Law no. 53/ 2003, art. 108-110, which
states that the specificity of this kind of work consists of the location of the worker,
which is no longer the employer perimeter, but the employee’s home or residence.
Teleworking is regulated by another Law, no. 81/ 2018, art. 2, lit. a) and it describes it
as “the form of work organization through which the employee, regularly and voluntarily,
fulfills his attributions specific to the position, occupation or profession he holds, in another
place than the work organized by the employer, at least one day a month, using
information and communication technology." (Monitorul Oficial Partea I nr. 296, 2018 )
The 2 forms of telecommuting are often getting confused, but have both similarities and
differences.
Working from home and telework share the fact that they do not use the employer’s
premises, the activity can be done from home, it’s the employer obligation to make sure
that the worker has everything needed to perform his/ her job – training, documents,
etc., there is a certain schedule when the employer can control employees’ activity.
The differences are first of all of the legal sources, as the two concepts are regulated by
different laws: work from home by the art. 109 of the Labor Code and telework by the
Law no. 81/2018. In addition, teleworker is a specific qualification, as opposed to
working from home employees; the teleworkers are using specific technologies and the
one who works from home use classic installations; telework is also defined by specific
activities like programmers or computer scientist, while work from home can be
attributed to a wider range of business activities, like accounting or tailoring.
While working from home is by definition done at home and it does not have a strict
working schedule, teleworking is possible in any other location, but within a strict
program. Also, in normal conditions, working from home is permanent, while telework
implies a specific period. (Dumitrescu & Capus , 2020)
Methodology
The object of this research is teleworking in Romanian SMEs and the research question
regards its evolution during and after the COVID-19 pandemic. In order to verify the
research hypotheses that after the COVID-19 pandemic restrictions are lifted workers
will tend to ask their employers to allow them to use teleworking more often, there were
used 2 scientific methods. First, qualitative data analysis to find out for how many of the
Romanian SMEs is teleworking applicable; then, a survey, to see if indeed there is a
demand for this type of work style.
Analysis of statistical data
The last available statistical data regarding the Romanian SMEs’ important indicators
and distribution according to the classification of economic activities (National Institute
of Statistics, 2017) was used as a reference point for this research. The statistical data
was analyzed in two ways: first, regarding the distribution of Romanian SMEs in the
economic sectors and second, regarding their importance in terms of the number of
employees, fiscal value, and net investment.
Survey
The objective of the survey was to find out if employees from various companies and
with different backgrounds believe that teleworking will be a valid option when the
restrictions will be lifted.
Although at the moment only 83.33% of the 42 interviewed people are currently in a
teleworking position, they answered 20 questions about the benefits and disadvantages
of telework, from their point of view as people that have worked from home in the past
occasionally and that have worked every day from home for the past 2 months due to
the COVID-19 pandemic.
Apart from this common ground that was important to have relevant results, from
people who know what it is like to be in both situations (telework as a benefit and as
status quo), the respondents have many differences.
Research and results
SMEs are often described as the economy’s backbone by many European and non-
European countries often providing 2 out of 3 workplaces, offering training
opportunities and other benefits, not being a constraint to a certain area rural or urban.
This is why they are the subject of the current research and interest for many
researchers and institutions, and why they remained so even during the COVID-19
pandemic.
This is the reason why the European Council elaborated a 3 pillar strategy to support
them. The first and most important pillar in this time of crisis is assisting the rapid
metamorphosis toward sustainable, digitalized companies. The second, crucial to the
survival of SMEs from the economic crisis point of view, is reducing the bureaucratic
burden and enhancing market access. The third pillar is an old initiative, an old concern
of the EU Council – improving access to finance.
According to the Report from the Working Group Meeting on Access to Finance held on
21 February 2018 in Brussels, Belgium by the Digital Innovation Hubs Working Group
1, “while 54% of large companies are highly digitized, only 17% of SMEs have successfully
integrated digital technologies into their businesses”. The same report shows that there
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are a variety of reasons why companies do not finance digital technology and also why
this is a very harmful practice when it comes to competitivity at the global level.
(Working Group on Digital Innovation Centers, 2018)
EU Commission proposed a set of key actions to help European SMEs in their attempt to
become more and more sustainable, technology forward, green:
- EU Commission will inject funds of a minimum of 300 million EUR for green
innovations;
- Enterprise Europe Network will get modernized to become sustainable;
- Artificial Intelligence, blockchain technology, cyber-security will all be taught to SMEs
employees trough intensive courses;
- Innovation in education and training is also a desirable objective;
- Startup Europe initiative will be completed by centers of digital innovation. (European
Commission, 2020)
Between the years 2015 and 2017, the number of SMEs in each of the economic sectors
remained steady, except for the services sector, where the numbers grew by around
10.000 each year. In 2019, the numbers got over 700,000 companies in Romania, and in
2018 for the first time, the total turnover in the economy exceeded 1,500 billion lei. The
service sector is also the largest of the 7 analyzed in terms of the number of companies,
followed closely by the commerce sector.
If we group the organizations by branches of activity, the SMEs sample has the following
structure: 31.81% of companies are industrial, 30.32% of companies belong to the trade
sector, 29.25% of economic units operate in services, 4.72% of enterprises carry out its
activity in transports and 3.91% of the entities are from constructions. Many of the
economic agents target several fields of activity because they focus on identifying and
capitalizing on business opportunities, which is a basic feature of SMEs both in Romania
and in other countries. (Consiliul National al Intreprinderilor Private Mici si Mijlocii din
Romania, 2019)
Out of the 7 main Romanian private economic sectors, the leading 2 are also the ones
most susceptible to apply teleworking during and even after the COVID-19 pandemic is
over. The survey was completed by 42 employees who have worked from home before,
that during the COVID-19 pandemic have worked only from home and that have now
been presented to the perspective to permanently telework. The respondents said that
in the period before the COVID-19 pandemic, they would take home some of their work
50% never, 50% sometimes and 0% always.
Regarding their position, 40% have non-management roles and 60% are managers.
They have to travel to work for various distances, but most of them work a maximum of
20 kilometers away from their homes. (Figure 2) In Figure 2, found below, we can see
the various distances employees have to cross to come to work; it is important to point
out that 40.48% of the people who answered the survey said they drive alone to work
and 28.57% of those do it 5 days per week. Also, 19.05% are carpooling, 35.71% take
public transportation and only 4.76% are walking to work.
Figure 2. Home to work distance

Authors’ representation
Reducing commutes, eliminating business trips, reorganizing necessary trips in order to

get accomplished more in one outing and other consequences of COVID-19 pandemic
restrictions, helped workers all over the world to use their time efficiently and to gain
at least a couple of hours per week to be spent in any other way but in traffic.
On the positive side, we can find as well a significantly smaller carbon footprint, very
low levels of air and water pollution (by comparison to the previous year), an important
decrease of fossil fuels usage (fallen by 2.5 billion metric tons), etc. (Breland, 2020)
Other important events of the last 100 years like the Spanish flu (1918), the Great
Depression (1929-1933), the end of World War II (1945), the First (1973) and Second
(1979) Oil Crisis, the dissolution of the Soviet Union (1991), the financial crisis of 2008,
all caused significant drops in the global CO2 emissions, but nothing like the COVID-19
pandemic when it got smaller with about one billion tones. (McGrath, 2020)
When asked which if any office equipment do they have in their homes, their answers
were not at all surprising. If next to the computer/ laptop variable it would have been
also the tablet option, the results could have arguably been 100%. (Figure 3)
The modem variable in Figure 2 got 100% of the answers because all the interviewed
employees live in urban areas in flat buildings and it is the most common option to
provide access to landline internet. Microsoft Office got many answers (83.33%) but not
all, because Linux became very wanted in Romania in the latest years, as it is advertised
as being superior, and it has its suite of desktop productivity applications.
Many Romanians have printers (66.66%), but because most of them are not for
professional use, only 40.47% have also the function of a copy machine. (Figure 2)
514 Strategica 2020
Figure 3. Most common office equipment employees have at home

When asked to which extent teleworking has helped them to spend time on their
objectives and tasks, most of the interviewed people answered positively (65%) and
only one person answered that they strongly disagree with this sentence. (Figure 4)
Figure 4. Telecommuting has helped to spend time on objectives and tasks

According to the Romanian economic activities sectors, commerce is split into 3

categories: Wholesale and retail trade, maintenance and repair of motor vehicles and
motorcycles, Wholesale trade, except motor vehicles and motorcycles and retail trade,
except motor vehicles and motorcycles. All of the 3 can be done online to some extent
and this is why all three got analyzed.
When it comes to other important economic indicators, commerce is in second place

after an unfair opponent, the services category, which gathers a diverse palette of
activities under the same name.
In commerce are working over 720 thousand Romanian and gathered a bit over 353
thousand million lei each year in fiscal value. The businesses that activate in commerce
gathered these numbers with a medium yearly investment of only 7 million lei.
Of course, the proportions in the number of employees, fiscal value, and net investment
indicators are mainly the same as in the number of companies and the Retail trade,
except motor vehicles and motorcycles is the lead, leaving Wholesale and retail trade,
maintenance and repair of motor vehicles and motorcycles, on the last place, although
they run with bigger numbers.
The other important economic sector where teleworking is mainly applicable, is named
pretty generically – services. In Romania, this sector has a vast structure, containing 10
categories of diverse activities, each with its specifics from multiple points of view. Of
course, not all of these categories are equally susceptible to implement teleworking
permanently after the COVID-19 pandemic is over.
Arriving so soon after the 2008 economic crisis, the COVID-19 pandemic made everyone
think about liquidities, even the population with some to no economic education. This is
why, especially in the first part of the pandemic, many services were considered a luxury
and were cut off.
Even so, the businessman got inventive. Hair and nail salons started to sell kits and to
make online tutorials on how to do everything at home, by yourself. Film production
activities, audio recordings, and music editing got also moved on-line and created
popular feature films (9 love and hate stories a film by Dan Chişu) and songs (Bored in
the House by Tyga). Virtual museums gained more popularity with the help of phone
apps; even tourism made the best of the advance in technology by starting to sell virtual
reality trips in places all over the world.
During an Extraordinary G20 Tourism Ministers’ Meeting, held on 24 April 2020, Guy
Ryder, International Labor Organization (ILO) Director-General said that “The
immediate imperative is to assure the survival of tourism enterprises through the large-
scale public support without which they will disappear before the virus does. And that
support must extend to the workers concerned who would otherwise have no income or
social protection”. (International Labor Organization, 2020)
The global efforts made in the try to contain the COVID-19 pandemic affected directly
international tourism that dropped by 45% and up to 70%. Although domestic tourism
industries are likely to recover faster, it got hit just as hard while the restrictions were
the most severe, as almost 50% of the world’s population was estimative constrained.
Educators and schools have been inventive in receiving an assortment of innovation-

based systems as options in contrast to the customary homeroom, giving exercises
through videoconferencing and on the web learning stages and sharing learning
materials also, worksheets through school-based intranets, and informing stages. In
certain nations radio projects and national TV are being utilized to communicate school
exercises and instructive materials, especially in under-resourced zones that might be
ailing in an innovative framework. (International Labor Organization, 2020)
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Professional support and training, occupational safety and health, employment and
working conditions, social dialogue, are all aspects to be considered when talking about
the education sector, even the private one who makes the subject of this research,
especially because it stays at the base of any and all civilization. When it comes to
workers in the health sector, as an addition to the above mentioned, mental health and
psychosocial support, decent working hours, protection of volunteers, and short-term
recruits are more important than ever.
Another great point about the health sector is that women are confronting specific
difficulties during this pandemic. All-inclusive, they make up more than 70 percent of
the wellbeing workforce and they additionally worry about the concern of unpaid work,
for example, taking care of kids or old relatives. Health employment and workforce
shortages, difficulties in keeping a balance between the public and private health
sectors, are only a few of the lesser-known problems in the health system during the
COVID-19 pandemic.
An incredible useful reaction of the doctors that were not directly involved in the
pandemic, that have other specialties, was giving virtual consultation and advice. And
this was the case not only for psychologists but also for family doctors, homeopaths,
pediatricians and many others.
The road transport segment is fundamental to social and financial advancement and
ensures portability across wards and nations. Pressing activity by governments, the
social accomplices and gatherings to street transport gracefully chains – including
shippers, beneficiaries, transport purchasers and middle people – will be basic
intending to nice work difficulties for these key laborers to tackle the present and
future emergencies viably.
While organizations of the sum total of what sizes have been influenced by the
pandemic, this phenomenal circumstance has brought about the fast decay of the
liquidity and gainfulness of most MSMEs in the business. New limitations (or closures)
at border intersections and national state lines or nearby locales negatively affect
working conditions as far as holding up times, constrained isolate, compulsory testing,
and segregation.
Talking about transportation services, not all SMEs were affected the same. Actually,
delivery companies were the ones who hired most in this time of crisis, as e-commerce
got even more popular, not only for specific, hard to find items but for groceries and
day-to-day things as well.
Conclusions
In Romania, the authorities adopted an advantage of 75% of compensation however

close to 75% of the normal pay to guardians who can't work remotely and need to
remain at home with kids more youthful than 12 years. The spending change of 17 April
gives RON 1.4 billion to this reason.
The Romanian administration adopted on 18 March and distributed on 21 March a crisis

statute (OUG) 29/2020 on supporting nearby organizations with regards to the
emergency brought about by the coronavirus, alongside OUG 30/2020 that changes
existing guidelines to align them with the current conditions. As indicated by the
announcements by the legislature, the bundle of measures introduced on 18 March
(counting specialized joblessness and Intervention Fund) speaks to a budgetary
exertion of 2% of GDP.
Emergency ordinance 30/2020 additionally allows the state to pay the lowest pay
permitted by law to the individuals who can't guarantee specialized joblessness, as
independently employed or small scale/family endeavors. The spending change of 17
April gives RON 1.9 billion to this reason. Nevertheless, workers in all sectors got to
suffer and were scared of the possible consequences of the economic crisis, even more
than of the COVID-19 pandemic.
That being said, in the sectors where teleworking was possible, the situation was better
even from a psychological point of view, not only economic. Although the response
numbers for the survey are pretty low, they overwhelmingly point in the same direction,
regardless of age, marital status, and several children – teleworking is good and many
benefits can come from it if you stay positive. (Figure 5)
Figure 5. Benefits obtained by teleworking

In Figure 5, benefits that employees see as coming from teleworking and their levels are
detailed. Less absenteeism (88.09%) and less commuting (83.33%) are considered the
most important ones.
Even if it does not make the case of the current research, it is to be said that while people
of all ages, occupations and backgrounds struggled to cope with the imposed
restrictions, Earth was never better, enjoying a well-deserved vacation from the
pollution of all kinds. In fact, after the shock passed, people started to enjoy staying at
home as well because they realized that they would not spend this much time doing what
they love most if they weren’t forced to do so.
518 Strategica 2020
In conclusion, the COVID-19 pandemic hurried up a development that would have

happened anyway – heavy industrialization and technologizing of all companies in the
extractive industry, manufacturing industry, production and supply of electric and
thermal energy, gases, hot water and air-conditioned, water distribution; sanitation,
waste management, decontamination activities and in constructions, and heavy
digitalization of all the others.
The best part of the crisis, besides a happier Earth, is that the workers that kept their
jobs and to some extent their salaries unaltered, have found more time to do the things
they need and/ or truly enjoy.
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520 Strategica 2020
DIGITALIZATION. GLOBAL CHALLENGES AND ECONOMIC

PROSPERITY. EXAMPLE: ROMANIA
Alina Mirela BĂLȚĂȚEANU
alina.baltateanu@yahoo.com
Abstract
Digitalization has a proven impact on the economy and society by reducing unemployment,
improving quality of life, and boosting access to knowledge and other public services. This paper
highlights the concept of digitization along with the social economic and ecological benefits of
digitization of knowledge and information. At a general level, the extent of a country’s digitization
can be measured across six key attributes: ubiquity (the level of access to digital services and
applications), affordability (pricing), reliability (the quality of connection), speed (the rate of data
throughput), usability (the ease with which people can get online and use applications available
there), and skill (the ability of users to incorporate digital services into their lives and businesses).
We analyze the two main indicators of digitalization – the Digital Economy and Society Index (DESI)
and the European Investment Bank Survey Digitalization Index (EIBIS) – and highlight the
overlapping and different components. While DESI measures digitalization based on five dimensions
– connectivity, human capital, use of the internet, integration of digital technology and digital public
services – EIBIS comprises five components – digital intensity, digital infrastructure, investment in
software and data, investments in organizational and business process improvements, and strategic
monitoring system. Based on the two indicators, we examine the current status of digitalization in
Romania by scanning the most important reports on digitalization from institutions such as the
European Commission. The evidence reveals that Romania is lagging behind the other EU member
states in many relevant aspects, such as digital public services, the internet coverage in rural areas,
the digital skills of the population, and the use of digital technologies by businesses, to name a few.
In this negative context, we also found some positive aspects, among which the high level of online
interaction between public authorities and citizens is the most noteworthy. We finish with an
overview of the EU strategies towards a digital society and a brief roadmap for Romania to close
the digitalization gap concerning the other EU member states.
Keywords
Digitalization; future economy; Romania digitalization; digital services; concept of digitalization
Introduction
Digitalization represents the conversion process of the analogical information in digital

format. In a broader approach, digitalization is defined by the social transformation
stimulated by the adoption of digital technologies to generate, process and transaction
the information. When talking about digitalization, we include e-governance services, e-
commerce, social networks, on-line banking, on-line education and training, etc.
(Friederici & Graham, 2018).
The literature links entrepreneurial intent to subjective norms, attitudes and perceived
behavior, and other contextual variables (Nowiński & Haddoud, 2019). Some studies
focus on how the entrepreneurship intention is handled by universities and higher
education institutions and show the critical role of higher education for
entrepreneurship. This stream of work investigates the effects of different education
policies on the development of entrepreneurial intent within a targeted population but

these findings need to be linked to the digitalization of the economy and its potential
impacts (Ben Youssefa et al., 2020).
This year, more than anytime, when Covid19 pandemics spread in the whole world and
countries had to react to limit the damages in many areas such as health, economy,
social, business environment, the limited performance of our country in terms of
digitalization drag the economy and limit a country’s possibilities to adapt and react.
Production fundamentally impacts economic structure at global, regional, national, and

local levels, affecting the level and nature of employment, and is inextricable nowadays
from environmental and sustainability concerns, considerations, and initiatives.
Collectively, the sectors of production have been the source of economic growth in
developed and developing nations alike, a major source of employment for a rapidly
evolving and increasingly skilled workforce, and they continue to be the dominant focus
of innovation and development efforts in most countries (Balsmeier & Woerter, 2019).
The transformative potential of technology in production systems is widely recognized,
even while the precise configuration and extent of the possible transformation remain
unknown. Trends towards higher levels of automation promise greater speed and
precision of production as well as reduced exposure to dangerous tasks for employees.
New production technologies could help overcome the stagnant productivity of recent
decades and make way for more value-added activity. The extent of automation is,
however, causing significant anxiety about issues of employment and inequality.
Assessment of the main indicators of digitalization: DESI (Digital Economy and

Society Index), EIBIS (European Investment Bank Investment Survey
Digitalization Index)
It is difficult to keep pace with what is called Artificial Intelligence (machine intelligence,
intelligence demonstrated by machines, in contrast to the natural intelligence displayed
by humans and animals) and the Internet of Things (a system of interrelated computing
devices, mechanical and digital machines provided with unique identifiers and the
ability to transfer data over a network without requiring human-to-human or human-
to-computer interaction) when only 29% of the individuals aged 16-74 have at least
basic digital skills, 21% of the individuals never used the internet, the use of banking
and shopping online is 10 % and 26% respectively.
One of the most relevant indicators is a composite indicator called Digital Economy and
Society Index (DESI), that summarizes relevant indicators on Europe’s digital
performance and tracks the progress of EU Member States in digital competitiveness. It
is calculated as a weighted average of five main dimensions: Connectivity (25%), Human
Capital (25%), Use of Internet (15%), Integration of Digital Technology (20%), and
Digital Public Services (15%). According to DESI 2019 Country report prepared by the
European Commission (2019), Romania ranks 27th out of the 28 EU Member States with
a score of 36.5, followed only by Bulgaria. Although the index has improved in the latest
years (from 32.0 in 2017 and 35.4 in 2018), Romania still lags behind the EU average of
52.5 in 2019.
522 Strategica 2020
Figure 1. Digital Economy and Society Index (DESI) 2019 –

related performance by dimensions
Source: Data from Country report 2019 Romania, European Commission (2019a)
Figure 2. Digital Economy and Society Index (DESI) 2019 – evolution over time
Source: Data from Country reports 2014-2019 for Romania, European Commission (2019a)
In an in-depth analysis of DESI’s components, it can be observed that Romania is

performing well in Connectivity, with 87% coverage of fixed broadband, 77% of 4G
coverage, 76% coverage of fast broadband (download speed of at least 100Mbps), and
75% of ultrafast broadband (in the last one surpassing the EU average of 60% and
reflecting the strong infrastructure-based competition in Romania, mainly in urban
areas). With all these, Romania ranks 22nd in the Connectivity dimension. Fixed
broadband coverage stagnated at around 87 % of households covered (10 percentage
points less than the EU average) and still lags behind most Member States, ranking 26 in
EU. However, Romania’s urban-rural digital divide is illustrated by the figures for
ultrafast broadband coverage, where 39 % of rural areas are covered (although above
the EU average of 29 %). With 77%, Romania lags behind on 4G coverage, as compared
to the EU average of 94 %.
Figure 3. Human capital (DESI) 2019 – evolution over time

Source: European Commission (2019a)
As regards the Human capital component, Romania ranks 27th, well below the EU
average. Only 29% of the individuals aged 16-74 have at least basic digital skills (well
below the EU average of 57%) and only 10% of the individuals have above basic digital
skills (more than 20 percentage points below the EU average, European Commission,
2020c) ranking Romania the last among MS. 32% of the individuals have at least basic
software skills in comparison to an EU average of 60%. Despite the increase in the
percentage of ICT specialists from last year, they represent a lower proportion of the
workforce (only 2.1%) by comparison with the EU average (3.7 %). When referring to
the ICT graduates, Romania ranks 6th in the EU, with a share of 4.9% (1.4 percentage
points higher than the EU average).
To develop digital skills, within the framework plan for secondary education, the
subjects of IT and ICT have for the first time been introduced to the common core
curriculum, starting with the 2017-2018 school year, with one hour’s teaching per week.
As part of the “Internet in Your School” project, 2,446 schools from rural areas and small
towns were connected to broadband internet services, with 714,339 pupils and 56,203
teachers being the direct beneficiaries.
When talking about the use of internet services, 21% of the individuals have never used
the internet (beyond the EU average of 11%). Even if the coverage of the internet users
has increased from 2018 to 68% it is still much below the EU average of 83%, ranking
Romania 27th. Only 5 % of the internet users have done an online course (as compared
to 9% at the EU level) and 5% used online consultations and voting (in comparison to
10% EU average). Unfortunately, the use of banking, shopping as well as selling online
(10 %, 26 % and 5% respectively) is below the EU average (64%, 69% and 23%
respectively), mainly due to a lack of trust in digital technology. Overall, the use of
internet services in Romania continues to be the lowest among the EU Member States.
There has been dynamic growth in the area of information technology and
communications in Romania, especially in the latest years, highlighting that the
foundations are therefore in place for Romania to make an active and substantive
contribution to the realization of the EU Agenda for the creation of a Digital Single
Market, but still much has to be done (European Commission, 2020b). Stimulating, in
particular, the digital economy and investment in industries which are at the more
profitable end of the value chain, which utilize the results of national efforts in the area
of research, development and innovation, and which target stable and growing markets.
524 Strategica 2020
Figure 4.
Integration of
digital
technology
(DESI) 2019 – evolution over time
On the Integration of digital technology by businesses, Romania ranks 27th, well below
the EU average. Romania’s ranking remained stable in this dimension compared to the
last two years. There was almost no change in any of the indicators. Romanian
enterprises are taking advantage of the possibilities offered by big data analysis (11 %
versus 12 % EU average). 9 % of Romanian enterprises are using social media as
compared to an EU average of 21 %. Only 8 % of total SMEs are selling online (against
an EU average of 17%), while 2 % of them are selling online cross-border (versus 8 %
EU average, European Commission, 2019).
Figure 5. Digital public services (DESI) 2019 – evolution over time

As regards Digital public services, Romania’s rank decreased, ranking the country last
among the EU. Nonetheless, the country performs relatively well regarding certain
indicators. There is a high level of online interaction between public authorities and
citizens, as Romania ranks 7th regarding e-government users, with 82% of internet
users as compared to 64% EU average. This contrasts with the low scores for pre-filled
forms and online service completion, which could indicate a systemic problem with the
quality and usability of the services offered. Overall, the national administration’s IT
system is fragmented, which represents an administrative burden for citizens and
businesses. The level of interoperability between the public administration services is
generally low, as each public institution focused on its own digital public service.
Identifying and implementing solutions to encourage the digitalization of the Romanian

economy by introducing digital technologies in public administration and the field of
financial and banking services should represent a priority for the future development of
the country. Even if in Romania there can be developed initiatives in the area of
cybersecurity, specialists in the area are lacking. Unfortunately, the main obstacle in the
development of cybersecurity technology is the lack of specialized human resources. All
in all, in Romania, digitization of the economy is lagging behind, more than 20% of
Romanians have never used the internet, and less than 30% have basic digital skills.
When we’re talking about digital public services, Romania has the lowest performance
among the Member States, despite the large share of e-government users (7th in the EU).
On the other hand, 45 % of Romanian homes subscribe to ultrafast broadband, which is
the 3rd highest rank in the EU. As regards female ICT specialists, Romania is well-
positioned as it ranks 16th, with 1.3 % of Romanian women in employment (European
Commission, 2019a).
European Investment Bank Investment Survey Digitalization Index (EIBIS)
EIBIS Digitalization Index is a composed index that summarizes indicators on firms’

digital technology adoption as well as firms’ assessment of digital infrastructure and
investments. It is based on firm-level data collected by EIB Survey in 2019. It includes
five components: digital intensity, digital infrastructure, investment in software and
data, investments in organizational and business process improvements, and strategic
monitoring system.
EIBIS Digitalization Index differs from DESI, due to the followings: EIBIS is based on
firms’ assessment of digitalization, EIBIS captures more recent digital developments in
digitalization and e-commerce, EIBIS captures how often firms see digital infrastructure
as an obstacle to their investment activities while DESI captures connectivity by
broadband market developments in the EU.
EIBIS does not capture Human Capital and Digital Public Services. It captures whether
firms have strategic business monitoring systems in place, an indicator for management
practice. EIBIS is a survey dedicated to firms, so it is unable to capture citizens’ use of
internet services and online transactions.
Figure 6. EIB Digitalization Index (level by countries)

Source: European Investment Bank (2020)
526 Strategica 2020
With an EIBIS DI (EIB Investment Survey Digitalization Index) score of around 60 points,
Romania ranks 15th, in the moderate digitalization country group, together with
countries like Hungary, Bulgaria, Germany, Spain, Malta, Cyprus, and France.
Frontrunners in the EU are Denmark, Netherlands, Czech Republic, and Finland, all
exceeding even the US index (which has always performed better than the EU average).
Related to Romania’s position in this field, we can conclude that the adoption rate of
single technologies is above the EU and US average for platforms in the services sector.
Digital adoption rates in Romania are above the EU average for the services sector and
almost 65% of digital firms report having increased the number of employees in the last
three years, compared to 48% of non-digital firms. The median wage per employee is
rather similar for digital and non-digital firms, although median labor productivity is
slightly higher among digital companies compared to non-digital ones in Romania.
Among the reported obstacles to investment, ‘lack of availability of staff with the right
skills’ is the most cited, followed by ‘labor market regulations’.
European vision - Strategies and initiatives
A high level of skills mismatches in companies’ workforces limits their capacity to

innovate and capitalize on innovation. Increasing the number of Romanian ICT
specialists, ensuring the necessary training of teachers for education supply to meet the
high demand, but also re-skilling the labor force is of high importance if Romania wants
to fully benefit from the digital economy opportunities.
Ensuring the digitalization of the health system and implicitly the elimination of
documents and records printed on paper, to increase the efficiency of and facilitate
medical interventions, thereby ensuring the population’s rapid access to quality medical
services, treatment and medication, and the efficient monitoring of needs is essential
after this year’s pandemic spread.
Digital technologies and data accessibility represent the key factors for a transition to a
more productive and green economy. They are changing the way we communicate, live,
and work. The changing dynamics brought about by the digital transformation require
additional ambition at EU and national levels in terms of increased investment,
innovation-conducive regulation, effective reforms and a human-centric approach
based on European values.
According to the European approach (European Commission, 2020b), based on three

main pillars, ensure that Europe seizes the opportunity and gives its citizens, businesses,
and governments control over digital transformation.
Technology that works for the people
The aim is to invest in digital competencies for all Europeans, to protect people from
cyber threats (hacking, ransomware, identity theft). The focus is also oriented to ensure
that Artificial Intelligence is developed in ways that respect people’s rights and earn
their trust. The acceleration of the roll-out of ultra-fast broadband for homes, schools,
and hospitals throughout the EU and the expansion of Europe’s super-computing
capacity to develop innovative solutions for medicine, transport and the environment
are also included in the agenda.
A fair and competitive digital economy
The digital strategy will enable a vibrant community of innovative and fast-growing
start-ups and SMEs to access finance and to expand. It is also intended to propose a
Digital Services Act to strengthen the responsibility of online platforms and clarify rules
for online services and make sure that EU rules are fit for purpose in the digital economy.
It will also ensure that all companies compete in Europe on fair terms access to high-
quality data can be increased while ensuring that personal and sensitive data is
safeguarded.
An open, democratic, and sustainable society
EU digital strategy is intended to support the use of technology to help Europe become
climate-neutral by 2050 and to reduce the digital sector’s carbon emissions. Especially
during these difficult times, the creation of a European health data space to foster
targeted research, diagnosis, and treatment is crucial. Also fighting disinformation
online and fostering diverse and reliable media content has to be tackled.
Beyond an ambitious process of digitalization and intensive capacity-building initiatives

for all stakeholders, it is necessary to put in place a more robust single market
governance infrastructure at the EU and national levels. This would entail the proactive
involvement of citizens, consumers, and businesses, to develop simplified, user-friendly
designs and timely, transparent and efficient implementation and application of the
single market rules as a basis for a successful transition to a digital, efficient, balanced,
and sustainable EU in economic, environmental and social terms.
Data and Artificial Intelligence are major drivers for innovation that can help us to find
solutions to societal challenges, from health to farming and food production, from
security to manufacturing. In the current Covid19 context big data, AI, 5G, and other
techs have been deployed to prevent contagion, treat patients and shorten crisis. As a
recent example, China “New infrastructure” planning focuses on 7 areas: smart
manufacturing, smart port, smart medical, smart, power grid, smart education, internet
of vehicles, and 4k/8k live broadcast.
In the current context a new European initiative, REACT-EU, will provide a top-up for
cohesion support to MS, with a budget of €55 billion. It will be available from 2020 and
be distributed according to a new allocation key taking into account the impact of the
crisis. This will ensure there is no interruption in funding for key crisis repair measures
and support to the most deprived. It will support workers and SMEs, health systems, and
the green and digital transitions and be available across sectors – from tourism to
culture.
Conclusions
Beyond strategies, visions, budgets, programs it is important not to lose the momentum,
and all the stakeholders - business environment, public sector, and individuals - have to
528 Strategica 2020
react to the requirements and rapid changes brought by the fast-moving and challenging
environment of the fourth industrial revolution based on intelligence, digitalization, and
innovation technology.
This research may serve as a guide for future policy developments in the digital domain.
We also suggest that countries may benefit from a detailed analysis of their digital
performances which can help them to create innovative strategies and future plans for
digital development. Finally, we propose a potential explanation of why countries
should consider digital transformation as one of the biggest challenges in today’s
economy. Impacts on value creation and capture can be considered across several
economic dimensions (e.g. productivity, value-added, employment, income, and trade),
for different actors (workers, micro, small and medium-sized enterprises (MSMEs),
platforms and governments), and different components of the digital economy (core,
narrow and broad in scope).
In combination with a decrease in jobs for low-skilled workers, inequality within the
population is likely to increase. From an economic perspective, it is thus crucial to
develop and apply instruments that minimize potential negative impacts while
nurturing positive effects. As long as medium and low-skilled workers can be trained to
learn new skills that enable them to take over new tasks created in the wake of the
digitalization process, the promotion of such professional training programs could be
very helpful for the affected individuals and the economy alike. Professional training and
educational attainment programs should not be seen as an all-purpose medicine,
however, since physical or mental limitations may constrain their effective usage. In
such cases, different instruments need to be provided, and digital technologies
themselves might actually offer a solution. Collaborative artificial intelligence, for
instance, might enable medium and low-skilled workers to focus on tasks where they
have a comparative advantage over machines (e.g. any work that requires personal
emotional interaction), while machines substitute for personal weakness (e.g. in
predicting prices and recognizing patterns). This would increase the individual
productivity of medium and low-skilled workers, which should in turn create new job
opportunities (Wamda, 2013). If such efforts fail, inequality among workers is likely to
rise, which poses a great challenge for public institutions and policymakers.
There are three main objectives that policymakers could pursue to address these
challenges. First, it is of utmost importance for the competitiveness of a technologically
advanced country to ensure that skilled labor is efficiently allocated to growing,
productive sectors. This implies flexible labor markets and workable product market
competition to provide incentives to invest in innovation and the adoption of new
technologies. For small countries, in particular, the worldwide free movement of talent
must be guaranteed, and the hiring process is accompanied by low administrative costs.
Second, training and continuing professional development are necessary to improve the
match between skills and job requirements (Michaels et al, 2014). This includes training
not only in technical skills but also soft skills and emotional skills to manage the digital
transition of labor markets. Since the ability to learn and retain skills is positively
correlated with educational attainment, governments should increase the attractiveness
of tertiary education. Third, some parts of society might not be able (or willing) to
successfully manage the transition to a digital age. This could be addressed by the
development of collaborative artificial intelligence as mentioned above or innovative
social measures such as an unconditional basic income.
Meanwhile, several policy challenges may be more effectively addressed at the regional
or international level. This applies, for example, to data protection and security, cross-
border data flows, competition, taxation and trade. Finding adequate solutions requires
greater international collaboration and policy dialogue, with the full involvement of
developing countries. Any consensus will need to incorporate significant flexibilities to
enable all countries to participate.
Given the complexity and novelty of the issues at stake and the continued rapid pace of
technological change, policy experimentation will be necessary to assess the benefits
and disadvantages of different options. The use of regulatory sandboxes could be the
first step before moving to fully national, regional, or global solutions.
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THE CIRCULAR ECONOMY PUBLIC DISCOURSE THROUGH ONLINE

MEDIA ANALYSIS
Daniela STAICU
6, Piata Romana, Bucharest, R)
daniela.staicu@fabiz.ase.ro
Abstract
In January 2019, the Romanian Government released the content of the National Waste Management
Plan and started the implementation of the activities included in the plan as a step towards
transitioning to the circular economy. The communication of activities related to the transition to
the circular economy displayed in the public arena was of interest for the researcher, and the
measuring of its dimensions was possible through the analysis of what is being done, by who, where,
and how. Using online media content analysis, the researcher analyzed how the transition from the
linear to the circular economy in the textile and clothing sector, in particular, is reflected in the online
media by highlighting which concepts are frequently communicated and who are the voices doing
the communication. Looking at the public discourse over time allows for a systematic yet nuanced
understanding of how the transition to a circular economy is being communicated. Data collection
was performed using Google Alerts, a content change detection and notification service which sends
emails to the user when it finds new results such as web pages, newspaper articles, or scientific
research that match the user's search terms. The study analyzed 109 online articles published in the
Romanian language between February 12 and March 12, 2019. Seven concepts associated with the
circular economy were suggested by prior literature review and consequently, these were analyzed:
The National Waste Management Plan, waste prevention, selective waste collection, waste recycling,
trends in the textile and clothing sector, the circular economy, entrepreneurs in the textile and
clothing sector. The findings revealed that most of the communication was done in the local media,
in articles of two paragraphs length, and focused mostly on trends in the textile and clothing sector,
followed by waste prevention activities and references about the National Waste Management Plan
at large. Most of the communication represents the point of view of the public authorities, followed
by private entities represented by companies and non-governmental associations. The results are
intended to provide information to national decision-making bodies, and local authorities in creating
a functional communication plan for the transition to the circular economy by understanding how
this is currently reflected in the online media, which concepts and voices are lacking from the public
discourse and consequently where to make amends to ensure messages and channels which can
reach all stakeholders connected to the circular economy.
Keywords
Circular economy; the textile and clothing sector; public discourse; online communication; transition
to the circular economy; waste prevention.
Introduction
The transition towards a circular economy offers an opportunity to reduce Europe’s

environmental footprint through measures of diminishing raw material consumption
and reducing waste generation (The European Commission, 2015). For this to happen,
it is necessary to develop a long-term vision for the circular economy, to set clear
achievable objectives, and to determine which actions are necessary to turn this vision
into reality connected to environmental and social well-being (The European
Commission, 2018; The Council of the European Union, 2018), Ellen MacArthur
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Foundation, 2017; Whicher et al., 2017; The European Commission, 2013). In the
perspective of the urgent need for change, the circular business models are gaining
traction, which has led to the creation of bi-directional policy actions: throughout the
life cycle of a product and at disposal (The European Commission, 2018; European
Commission, 2017).
The progressive introduction of the circular economy in policies in the past ten years
determined the European Union, and the Member States to create policies with a strong
focus on increasing recycling rates, reducing landfilling, and creating new markets
dedicated to secondary raw materials. Under the current European policies, the
business models are shifting to become a potential solution for serious long-term global
problems, related to the chaotic use of the resources, as well as the uncontrolled
production of waste and disposal practices (Henninger et al., 2017; Scheffer, 2012).
Textile waste is relatively small in terms of weight as compared to other waste streams,
but it has a large impact on human health and the environment (Sandin & Peters, 2018;
Koszewska, 2018; James & Lings, 2018; Stengg, 2001). The shift from a linear to a
circular model in the textile and clothing sector is associated with the need to implement
innovative business models, but the adoption of circular business strategies at the
national level in the industry has been scarce (Thorisdottir & Johannsdottir, 2019;
Fraccascia et al., 2019; Hall et al., 2010).
The literature about the circular economy in the textile and clothing sector is flourishing,
and more and more business models for particular industries are investigated although
there is no standardized circular economy roadmap (Thorisdottir & Johannsdottir,
2019). However, this is not the case in Romania, who only recently adopted a National
Waste Management Plan. In this plan, the textile and clothing sector waste is ignored
and no actions are forecasted to prevent or deal with this type of waste through
thousands of pages of literature predict large quantities of textile waste to be discarded
in the following years (Institutul pentru Cercetări în Economie Circulară şi Mediu Ernest
Lupan, 2019).
The objective of this research was to understand the context in which the transition to
the circular economy activities are developing in Romania after the adoption of the
national waste management program through analyzing the conversations about the
textile and clothing sector in the transition to the circular economy portrayed in the
online media in Romania right after the adoption of the national strategy.
To achieve the objective, the researcher chose to employ the content analysis research
method, a qualitative research method, with the main focus on online content analysis.
Content analysis is concerned with “who says what through which channel to whom
with what effect” (Lasswell, 1948). Compared to other methods of analysis, in content
analysis data derives from communicative practices (Saraisky, 2016). Therefore,
content analysis is most widely used to collect and analyze data to understand the
meanings assigned to a topic within a given context (Krippendorf, 1989 in Saraisky,
2016).
Methodology
Seen as trying to uncover the reality as it is, the content analysis does not describe
literally the content, but rather highlights patterns and trends, and proceeds from an
understanding that meaning can be counted and coded using a prior coding scheme and
codebook which allows the researcher to map patterns and meaning of the content
analyzed (Lowe, 2004). To this purpose, a variety of types of content may be used for
analysis, ranging from any type of printed materials such as newspapers, magazines,
letters, books, testimony, governmental publications, or other sources such as films,
radio broadcasts, television programming, podcasts (Saraisky, 2016).
Media are acknowledged to play a key role in interpreting and disseminating ideas about
public policy and are crucial to setting the political agenda by selecting which topics are
reported on and how these are covered (McCombs & Shaw, 1974; Gamson & Modigliani,
1989). Therefore, media analysis is an important form of content analysis.
Media analysis is an economical form of data collection because the data are available
online or through subscription services for the academic researcher (Saraisky, 2016).
Media define public problems through how issues are organized and understood in the
public arena, a concept known as framing (Benford & Snow, 2000), and through the
actors who have legitimacy and power and who are given a voice, an action known as
gaining standing (Ferree et al., 2002 in Amenta, 2017).
Monitoring and collecting of the online articles were performed between February 12
and March 12, 2019. This period was selected because it follows the adoption of the
National Waste Management Plan and publication in the Official Monitor of Romania on
January 5, 2019. A number of 109 online articles were analyzed according to the process
described in figure 1. Each article was given an identification code from 1 to 109 and
introduced into a matrix.
Figure 1. The process of collecting and analyzing the data available in the online
media outlets
Source: Author’s processing
534 Strategica 2020
The data included in the articles was coded on three levels: article description, framing,
and speakers. The findings first describe the three levels followed by the relationships
between these three levels. A prior review of the research undertaken on the circular
economy related to the textile and clothing sector informed the construction of the
coding scheme (figure 2).
Figure 2. Coding scheme for content analysis employed in the research

To minimize research bias, categories were developed fully for each element of the
coding scheme before the coding of data commenced (figure 3) by performing a
literature review and a preliminary reading of a sample of texts to capture important
variables before the codebook is finalized (Neuendorf, 2002). The coding categories
proposed here are not exhaustive and represent the researcher’s perspective given the
prior literature review.
Figure 3. Coding scheme with variables listed

Three aspects of the code sheet media analysis are described below: article descriptive
categories, framing categories, and standing categories. The coding process linked
theory to operationalization and underscored the quantity and quality of information
media can provide about the national context of the textile and clothing sector in
Romania in transitioning to the circular economy (Saraisky, 2016).
The first section of the codebooks gathers descriptive information about each online
media outlet article (figure 3) For each of the three categories, variables were defined
and coded. The article description is connected to presenting the features of the articles
analyzed. In this case, the researcher looked first at the source of the article, divided into
two categories: local or national (table 1). In the category “local” were included media
outlets which by name or by content are targeting the local community, whereas in the
“national” category was included media outlets which by name and content have
national reach. In terms of the length of the articles analyzed, three dimensions were
defined after a preliminary reading of a sample of texts related to the topic (Table 1).
Table 1. Codebook for article description categories

Category Variable Code
Local 1
News source
National 2
February 12, 2019 1
Publication date
March 12, 2019 2
Under 150 words (2 paragraphs) 1
Length 150 - 500 words (1 page) 2
More than 500 words 3
Next, to proceed to the analysis of the content of each article, the researcher developed
a two-level-coding scheme based on the concepts of framing and standing to help focus
and deepen the analysis. Framing represents how issues are organized and understood
in the public arena and it is done through frames that are organizing ideas, words,
images, and themes used to describe and structure information (Chong & Druckman,
2007). Standing refers to a group being treated as an actor with voice, not as an object
being discussed by others (Ferree et al., 2002 in Amenta, 2017) In this research, standing
is described by the word “speakers”.
Each article was coded for framing and speakers (table 2). A prior literature review of
research on the circular economy related to the textile and clothing sector and a
preliminary reading of a sample of the text were performed to capture important
variables for developing codebooks (table 2). The codebook for framing categories
comprises seven categories and 27 variables.
Table 2. Codebook for framing categories

Frame Variable Code
National waste No mentions about the NWMP 0
management plan
(NWMP) Actions are undertaken to implement the NWMP 1
No mentions about textile waste prevention actions 0

Textiles reuse events 1
Waste prevention
Second-hand clothing 2
Textiles repair 3
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Selective waste No mentions about waste collection measures 0

collection Textiles collection measures are undertaken 1
No mentions about textiles recycling measures 0

Waste recycling
Textiles recycling measures are undertaken 1
Need for lohn plants workers 1

Need for textile plant workers in Romania 2
Need for textile plant workers abroad 3
Low-paid jobs in the textile sector 4
Trends in the textile
and High-paid jobs in the textile sector 5
clothing sector in Textile crafts promotion 6
Romania Textile plant closure 7
Clothing retailers opening stores 8
Internships in textile plants in Romania 9
Clothing shopping multiple times a month 10
Textile courses 11
Promotion of products made with organic fibers 12
Promotion of small tailor shops/plants 13
The circular No action undertaken for the transition 0

economy Projects related to the transition 1
No mention of entrepreneurs in the textile and clothing

0
sector
Entrepreneurs
Mentions about entrepreneurs in the textile and clothing
1
sector
In terms of speakers, five categories were identified: public entities (institutions or

companies), private (legal form: company or NGO), private (unknown legal form
because the content does not mention if the entity is a company or an NGO), individuals
or the mass-media. All the content is indeed reaching the audience through mass-media
or media outlets, but there are instances when the speaker is only the media, and the
actors in the content do not get a voice through an opinion or a quote (table 3).
Table 3. Codebook for speaker categories

Category Speaker sub-category Code
Public authority or Public
Public 1
company
Companies 2
Private
NGO's 3
Private unknown legal
4
form
Individuals 5
Mass-media 6
The two-levels of analysis allowed for a thorough understanding of how often the
sustainability-oriented innovators in the T&C sector were represented in the frames, by
looking at the “entrepreneurs in the T&C” and the speakers’ categories by looking at the
voice of the “private entities” (both known and unknown legal forms).
Data collection was performed using Google Alerts, a content change detection and
notification service, offered by the search engine company Google. The service sends
emails to the user when it finds new results such as web pages, newspaper articles,
blogs, or scientific research that match the user's search terms (Wikipedia, 2019). A list
of seven categories of keywords resulted from prior literature review (figure 6) and a
previous consultation of a few media outlets, was introduced in the Google Alerts
system.
Figure 6. Keywords employed in the online content analysis

Analysis and discussion
The monitoring of the online articles was performed during February 12 and March 12,
2019. This period selected for monitoring is considered to be rich in actions related to
the circular economy given that it follows the adoption and the publication in the Official
538 Strategica 2020
Monitor of Romania of the National Waste Management Plan on January 5th, 2019. From
that moment on, all public authorities responsible for implementing the NWMP were
supposed to organize local actions with various stakeholders relevant to the subject and
facilitate the implementation of the actions mentioned in the NWMP.
A sample of 109 online articles was analyzed. Out of the 28 days monitored in the period
specified, only in 21 of the 28 days the research returned online articles relevant to the
research topics. The data included in the articles was coded on three levels: article
description, framing, and speakers. The findings first describe the three levels followed
by the relationships between these three levels.
Description of the articles in the sample

The information about the article description provides a wealth of important data,
before even looking at the content of the article. These data showed which news outlets
are publishing articles about the textile and clothing sector in the transition to the
circular economy, allowing to observe how much attention the subject is gaining in the
public arena and where is being distributed (Figure 7).
Figure 7. Articles’ description according to variables defined

Most of the articles collected were distributed in the local media (59%) with a length of
up to 150 words (47%), followed by articles up to 500 words (42%). In the national
media, the distribution of such articles is scarce and the length of such articles was up
to 150 words (53%), followed by up to 500 words (42%).
Moving to the analysis of the articles’ content, the researcher developed a two-level
coding scheme based on the concepts of framing and speakers to help deepen the
analysis. Each article in the sample was coded and analyzed for framing and then
analyzed for the speakers’ variables, as it is discussed in detail below.
Article level-analysis
Previous literature and pre-coding review had suggested seven frames that were
prominently used to understand the transition of the textile and clothing sector to the
circular economy. The researcher developed twenty-seven variables across the seven
categories to measure the strength of the various frames (figure 8).
Figure 8. Frequency of the frames in the news sources

Most articles (34%) approach topics related to trends in the textile and clothing sector
in Romania, followed by waste prevention (24%) and about the national waste
management plan (16%). No mentions in the articles about the entrepreneurs in the
textile and clothing sector and some attention is paid to waste recycling (8%).
When dividing the distribution of frames by type of news source, the results showed that
in the local media the most frequent frames employed were “trends in the textile and
clothing sector” (29%), followed by “The national waste management plan” (27%) and
“selective waste collection plan” (17%) as seen in figure 9.
Figure 9. Frames in the local news sources

Whereas in the national media, the most discussed frames were: “waste prevention”
(47%), and “trends in the textile and clothing sector” (41%) as shown in figure 10.
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Figure 10. Frames in the national news sources

If we compare the framing in the two types of news sources, we observe that “waste
prevention”, “trends in the T&C sector”, “the circular economy”, “selective waste
collection” are present in discussions in both the national and local media outlets,
whereas “the entrepreneurs in the T&C sector” are absent in discussions in both news
sources (figure 11).
Figure 11. Frames analysis divided into news sources

Frame-analysis by variables
For two of the seven frames, multiple variables were defined related to trends in the
T&C sector and waste management actions. For the trends in T&C, a number of 13
variables was defined from the previous literature review and (figure 12).
Figure 12. Analysis of the trends in the textiles and clothing sector frame by variables
(n=13)
In the local news, the most frequent topics related to trends the T&C sector discussed in
the online media were: “the need for textile workers in Romania” (47%), followed by
“the need for textile workers abroad” (21%). While in the national news, the most
frequent topics were related to “the need for textile workers abroad” (26%), “the closure
of textile plants” (26%), and “the trend of shopping for clothing multiple times in a
month” (21%).
Three variables were defined for the waste management frame (Table 4).
Table 4. Analysis of the waste management frame by variables

Number of articles
in the total observations related to
Waste prevention variables
Waste Prevention
(n = 28)
Second-hand clothing from abroad 61%
Textiles reuse events 36%
Textiles repair 4%
The most frequent in the online media was “second-hand clothing from abroad” (61%).
Mentions about textiles repair accounted for 4% of the total number of articles
mentioning waste management (Table 4).
In the local news, the most frequent topic related to waste management is “second-hand
clothing from abroad” (86%) followed by “textiles repair” (14%). No mention however
about “textiles reuse events”. In the national news (figure 4.8.), 52% of the mentions
about waste management concern “second-hand clothing from abroad” (52%) followed
by “textile reuse events” (48%).
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Figure 13. Waste management frame analysis by variables and news source (n=28)
Speaker-level analysis
The researcher explored the notion of standing, that is, which actors are given a voice in
the public debate (Saraisky, 2016). To understand which actors have a voice in the
discussions about the main topic, the researcher coded every actor and every speech act
in each article. Speech acts included not only speech that is quoted directly, in
quotations, in the articles, but also paraphrases or comments from people or reports
included in the article.
A prior literature review of research on the circular economy related to the textile and
clothing sector helped identify the speaker's’ categorized into five main groups, and then
each speech act was coded for the type of news source where they appeared mentioned.
The most vocal category of speakers (table 5) is the public institutions and companies
(45%), followed by private stakeholders represented by companies and NGOs
represented by 28 companies and 7 NGOs (32%), out of which NGOs represent 20% of
this category.
Table 5. Speakers’ categories and the frequency in the total number of observations
No. of recorded articles
% of total
Speakers’ categories mentioning a specific
of 109 observations
category of speaker
Public (institutions and
49 45%
companies)
Private
35 32%
(Companies, NGOs)
Mass-media 12 11%
Private
11 10%
(unknown legal form)
Individuals 2 2%
Proceeding to the analysis of speakers by categories of frames (figure 14.), the

researcher noticed that the most diversity of speakers is encountered in discussions
about the NWMP. However, no speakers are discussing about to the entrepreneurs in
the T&C.
Figure 14. Speakers’ categories divided into frames

In the local media outlets, the most prominent voice belonged to the public institutions
(86%), whereas in the national media the voices were represented by private entities
for which we do not know the legal form (100%), followed by journalists (83%).
The frame related to trends in the T&C has 13 variables, and out of these 13, eight appear
multiple times in the discussion (Figure 15).
Figure 15. Variables related to trends in the T&C by categories of speakers

While public authorities and companies are the voice discussing “internships in the
textile plants in Romania” (100%) and about “the need for textile plant workers in
Romania” (78%), the private sector through companies and NGOs brings in the public
arena subjects such as “textile plants closing” (100%), “the need for textile plant workers
abroad” (100%), “the need for local lohn plants workers” (100%), “clothing retailers
opening stores” (100%), “promotion on textile courses (100%)”, and “small tailor shops
or plants” (100%). The frame of “the circular economy” is discussed by public
authorities (91%) and only one case of a private speaker was reported, an NGO. In 60%
544 Strategica 2020
of articles related to waste recycling the main speaker is a public institution or company,
and the remaining 40% of cases a private stakeholder, company, or NGO, all placed in
the local news (figure 16).
Figure 16. A snapshot on “who talks about what and where” related the T&C sector in the
transition to the circular economy
Analyzing the snapshot of the discussion related the T&C sector in the transition to the
circular economy in the online national media (figure 17), the researcher notices that
three of the seven frames are not approached in national media: “the national waste
management plan”, “waste recycling”, and “entrepreneurs in the textile and clothing
sector”. In terms of speakers the most vocal voices in the national media are “private
speakers” for which the legal form is not mentioned in the text. We do not have the
information if these are companies or NGOs. At the other end, the least present voices
are public institutions and companies (14%).
Figure 18. A snapshot on “who talks about what” related the T&C sector in the transition to
the circular economy in the online national media
In a nutshell, in the national media outlets, private stakeholders, mass-media and

individuals are discussing “waste prevention”, “trends in the T&C”, “the circular
economy”, and “selective waste collection” (Figure 18).
the circular economy in the online national media by frames’ variables
546 Strategica 2020
Analyzing the discussion related to the T&C sector in the transition to the circular
economy in the online local media (Figure 19 and Figure 20), the researcher notices that
six of the seven frames are present in the public local arena. The only frame missing is
the one related to “entrepreneurs in the T&C”. In terms of speakers, the most vocal
voices in the national media are the “public” institutions (86%).
the circular economy in the online local media
In the local media outlets, the public institutions have the most vocal voice and the topics
for discussion are varying, ranging from “trends in the T&C”, “the national waste
management plan”, “selective waste collection”, “waste prevention”, “the circular
economy”, “waste recycling” (Figures 21 and 22).
the circular economy in the online local media
the circular economy in the online national and local media: a comparison
Discussions about the entrepreneurs in the T&C are not present in online content,
neither in the local or national online media. The speakers are different according to
news sources. In the local news, a variety of topics are approached and the length of the
articles is under 150 words (2 paragraphs) or up to 500 words (about one page). Little
attention is paid to the circular economy topic (9% or 11%), whereas the highest
frequency of discussions is related to trends in T&C (41% or 29%).
Conclusions and recommendations
This research analyzes thoroughly the context into which the transition to the circular
economy is happening in Romania, focusing on the conversation happening in the online
media in Romania about circular economy activities developed after the adoption of the
national waste management plan. It is important to understand what the conversations
in the public space are about, who is initiating these conversations, and who are the
speakers to correctly position activities in the public conversation.
Online media content analysis provides a fascinating window into the conversation in
the public arena about the textile and clothing sector elements on the transition to the
circular economy: patterns and stakeholders. Some of the most interesting findings
were unexpected and might have otherwise gone unnoticed if one was simply an
interested reader of only reports and papers about the phenomenon. The findings
revealed that most of the communication was done in the local media, in articles of two
paragraphs length, and focused mostly on trends in the textile and clothing sector,
followed by waste prevention activities and references about the National Waste
Management Plan at large. Most of the communication represents the point of view of
the public authorities, followed by private entities represented by companies and non-
governmental associations.
Further research needs to be conducted on the online media conversation about circular
economy topics at various time frames to properly understand the context at a specific
548 Strategica 2020
point in time and launch actions that are in accordance with what is being discussed in
the public space.
The results are intended to provide information to national decision-making bodies, and
local authorities in creating a functional communication plan for the transition to the
circular economy by understanding how this is currently reflected in the online media,
which concepts and voices are lacking from the public discourse and consequently
where to make amends in order to ensure messages and channels which can reach all
stakeholders connected to the circular economy.
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550 Strategica 2020
CHANGING PUBLIC ORGANIZATIONS THROUGH INFORMATION

TECHNOLOGY
Mauro ROMANELLI
Parthenope University of Napoli
13 G. Parisi St., 80132Napoli, IT
mauro.romanelli@uniparthenope.it
Abstract
Public organizations are changing by using the potential of information technology to better
contribute to value creation moving towards sustainability as a vision for change and action. As
strengthening the information technology, public organizations select a community-driven
approach and adopt a service logic view as a strategic choice to facilitate public value creation within
society. Information technology is leading public organizations to identify a pathway towards
sustainability, driving change along a continuum from providing information to managing and using
knowledge, and developing smart and digital platforms. Public organizations contribute to value
creation, innovation, and sustainability within communities improving technological advances in
government to develop digital, smart, lean, and open platforms that enable social and knowledge
exchanges.
Keywords
Public organizations, change, sustainability, value creation, information technology.
Introduction
Today, public organizations are changing by embracing information and digital

technology to develop better services and promote communication with citizens. Public
organizations serve the public interest as the result of dialogue with citizens (Denhardt
& Denhardt, 2000), following a sustainability-oriented view as a vision for change to
drive public decision-making, management, and governance (Goodsell, 2006; Fiorino,
2010).
Public organizations contribute to facilitating value creation processes by using the

potential of information and communication technologies (ICTs) to communicate with
citizens and various stakeholders as active co-producers of social, democratic, and
public values (Criado & Gil-Garcia, 2019; Moore, 1995).
Technology helps public organizations to drive change, involving civil society within
networked governance, developing open innovation, and including external knowledge
in decision-making processes (Hartley, 2005; Mergel, 2018). ICTs help drive
organizational change enabling technological, human, social, and managerial sources
(Orlikowski & Yates, 2006). In particular, ICTs help to support institutional change
within public administration (Gascό, 2003) and enable the interface between citizens
and government. ICTs facilitate the flows of information within the government and for
citizens’ rights and access to information (Mayer-Schönberger & Lazer, 2008).
Technologies open up to digital and smart ecosystems where public organizations

enable social and public value creation by involving civil society, following a service logic
view, and promoting shared community values in order to support dialogue, and
strengthen knowledge and information sharing, social exchanges, interaction, and
citizen-centered services effectiveness (Osborne, 2018; Dumay, Guthrie & Farneti, 2010;
Stoker, 2006; O’Flynn, 2007; Moore, 1995).
ICTs help public organizations drive networks that involve private and public actors,
developing knowledge and capabilities in the pursuit of public goals (Janowski, Pardo &
Davies, 2012). ICTs help strengthen collaboration and support the exchange between
governments and civil society for service innovation, governance, administration
effectiveness, and support to institutional reform (Lips, 2012). Change helps to
transform e-services, relying on users’ perspectives to create sustainable shared values
(Osman, Anouze, Irani, Lee, Medeni & Weerakkody, 2019).
ICTs are driving public organizations as digital and smart communities to support public
value creation within open ecosystems (Larrson & Grönlund, 2014; Granier & Kudo,
2016). New technologies enable lean government and platform-based governance
(Janssen & Estevez, 2013), and help public governance processes leading to supporting
sustainable communities through participatory planning and governance (Estevez &
Janowski, 2013). Promoting knowledge management helps public organizations to
become smarter institutions that interact with citizens to achieve benefits for society
(Wiig, 2002). Developing a strong knowledge management capability helps to improve
organizational effectiveness. Public organizations need to develop strong knowledge
management capabilities as a reaction to the human capital crisis due to retirement and
downsizing (Pee & Kankanhalli, 2016). ICTs help to transform public organizations by
developing a knowledge management approach in defining public policies (Edge, 2005)
and developing effective two-way transfers of knowledge between public organizations
and stakeholders for sustainable policy solutions (Riege & Lindsay, 2006). For
developing and implementing smart solutions, public administration might cooperate
and transfer knowledge and solutions from the business environment (Pinzaru,
Zbuchea, & Vitelar, 2018).
Even if some studies elucidate the importance of information technology as a source to

enable innovation and transformation of public organizations, few studies investigate
how public organizations are changing using the potential of information technology,
how public organizations are interpreting a view for change in embracing digital
technologies. Thereby, technology is an enabler of forces that drive public organizations
into change. The study aims to elucidate how changing public organizations use
technology to support both organizational infrastructures and knowledge-based
systems and processes as a means that enable change. Technology helps to develop
digital and smart institutions that enable knowledge management approach and
openness view as values and drivers of change within sustainability-oriented public
organizations.
The use of information technology drives public administration to follow a

sustainability-oriented view for change within public organizations that rediscover the
importance of developing an orientation towards a knowledge management approach,
developing the potential offered by information technology to build a community vision
by encouraging the participation of citizens in public policy and services design.
552 Strategica 2020
The contribution of this study is to propose a framework of analysis to identify how

public organizations are changing by embracing ICTs to develop as knowledge, open,
and community-oriented institutions.
This study relies on the analysis of literature that refers to the relationship between ICTs
and knowledge management, openness, and smart and digital advancements in
designing and promoting the relationships between public organizations and citizens.
Technology contributes to influencing the extension of change and exerting influence on

three areas of managerial capabilities and development: implementing a knowledge
management approach; strengthening a community vision by smart and digital
platforms opening up to a new season of the relationship of confidence between the
citizen and the government.
The paper is structured into six sections. Following the introduction and methodological
section, the third paragraph elucidates the role of information technology within public
organizations which are changing by embracing a service logic view. The fourth
paragraph identifies the areas for driving change as enabled by the advent of
information technology: developing a knowledge management approach to processes
and systems; developing a community vision by strengthening digital and smart
platforms for value creation. In the fifth paragraph, a framework of analysis is elucidated
and the discussion follows. Finally, conclusions are outlined.
Methodological section
The study is theoretical and relies on a literature review relating to public organizations
that aim to change by embracing information technology to develop knowledge
management processes and promote a community-oriented vision by strengthening
digital and smart platforms to contribute to value creation and public wealth. The
selected contributions refer to the relationship between ICTs and knowledge
management in order to enable digital and smart platforms as the evolution of advanced
information technology in government. The selected contributions are interpreted in a
narrative synthesis to elucidate new perspectives and advance theoretical frameworks
on emerging issues (Denyer & Tranfield, 2006; Dixon-Woods, Agarwall, Young, Jones &
Sutton, 2004).
Changing technology-enabled and service logic-driven public organizations
According to Osborne and Brown (2005) change refers to the gradual improvement and
development of the existing services provided by a public sector organization. Today,
public organizations adopt a public value management view as a vision for change and
value creation (Stoker, 2006; O’Flynn, 2007), moving towards an ecosystem and
community view to sustaining knowledge and public value creation within society
(Osborne, 2010). Co-production helps drive public value co-creation involving public
service users and the community in the services delivery process, leading to active
citizenship and active communities (Osborne, Radnor & Strokosch, 2016).
Electronic government is emerging as a catalyst for driving strategic and organizational

change within public organizations (Yeo, 2009). Technology provides resources that
open up to successful change within public organizations promoting value creation
processes, involving civil society, and promoting collaborative processes (Fernandez &
Rainey, 2006). ICTs enable change in advancing a public value perspective in driving
public sector reforms (Cordella & Bonina, 2012), thereby paying attention to the risks
of bureaucratization (Cordella & Tempini, 2015). In particular, the use of ICTs helps
change leading to different governance structures and processes that enable changes in
norms and public values (Bannister & Connolly, 2012). ICTs help strengthen public
values leading to transformational change in government (Bannister & Connolly, 2014).
Public organizations adopt a sustainability-oriented approach as a vision for managing

res publica within communities and creating value within ecosystems (Fiorino, 2010;
Goodsell, 2006; Dumay, Guthrie & Farneti, 2010) by engaging stakeholders and
involving civil society in constructing governance networks and shared partnerships
(Hartley, 2005). In particular, public organizations contribute to stressing a community-
oriented approach to solving problems that refer to the public sphere by fostering cross-
sector collaboration that enables information, capabilities, and activities sharing
(Bryson, Crosby & Stone, 2006). So, public organizations adopt a new public service to
drive policies and practices in interacting with citizens (Denhardt & Denhardt, 2000).
Public organizations adopt a service logic view (Osborne, 2018), promoting

collaborative processes to achieve policy objectives within a community (Bourgon,
2007). Public organizations drive change enabling the users to create value because «it
is the citizen and/or service user who creates the performance and value of public
service, with the PSO acting as a facilitator of this process» (Osborne, 2018, p. 229).
Information technology enables the transformation of government structures and the

quality of government services by reducing costs and increasing productivity (Gil-Garcia
& Pardo, 2005). Information technology is enabling transparent, participatory,
collaborative, and open government leading to cultural change and citizen engagement
(Mergel, 2012). ICTs help drive organizational and institutional change within public
administration (Gascό, 2003; Orlikowski & Yates, 2006) for public value creation
(Moore, 1995), and improving the administrative action and enabling the government
to better connect with citizens (Meijer, Bannister & Thaens, 2012).
Information technology helps cultural and operational change within public

administration by enabling a knowledge management approach in process
management, revitalizing democratic values, and citizen participation, leading to digital
and smart platforms for value creation. Information technology helps change within
public organizations improving the efficiency of services (e-government) (West, 2004),
providing new structures of domination, legitimation, and signification (Meijer &
Zouridis, 2004), and enhancing democratic processes by involving citizens in policy-
making and fostering public values like transparency, participation and accountability
(e-governance) (Dawes, 2008).
Information technology enables public organizations to change managing knowledge by

developing smart and digital platforms that enable public value creation. Public
organizations need to learn how to use and manage knowledge for efficiency and quality
of public services (Massaro, Dumay & Garlatti, 2015), developing knowledge strategies
554 Strategica 2020
by jointly considering technology, culture, structure, and people (Syed‐Ikhsan &

Rowland, 2004) to use, disseminate and share knowledge to achieve social and
economic issues (Bratianu & Bolisani, 2015; Leon, 2013). The use of information
technology helps development and sustainability by fostering knowledge management
processes and citizen participation and governance (Al-Sudairy & Vasista, 2012).
ICTs are driving digital and smart public organizations that contribute to supporting
public value creation (Granier & Kudo, 2016), relying on sustainability as a view that
relates to general issues, complex interactions, and critical lens to highlight a dialogue
of values (Larrson & Grönlund, 2014; Larrson & Grönlund, 2016).
By using information technology, public organizations are becoming smart institutions

engaging citizens’ engagement and participation. In particular, «citizens’ engagement
means that citizens have to believe that their engagement is consequential and will have
a positive impact on their community» (Mellouli, Luna-Reyes & Zhang, 2014, p.2).
How information technology helps change within public organizations
Information technology can emerge as a source to drive innovation and change within
public administration concerning strategic, organizational, and managerial issues.
Changing public organizations follow a community-oriented vision driving digital and
smart platforms as spaces for dialogue, moving from an information provision approach
to using information technology to develop knowledge management in processes.
Rediscovering a pathway from information to knowledge management
Investigating the aspects related to knowledge management in the public sector is

becoming a relevant research theme. Knowledge management refers to what an
organization knows and implies to transform data in information to use and value it as
a strategic source (Bellamy, 2003). According to Wiig (2002), knowledge management
in public administration helps develop decision making and participation in public
services, and enable intellectual capital capabilities and a knowledge-competitive
workforce.
Even if knowledge management contributes to improving both individual and

organizational performance, public sector organizations have still to explore the
possibilities of knowledge management applications (Edge, 2005). According to Henry
(1974), knowledge is emerging as the central force in technology-enabled society and
the indispensable resource in public policy processes. In particular, the role of
information technology is to enable to maximize the knowledge of decision-makers.
Public organizations use technology to support inter-organizational collaboration, by
sharing, applying, and creating knowledge (Pee & Kankanhalli, 2016). «Technology is a
key enabler of KM and modern KM initiatives typically involve the implementation of
technologies such as electronic knowledge repositories, expert directories, and
discussion forums» (Pee & Kankanhalli, 2016, p. 189). According to Syed‐Ikhsan and
Rowland (2004) «technology plays key roles in managing knowledge in an organization
and can be considered as an effective means in of capturing, storing, transforming and
disseminating information» (p. 108). In particular, «ICT infrastructure seems to allow
individuals in the organization to create and share knowledge effectively and contribute
to the performance of knowledge transfer» (Syed‐Ikhsan & Rowland, 2004, p. 108).
Managing knowledge as a fundamental resource in public policy formulation helps

responsive governments meeting the needs of citizens to design and implement
information systems by using technology to improve the organizational processes
(Gates, 1975; Henry, 1974). Developing knowledge management within public
administration helps improve the quality of life of citizens within society (Wiig, 2002).
Following a knowledge-driven and sustainable-oriented view, public sector

organizations learn how to create, use, manage and share knowledge to contribute to
value creation processes achieving social and environmental issues (Massaro, Dumay &
Garlatti, 2015; Bratianu & Bolisani, 2015; Leon, 2013). Moreover, public organizations
should move from an information management approach to knowledge management
vision to driving and restructuring systems, processes, and operations. Technology is a
key driver for enhancing and implementing knowledge management processes to
sustaining organizational culture within public organizations (Girard & McIntyre, 2010).
People, processes, and technology enable knowledge management processes within
public organizations. Developing technological and organizational sources and
infrastructures open up to knowledge management vision and culture within public
administration processes (Cong & Pandya, 2003).
ICTs help to transform public organizations by driving innovation and developing a

knowledge management approach to defining public policies (Edge, 2005),
strengthening knowledge management-oriented processes, and fostering citizen
participation and governance (Al-Sudairy & Vasista, 2012). In particular, the employees
who use information technology applications help support employee knowledge
sharing (Kim & Lee, 2006). As knowledge-driven and technology-enabled responsive
institutions engaging citizens, public organizations develop effective two-way transfers
of knowledge between public organizations and stakeholders to better develop
sustainable policy solutions (Riege & Lindsay, 2006).
ICTs help support knowledge management development and implementation within

public sector organizations (Suurla, Mustajarvi & Markkula, 2002). Thereby, while
information management systems are well developed, technology tools for governing
knowledge management sources are still in infancy. Public organizations have to invest
in information technology systems and sources to drive knowledge management
systems in transitioning from infancy to maturity in order to enhance knowledge as a
source for value creation (Cong & Pandya, 2003; Wiig, 2002). Technology helps public
organizations to develop knowledge management systems and enhance knowledge
sharing culture using knowledge as a source to improve public services quality,
accessibility, productivity, and innovation (Fang, 2002).
Rediscovering a community-oriented view through digital platforms
The use of ICTs in government and digital information throughout society enables an
efficient, transparent, and effective government. Following a public management
perspective, the digital government is a critical aspect of innovation, co-production,
transparency for public value creation (Gil-Garcia, Dawes & Pardo, 2018). According to
Osborne, Radnor, and Strokosch (2016) value can be co-created «by the meeting of
556 Strategica 2020
community needs through co-production in a way that adds to society» (p.645). The
advent of ICTs and the Internet in government processes help to strengthen services co-
production following a community-participation approach (Osborne & Strokosch,
2013), opening up to a new digital governance era in terms of citizen-centered processes
that facilitate the interaction government-citizen and drive the transition to client-based
re-organization and services digitalization. In particular, a digital era strategy
governance strategy helps the government’s agility, responsiveness in service delivery,
increasing citizens’ capabilities for solving social problems (Dunleavy, Margetts, Bastow
& Tinkler, 2006). Developing the potential of information technology helps to achieve
effective benefits for communities and supports citizens’ engagement as a source to
drive the government to formulate decisions by integrating the point of view of citizens
who need to be empowered to meaningfully contribute to policy processes (Mellouli,
Luna-Reyes & Zhang, 2014).
Developing a smart government relies on building a creative mix of emerging

technologies and innovation (Gil Garcia, Helbig & Ojo, 2014). The digital government
relies on creating a digital ecosystem for public value creation by strengthening
cooperation and opening to a data-driven culture and strategy ensuring openness,
inclusiveness, engagement, and participation in policy-making and service design to
better serve citizens and business that access to social and informative exchange (OECD,
2014).
In particular, Web 2.0 is driving e-government towards integration and participation in

terms of knowledge and services for active citizen engagement (Dixon, 2010).
Promoting Government 2.0 means constructing collective leadership and motivate
citizens to engage in facing a problem and be involved in policy processes (Meijer,
Koops, Pieterson, Overman & Tije, 2012). Web-based technologies contribute to
facilitating the deployment of platforms that support performance and innovation
within public organizations. The use of platforms enabled by Web 2.0 technology
supports transparency, collaboration, and participation. Government 2.0 enables
citizens to collectively create public information and take part in policy processes and
innovation in services provision (Nam, 2012).
The role of digitalization is to facilitate and accelerate change within public

organizations. In particular, the digital government has shown the effective capacity to
achieve expected benefits (Castelnovo & Sorrentino, 2018). E-government maturity
models relate to technology as a source for human-centered change to benefit both
customers and citizens (Andersen & Henriksen, 2006). Promoting change relies on
developing a community/citizen-centered approach, strengthening the potential of
information technology by enhancing digital sources and virtual communities,
developing networked co-production of public services (Meijer, 2011; Bovaird, 2007).
Technology helps empower the citizen as a responsible partner who contributes to

delivering public services (Linders, 2012). Technology enables smartness in
government by enabling openness and knowledge (Gil-Garcia, Zhang & Puron-Cid,
2016), and opening up to successful digital policies that enable public-private
collaborations to achieve shared objectives for value creation (Ansell & Törfing, 2014;
Dawes & Pardo, 2002).
The advent of interactive and digital technology helps public organizations to adopt and
strengthen a community/citizen and smart approach to support public values, equity,
and development (Larsson & Grönlund, 2014; Dunleavy, Margetts, Bastow & Tinkler,
2005).
Building digital platforms and spaces helps develop services co-production and value
co-creation (Fishenden &Thompson, 2013) to promote innovation and transparency,
and support citizen engagement, knowledge, and information sharing (Harrison,
Pardo & Cook, 2012). Digital technologies are leading public organizations to promote
policy-driven e-governance platforms (Janowski, 2015), as smart communities that
rely on proactive citizens’ participation, and spread smart culture, empowering
citizens as co-designers and co-producers of public services for innovation and
knowledge development (Larsson & Grönlund, 2014; Gil-Garcia, Zhang & Puron-Cid,
2016).
As sustainable change-oriented institutions, public organizations develop a knowledge

approach to processes that orient administrative action, leading public organizations to
embrace digital and interactive technology to build a community approach to value
creation processes.
As knowledge-driven and open institutions, public organizations aim to promote

collaboration, encouraging inter-organizational and long-term relationships, and
interacting with civil society. Public organizations develop the potential of information
and communication technology to advance digital, smart, and open communities as
spaces and platforms that help encourage partnerships and collaboration among private
and public actors, sustaining cooperative efforts to support the creation of social and
digital ecosystems.
As shown in figure 1, the main contribution of this study is to identify some pathways
that enable public organizations as public value-oriented and sustainable-driven
organizations that contribute to the wealth of communities within social and digital
ecosystems.
from information to managing

provision knowledge
Public Organizations knowledge-driven
from technology in
managing Public
government
information Organizations
Public
Public Organizations
to digital and smart Organizations
building
platforms sustainability-
relationships
oriented
from public services to service logic
view
Figure 1. How public organizations are changing
through information technology and knowledge
558 Strategica 2020
Public organizations consider sustainability as a source for change that helps to drive
value creation processes and enables the wealth of people and businesses, ensuring
social, financial, economic, and democratic performances. As managing information,
public organizations introduce technology to provide information accessible to citizens
and support the efficiency and effectiveness of public services. By developing digital and
smart platforms, public organizations tend to develop relationships within the
community. In transitioning from the introducing technology to smart and digital
platforms development, public organizations are changing by developing a knowledge
orientation to designing and implementing work systems and processes, following a
service logic view, moving from being knowledge-driven to sustainability-driven
organizations that invest in knowledge as a source that helps support and drive
continuous change over time.
Developing digital and smart platforms offers a means for public organizations that are
changing by following a knowledge management approach in enabling public
organizations, companies, groups, and people to interact for engendering new
knowledge for policies and value creation processes.
Conclusions
Today, public organizations are facing the challenge of modernization using the
potential of information technology to anticipate and drive changes by involving all the
actors within the community and strengthening knowledge management-oriented
processes as means to achieve public value.
Change always concerns the life and development of public organizations over time.
Technology helps drive organizational and strategic change. Information and digital
technologies open up to public sector organizations that take opportunities to face
challenges and problems related to efficiency, effectiveness, equity, and democracy in
redesigning and driving the relationships with citizens and/within communities.
In particular, sustainability and change emerge as drivers that help identify a value-
oriented pathway that concerns the improvement of the relationships between public
administration and communities. As developing the potential of information
technologies, public organizations select both service logic and community-oriented
views to drive change and address value creation processes, adopting a knowledge
management perspective to innovation systems, developing digital and smart
institutions.
In this study, there are theoretical, managerial, and organizational implications.

Developing the potential of information technology in government helps public
organizations to promote a knowledge management approach building collaborative
spaces for social and information exchanges and shared values, promoting a public value
view to driving change and innovation. The advent of digital, smart, and interactive
technologies helps social and cultural change, enabling policies that foster the
continuous search for the interaction between the public sphere and community sphere,
following an evolutionary approach to living the change. Technology-oriented changes
contribute to reshaping and redesigning the structure of public organizations leading to
a more flexible and ad-hoc organization able to learn how to continuously contribute to
value creation processes.
In this study, there are some limitations. This study provides a framework of analysis to
drive change within public organizations that follow a sustainable view of public value
creation within communities. There are no empirical research and case studies. Public
organizations are still in infancy in dealing with technology for change and viewing
sustainability as a source that enables innovation in governance and services design.
Further research perspectives imply investigating how local autonomies and

governments design and implement managerial, organizational, human resources, and
technological policies and practices. Technological advancements and digital platforms
contribute to enhancing the community development within public organizations that
interact with civil society to develop knowledge capabilities, value-oriented processes,
and shared culture within public sector ecosystems.
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DRIVING SMART CITIES AND PROJECTS IN ROMANIA

Mauro ROMANELLI
13 G. Parisi St., 80132 Napoli, IT
Ana Maria IONESCU

Transilvania University
29 Eroilor St., Brasov, RO
dr.ana.maria.ionescu@gmail.com
Abstract
Cities are rethinking how to drive future urban development, following a smart vision to urban
growth to improve the quality of life of citizens. As adopting a smart approach to urban development,
cities are investing in the design and implementation of smart city projects to transform in a
significant way the urban community, and to enhance the social and economic performances of cities.
By Investing in smart city projects, cities identify a sustainability-oriented pathway addressing and
developing smart and intelligent solutions to facing and solving urban problems, relying on
information technology as a source that enables cities to develop innovative processes and drive
sustainable urban growth. Romanian cities are adopting a smart vision by promoting smart city
projects that help encourage cooperation, driving collaborative frameworks to enable innovation in
services and knowledge for sustainable urban development. Smart city projects are increasing, but
the pathway leading to smart and sustainable development is still in the initial stage. Smart city
projects emerge as a necessary step to support collective learning processes and urban intelligence
that enable urban change and innovation coherently with a long-term horizon for urban growth.
Keywords
Smart city, urban sustainability, smart city projects, Romanian smart cities.
Introduction
The future development of cities as communities relies on cities rethinking a smart

vision for urban change and growth as a source that enables the city to advance towards
urban sustainability and improve the quality of life of people living within urban
communities. In particular, following a smart city vision implies that cities must adopt,
develop and implement smart city projects to make an effective and substantial
transition of the city towards a smart-driven or smart city that can improve urban,
social, and economic performances.
According to Yigitcanlar (2015), smart city-based development is emerging as a

potential model for cities within the information and knowledge era. It is no simple to
make smart a city without rethinking how to plan and rethink the stages of urban
change. As monitoring several steps, cities define a project that opens up to goals,
sources, times, and organizational action to drive urban change, in following a smart
vision leading to urban sustainable development.
566 Strategica 2020
Cities invest in smart city initiatives and vision to improve the quality of life,
encompassing socio-environmental aspects, and information and technology
applications (Neirotti, De Marco, Cagliano, Mangano, & Scorrano, 2014).
While the need to embrace a smart approach to the urban development of cities is an
aspect well documented in the literature about smart city, few studies elucidate the role
of smart city projects within a smart city model which includes social, economic, urban,
institutional, technological and environmental aspects (Camboin, Zawiskak, & Pufal,
2019).
This study aims to elucidate the role of smart city projects as a means that helps cities
to become smart, by viewing the smartness as a vision to support urban, social, and
economic growth. In particular, we pay attention to some insights emerging from
Romanian smart city projects as drivers of smart urban development. In Romania, a
smart city is still a strategy and not yet an implemented reality. Romanian cities are still
in the first step of smart evolutions and solutions in improving technological
infrastructures in order to make effective the bridge between social, urban and
technological frameworks (Bătăgan, 2012).
Cities are rethinking a smart-oriented approach to face the problems of rapid

urbanization (Gil-Garcia, Nam, & Pardo, 2015). Smart cities emerge as a conceptual
development model that relies on using information technology to improve human
capital and increase urban sustainability and the future (Angelidou, 2016), enabling the
optimization of all city functions (Baltac, 2019). The advantages of a smart city approach
concern: benefits to urban transportation and mobility, access to city resources,
opportunities for employment, and support to local growth (Bătăgan, 2012).
Smart city projects and vision help construct a people-centered approach to urban
governance to develop jointly economic growth, social sustainability, and cohesion
(Meijer, Gil-Garcia, & Bolivar 2016; Murphy, 2000). Building smart cities relies on
promoting urban governance that enhances the relationships between bottom-up
initiatives and city strategy, bringing together human collaboration and technological
systems to transform urban spaces, making effective diverse public values coherently
with specific context (Meijer, Gil-Garcia, & Bolivar 2016).
As drivers of economic and social growth and multi-level cooperation-led innovation

(European Commission, 2017), cities aim to proceed towards sustainable development
by using information and digital technology to support urban growth, knowledge and
innovation-led economy (Angelidou, 2015; Bătăgan, 2011), and improve the living
conditions for citizens (Ibrahim, El-Zaart, & Adams, 2017).
As following a smart approach and vision to urban development, cities design a pathway
for sustainability and learn how to define and design organizational processes and
infrastructures that drive cities to evolve as smart-driven and inclusive urban
communities (Kummitha, & Crutzen, 2017; Ahad, Paiva, Tripathi, & Feroz, 2020).
Smart city initiatives rely on using emerging technologies and help in exploring future
scenarios of contemporary cities (Andreani, Kalchschmidt, Pinto, & Sayegh, 2019).
Thereby, leading cities towards a long term urban development implies to understand
how cities can define and implement a smart city project as an effective urban
management model for urban growth (Yigitcanlar, 2015).
Designing cities of the future relies on developing a smart approach to strengthen social
and public value creation, social inclusion, and innovation to drive urban development
over time. Cities as smart communities understand the potential of information
technology, designing and implementing smart city projects (Camboin, Zawislak, &
Pufal, 2019).
The paper is structured in the following way. After the introduction, understanding
smart and sustainable cities for driving urban development is presented in the second
section. In the third section, smart city projects and strategies are considered as a means
to drive cities into the urban future. In the fourth section, the issues of Romanian smart
city projects are described to define a future-oriented landscape. Finally, conclusions are
outlined.
Understanding the role of smart cities as drivers of sustainable urban

development
Cities are embracing a smart vision to rethink and plan urban futures and spaces by
embracing information technology to redesign a smart city urban planning. Cities
promote smartness as a vision that enables the city to modernize urban services and
infrastructures by employing information communication technologies (ICTs) in the
urban economy, services, life, and society. «Smart City is furthermore used to discuss
the use of modern technology in everyday urban life» (Giffinger et al., 2007, p. 10).
Thereby, technology is one of the conditions for cities to become smart. There is no one
route to becoming smart. Several approaches emerge because a smart city strategy
refers to local aspects in terms of governance models, local culture, and the citizens’
involvement (Dameri, Benevolo, Veglianti, & Li, 2019). In particular, cities promote
smartness as a vision for change that makes the city a smart community (Deakin, 2014).
A smart city is a multidimensional and socio-technical phenomenon that relies on

technology, management, and policy components in a comprehensive way (Gil-Garcia,
Pardo, & Nam, 2015). According to Gil-Garcia, Pardo, and Nam (2016) «a smart city
should be seen as a continuum in which local government officials, citizens, and other
stakeholders could think about the initiatives that attempt to make the city a better place
to live» (p. 5). As a conceptual development model, a smart city helps enhance the city’s
human, collective, and technological capital for increasing urban sustainability
(Angelidou, 2016).
Cities adopt a smart strategy to address urban development «for improving the
operational and managerial efficiency and the quality of life by building on advances in
ICTs and infrastructures» (Nam, & Pardo, 2011a, p. 186). Cities are investing in smart
solutions to contribute to ensuring high quality of life, achieving sustainable
development in urban spaces in terms of efficient use of resources, competitive
knowledge, and innovation-led economy (Bătăgan, 2011). According to Yigitcanlar et al.
568 Strategica 2020
(2018) community, technology, and policy drive smart city and enable productivity,
sustainability, accessibility, wellbeing, liveability, and governance.
According to Alberti and Susskind (1996) sustainability as a process requires invention,

involving a self-conscious choice. Smartness is considered as a source to drive cities to
become sustainable. While smart city helps improve services through technology with
regards to the human side of change, the sustainable city relies on decision-making
processes to improve urban community following a future-oriented and long time
horizon (D’Auria, Tregua, & Vallejo-Martos, 2018). Sustainability-oriented cities adopt a
smart vision that relies on using information and digital technology as a source to
support urban future, knowledge, and innovation economy (Angelidou, 2015).
Following a knowledge management perspective, public authorities and private sectors
must collaborate and have the responsibility to promote a shared vision in designing a
smart-driven strategy for long-term development of smart cities (Pinzaru, Zbuchea &
Vitelar, 2018). As drivers of economic and social growth fostering innovation and
encouraging multi-level public-private partnerships (European Commission, 2017),
cities develop knowledge-based strategies to drive sustainable urban development by
sustaining high collective learning process and realize the potential of their knowledge
sources (Knight, 1995) for building a sustainable and knowledge-oriented future by
achieving social and environmental issues (Leon, 2013).
Smarter cities enhance values like innovation and cohesion, governance, and community
(Allwinckle, & Cruickshank, 2011) by jointly developing land, technology, and
government (Dameri, 2013), matching technologies, tools, and applications with urban
functions and contexts (Stratigea, Papadopoulou, & Panagiotopoulou, 2015).
Technology helps improve urban quality of life for sustainable development (Bătăgan,
2011), and drive urban innovation in management, governance, and policy (Nam, &
Pardo, 2011b), leading to modernization and automation of urban spaces (Ahad, Paiva,
Tripathi, & Feroz, 2020). In particular, cities invest in innovation, linking technology and
knowledge with people and territory to drive urban development and support learning
and policies for growth (Komninos, 2013; Paskaleva, 2011). Technology provides also a
platform for collaboration and a symbol that provides community value to share new
ideas, resources, and projects (Meijer, & Thaens, 2018). Smart and sustainable cities use
ICTs to identify new ways to address urban development preserving capabilities for
meeting the needs of future generations (Höjer, & Wangel, 2015).
The adoption of smart urban technologies helps cities to become a smart city by
ensuring both technological excellence and economic competitiveness as a means to
promote the urban society and support urban growth and development (Yigitcanlar,
2015). Cities adopt a smart approach to build collaborative processes between people,
business, and government within the community as a means that leads to urban public
value and open innovation enabling an inclusive city and empowering the role of citizens
in shaping urban smartness and change beyond the adoption of information technology
(Hollands, 2008; Paskaleva, 2011). Smart cities contribute to urban innovation involving
all the stakeholders of the urban environment. Cities select a smart approach using the
potential of information technology to enhance economy, governance, people, mobility,
environment, and living to drive urban sustainable growth and ensure a high quality of
life leading systems, service, and capabilities in an organic network (Albino, Berardi, &
Dangelico, 2015).
Driving cities into the future through smart city projects and strategies
As becoming smart, cities are planning investments in human and social capital for
ensuring high quality of life by developing new communication infrastructures for
sustainable economic growth and participatory governance (Caragliu, Del Bo, &
Nijkamp, 2011).
It is difficult to rethink about the city as a smart community without planning a smart
city project and strategy to drive the city towards future urban development. Driving
smart and sustainable urban change requires long-term processes and mindset
(Camboin, Zawislak, & Pufal, 2019) and relies on a roadmap coherently with particular
city context, needs, and local interests (Ibrahim, El-Zaart, & Adams, 2017).
Investing in smart city projects helps transform the urban community in a significant
and positive way (Eger, 2005), by promoting specific local services and advancing
collective skills (Coe, Paquet, & Roy, 2001). Smart city projects help cities to identify a
pathway for building sustainable, learning, and inclusive cities that are meeting the
expectations of urban society in the 21st century (Osborne, Kearns, & Yang, 2013).
Investing in smart city projects helps improve urban efficiency function leading cities to
develop the innovative potential to support urban growth (Kollar, Bubbico, & Arsalides,
2018).
As real challenges that influence the development of cities (Baltac, 2019), smart city
projects help design an integrated city of the future, stressing the relevance of both
technological and collaborative dimensions that enhance the relationships among urban
stakeholders as a means that enables the city to become smarter (Camboin, Zawislak, &
Pufal, 2019).
Smart city projects help cities to identify both a comprehensive strategic plan and a
sustainable pathway for urban growth (Angelidou, 2014). Smart city projects enable
cities to develop human-centered pathways by using technology to involve stakeholders
to engage in collaborative and participatory processes for engendering urban
innovation (Andreani, Kalchschmidt, Pinto, & Sayegh, 2019).
According to Angelidou (2014) «cities should thus begin the journey towards becoming
a smart city by selecting a few domains or areas that need to be improved urgently» (p.
S9). Technology helps cities to design projects that support urban renewal and change.
Smart cities encourage user-driven innovation projects by using technology for
stimulating open and collaborative innovation (Shaffers, Komninos, Pallot, Trousse,
Nilsson, & Oliveira, 2011). ICTs help support smart city strategies to improve services
and ensure high quality of life following a sustainable way (Bifulco, Tregua, Amitrano, &
D’Auria, 2016). Designing a smart city strategy relies on sustaining connectivity
platforms by enabling the creation of new digital service systems by ICTs and
telecommunication infrastructure (European Economic and Social Committee, 2015).
Following a socio-technical framework, smart city projects are considered in terms of
both technological and instrumental values, collaborative and symbolic value. Smart city
570 Strategica 2020
projects enable urban collaboration design and legitimize innovative solutions leading
cities to face uncertainty and complexity of urban problems (Mejier, & Thaens, 2018).
A smart city strategy is an important means to drive urban development policy which
has an impact on services delivery and relationships among the public sector, citizens,
and businesses, shaping the future of society and governance. A smart city strategy relies
on promoting technological infrastructure development using technology to ensure
both efficient functions and develop innovative solutions to improve urban quality of
life (Angelidou, 2016).
The quality of life of citizens is the issue of cities becoming smart. Planning smart city
development relies on bridging technological advancements, knowledge, and
innovation networks to realize an effective digital and human intelligence-driven smart
city (Angelidou, 2015). The role of smart city strategies is to enhance information
technology to support a bottom-up vision, to improve citizen awareness, and provide
privacy and security issues (Angelidou, 2017). Driving smart city projects helps develop
urban innovation as innovative practices to improve urban environments (Meijer, &
Thaens, 2018). By implementing smart city projects, cities become smarter upgrading
the elements related to techno-economic activity, the environ-urban configurations, and
the socio-institutional structure, enhancing the relationships between public and
private actors to support urban innovation ecosystems (Camboin, Zawislak, & Pufal,
2019).
Developing smart city projects relies on building a smart city ecosystem that enhances
cooperation breeding entrepreneurial opportunities (Ardito, Ferraris, Petruzzelli,
Bresciani, & Del Giudice, 2019). Successful smart city projects rely on considering
citizens as key stakeholders that provide inputs for urban development and growth
(Engelbert, van Zoonen, & Hirzalla, 2019).
Smart city initiatives contribute to placing human values and dimension at the core of
the smart city as a community which relies on technological infrastructure as a source
to strengthen economic growth regeneration, inclusivity, and opportunities for change
(Allam, & Newman, 2018). Smart city projects make cities as smart and inclusive
communities where citizens promote innovations and technological advancements, by
improving their local communities and fostering community entrepreneurship
(Kummitha, & Crutzen, 2017).
Promoting smart city projects to develop sustainable future and urban growth
within Romanian smart cities
In Romania, a smart city is still a strategy and not yet a reality. Smart city design is still
in the first step of smart and technological solutions and infrastructures (Bătăgan, 2012).
Romanian cities believe in embracing a smart approach to promote the urban
development of communities. Smart and intelligent solutions help cities to go into the
future.
Three possibilities of implementing a smart city that can be used in Romania (Bătăgan,
2012): the use of facilities offered by technology and communications solutions cloud
computing, open data in areas that individuals have identified as basic (administration,
education, health, and transport). This variant is aimed at an integrated operations

center. This can facilitate access and share information, coordinate city resources, and
can predict and solve problems faster. The use of efficient solutions for producing
electricity using wind power and photovoltaic solar panels capture solar energy, free
energy, clean and green. In this variant, monitor and reduce carbon dioxide emissions
and efficient use of natural resources are the important results. The investments made
in several elements that create a high standard of quality of life for citizens and visitors,
and tourist areas - parks, museums, and historical centers.
According to Romanian Smart City and Mobility Association, in Romania, 15 billion

euros are made as available for Smart City projects 8 billion from national funds 7 billion
from 8 European funds.
Iasi is focused on smart mobility, pursuing the following objectives: low-emission

mobility; full mobility solutions; and multimodal transport. Iasi bought 100 low-carbon
buses, Euro 6, and focused on public transport with carbon "0" emissions (completing
the park with 11 trams). In 2019 was planned the purchase of 44 electric buses and 16
trams implementation of the Iaşi Velo City - Bike Sharing project, which will include 54
bicycle hire and rental stations, 35 private bicycle parks, 11 service stations, 940
mechanical bikes, 83 electric bikes, 43 tricycles for the elderly third, 19 tricycles for
people with disabilities.
Iasi is preparing to recover the lost land in front of other cities and announced that it
intends to set up 200 smart banks in the city. (The bank, produced entirely by the Iasi
City Hall, is equipped with solar panels, it benefits from lighting at night, offers the
possibility of charging mobile devices, and works as a WiFi hotspot.) The City Hall has
also signed a consultancy contract with European Investment Advisory Hub (divisions
of the European Investment Bank) for the realization of the urban development project
"Smart City District". (Iasi is among the 15 cities selected by the European Commission
in the Digital Cities Challenge program, through which European experts provide
consulting services for establishing and implementing strategic sustainable
development plans).
Another project correlates with the implementation of the Integrated Mobility Plan
(combining traditional transport with bike sharing, car sharing, scooter sharing, taxi
stops, etc.), Electronic displays installed in stations. The application "Where is my bus”,
System of prioritizing public transport, Park and ride parking, Intermodal stations
(romaniansmartcity.ro).
Cluj Napoca was the first city that introduced electric buses in Romania. Main directions:
attracting local, regional, national, and European financial resources to strengthen the
ecosystem of innovation in Cluj, preparing the future jobs for Cluj, and Romania,
accelerate the digitization process of local public administration and improving urban
mobility through smart solutions.
Cluj had a project "The first intelligent street in Romania", art from the Mărăști district,
which makes it easy to follow a point equipped with lighting poles with WiFi embedded
systems, charging stations for electric bicycles and scooters, banks with charging prizes
for the devices. mobile etc. The City Hall of Cluj-Napoca has managed to pass in the list
also a technological premiere - the first virtual public official in Romania (Antonia),
572 Strategica 2020
whose purpose is to reduce by 40% the time required to process documents submitted
by citizens and process the answers, in parallel with the decrease of administrative
costs.
Alba Iulia is the first intelligent city in Romania. It is the most ambitious IT infrastructure
project. Energy consumption has been streamlined, and the local government controls
the intensity of light from public posts. Buses have WiFi, monitor air, projects to digitize
education and interact with public institutions. The e-album iulia, a kind of digital guide,
tells the story of the goals, but also where the people find them. Also, in Alba Iulia, the
citizens can talk to the authorities, without an appointment or waiting hours in front of
the office. According to a communiqué of Orange, at present in Alba Iulia, there are over
600 sensors which, together with fixed and dedicated mobile communication networks,
create a digital infrastructure of the city. "In almost one year of Wi-Fi hotspots on buses,
about 8% of the 60,000 Alba Iulia population has accessed the service, generating more
than 1 TB of data in 30 minutes' sessions”, notes Orange in the release.
With the Civic Alert application, citizens can alert authorities to the problems identified
in the city, while through City Analytics, City Hall can track city traffic trends, depending
on the day's weather or weather conditions, also identifying the most common routes.
"The digital class solution was installed in two high schools in Alba Iulia:" Dionisie Pop
Marţian "Economic College and Horea National College, Closca and Crisan. This includes
tablets, through a partnership with Lenovo, digital catalog, secure Wi-Fi Internet access,
and filtered web traffic.
In addition to using the catalog for the 2017-2018 school year, school performance data
for the past three years has been uploaded into the app. Altogether this year, 120
teachers and almost 1,500 students will benefit from this solution in Alba Iulia. With e-
album iulia, available on Android and iOS, tourists have access to information about the
city's main objectives, and local businesses can hold dedicated campaigns.
At this time, the app has 1,200 users who initiated over 11,300 sessions. Besides, as part
of the pilot project developed by Orange, four teams of students and students from Alba
Iulia presented solutions on the smart city at the Innovation Labs hackathon, and one of
them qualified for the Demo Day 2017 final in Bucharest, according to the Orange
Romania release.
In Alba Iulia, air quality monitoring sensors are also installed in the 15 buses equipped
with Wi-Fi hotspots. The solution provides both authorities and citizens with
information on the impact that their daily activities have on the environment.
On the other hand, the existing public lighting management solution has generated
savings of 50-70% on electricity consumption, depending on the intensity of light
selected for each pillar, and the water management solution is being installed.
The cities of Cluj Napoca - Timișoara - Oradea - Arad formed in December 2018 the
Western Alliance: common objectives include "the acceleration of the Transylvania
Motorway project, the support of the Timisoara - Belgrade Motorway, the development
of a high-speed train between the four cities, the completion of the belts, the
development of airports, an intra-regional and interregional public transport network,
the increase of ecological mobility through tramway projects, metropolitan subway,
support of the public-private partnership through infrastructure projects"

(romaniansmartcity.ro).
Brasov practices modern management of public utility services: local public transport,
traffic management, public lighting, and territory management. There are 11,500
lighting poles and 200 transformation stations, 191 surveillance cameras in the public
domain (arteries, intersections, public areas), mobile incident reporting application and
electronic services - integrated with the CiRM system, intelligent pedestrian crossing
(sensor detection of pedestrians engaged in passing; when pedestrians are detected, the
lighting level increases vertical, creating a positive contrast; light signaling system,
mounted in the roadway, visible from 2 km). It is desired to create a network of stations
charging electric vehicles at the level of the whole city.
Future projects concern: the extension of remote management of public lighting system
(total budget € 1.4 million, EU funds 98%); the extension of the computerized
management system of the public transport system (total budget € 3.4 thousand, EU
funds 98%) (source: http://oer.ro/wp-content/uploads/Smart-city-Bra%C8%99ov).
The main objective of digitizing business is to share business flows with those of life.
Knowing the competition, the clients, and the characteristics of the market in which the
business operates will create additional revenue-generating opportunities, and the
sooner the information is accessed and individuals can understand and integrate them
into the business flows, the higher the profit margin. Smart Economy describes all
actions aimed at transforming and strengthening the economy of a municipality. Cities
are considered "engines of the economy" by attracting economic activities in the
secondary and tertiary sectors. According to the United Nations, the degree of
urbanization has increased steadily, from 29.6% in 1950 to over 55% in 2018 and it is
estimated that by 2050 more than 68% of the world's population will live in cities.
Figure 1. Romania’s Smart Cities Map

Source: https://map.romaniansmartcity.ro/ 24.03.2020
574 Strategica 2020
Table1. Romanian cities with smart city projects

Smart city Smart city
City City
Projects Projects
Satu Mare 2 Mures 4
Bihor 5 Sibiu 9
Maramures 1 Brasov 6
Arad 9 Arges 1
Timis 21 Dambovita 1
Caras-Severin 5 Olt 1
Mehedinti 1 Dolj 3
Bistrita Nasaud 3 Prahova 1
Cluj Napoca 18 Bucuresti 12
Alba 102 Giurgiu 2
Hunedoara 24 Suceava 2
Botosani 1 Neamt 6
Iasi 7 Bacau 1
Galati 5 Braila 1
Constanta 4 Tulcea 2
In Romania, there are more than 300 smart city projects. The map in Figure 1, as well as
Table 1 shows the following situation: There are cities with no projects such as: Salaj,
Gorj, Valcea, Teleorman, Harghita, Covasna, Vrancea, Buzau, Ialomita, Calarasi,
Teleorman, Vaslui. Alba has the greatest number of projects.
According to Eduard Dumitrașcu, the President of the Romanian Association for Smart
City. “A smart city should put the citizen in the middle of the community and try to give
them a better life, easier interaction with the city's infrastructure, its school, hospital,
transport, interaction with state institutions. At the level of Romania, 8 standards are
being implemented, starting from last year. Romania has a representative in the
international standardization body. The benefits are multiple, whether we speak of
school, education, city safety, or obtaining permits. " According to the Romanian
Association for Smart City and Mobility in Romania, 15 billion euros are available for
Smart City projects, 8 billion from national funds, and 7 billion from 8 European funds.
Conclusions
Investing in smart city projects and strategies means to identify a long-term horizon for
urban change. Promoting smart city projects helps develop debate and dialogue within
the city as a community in order to identify possible trajectories of development that
contribute to addressing strategic and social urban growth.
Driving cities to identify and develop a pathway for building the city as a more smart
and sustainable community is a long term goal that relies on promoting and
implementing smart city projects as a source and means to support urban innovation,
knowledge creation, modernization, and growth for urban value creation.
In Romania, cities are sustaining relevant efforts to modernize urban spaces and
environments to improve the quality of life of people. The orientation to smart city
projects is advancing even if a smart strategy design seems to be still in infancy age. In
particular, rethinking smart city projects by following a top-down and techno-centric
approach fails to help social and economic urban growth, while a smart city project is to
emerge as an opportunity to support urban community-based and collective intelligence
and construct a sustainable-oriented pathway that relies on a participatory and
collaborative-oriented framework to support the relationship between city
governments and urban stakeholders involved in defining and implementing smart city
projects’ issues.
Smart city as a model of urban development is a global trend with local peculiarities in
effective implementation. Following a smart approach, cities redesign urban planning
and select a strategic pathway and long-term horizon to realize effectively livable urban
environments that enable economic and productive activities and facilitate the
improvement of urban quality of life. Romanian urban landscape is emerging as an
interesting workshop, whereas cities are experimenting with new ways to develop
urban innovation in services and functionalities. The focus on Romanian smart city
projects helps us to understand how a smart-driven pathway is an evolutionary issue
and requires a long-term horizon because the present and future of urban communities
rely on continuously identifying the trajectories of development for urban change, social
and economic development.
There are some limitations to the study. Only some cases in the Romanian urban
landscape are considered and described to indicate how smart solutions and approaches
are viewed as a driver of urban growth and development. The case studies highlight the
efforts of Romanian cities in developing a smart vision for urban growth and
development. There is not a comparison among different urban realities. The study is
mainly descriptive and sheds light on the efforts of cities planning a smart-driven urban
future. Further research investigations would focus on a comparison among more
countries about how smart city projects are planned, designed, and implemented in
different urban environments.
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SMART LEADERSHIP – EXAMPLES OF BEST PRACTICES IN

GOVERNING SMART CITIES
Catalin VRABIE
30A Expozitiei Blvd, 012104 Bucharest, RO
vrabie.catalin@gmail.com
Abstract
Creating a shared vision for smart cities by bringing together city leaders, universities, businesses,
social enterprises, and civil society is what many smart city publications are promoting as models of
public-private partnerships. Among all those the involvement of citizens turns to be crucial,
therefore, the concept of public-private-people partnerships turns to be the new approach. The road
to smart cities is difficult to establish – no clear beginning or end, and it could take ten to twenty
years to achieve (few, as we will see in the article, managed the transformation in less than that).
Today’s decisions on city infrastructures and services will have consequences for future generations.
There needs to be a huge cultural shift away from working in silos and towards integration across
organizations, cities, and countries. Smart city partnerships need to bring people together but they
also need to be a vehicle that commissions and manages smart infrastructure and technology,
dealing with issues such as finance, privacy, and security. This paper will discuss this issue providing
examples of success stories found in Romania and across the globe.
Keywords
Smart city; partnership; public-private; governance.
Introduction
The European Innovation Partnership on Smart Cities and Communities (EIP-SCC),

brings together cities, industries, SMEs, investors, researchers, and other smart city
actors to improve urban life through more sustainable, integrated solutions (EIP-SCC,
2019; European Commission, 2019, p.1). The platform can help partnerships initiatives
to:
 Find the latest news, events, and documents related to innovation in Smart
Cities;
 Find information on many existing EU funding sources;
 Launch debates on a specific issue, initiative, or practice;
 Share information, documents, and links to enhance the visibility of specific
events;
 Find interesting completed or ongoing smart cities projects;
 Get in touch with potential partners or peers who work on the same subject.
By putting resources together, a partnership is looking to cofound projects, to help

organize existing initiatives at the metropolitan level to overcome the bottlenecks that
might slow down or disrupt a specific process (Romanelli, 2019).
However, cities are embracing different formulas of smart city partnerships. Some are
choosing for an informal partnership where actors sit together and share experiences,
work on ideas development and look for financial backing; this is mostly common for
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cities that started developing a smart city initiative with a bit of a delay comparing with
those in the pole position. Some others consider adopting a more formal model (Dimeski
et al, 2019). Cities like Amsterdam, Lyon, Genoa, Copenhagen, Hamburg, and Vienna
showed their intention by signing a Memorandum of Understanding that is conducted
by the city administration and is mutually signed by companies that enroll in the city
life. The cities learn from each other, also projects can be scaled up to other cities (Smart
Circle, 2019)
As smart city programs are becoming larger and their numbers are increasing, city
administrations need to consider more formal model structures for their smart city
partnerships, models that reflect the requirements, as well as aims, of all the actors. A
good administration structure needs to be built on the objectives of a partnership and
to allow it to be managed in a transparent and accountable way (Ručinská & Fečko,
2019). It is also necessary to tackle issues like who are the decision-makers, how they
are accountable, and to whom (Rodríguez-Bolívar, 2015). It will also be important to
acknowledge where the finance has come from and who controls it, as well as any other
form of capital or intellectual property (Dameri, 2014). The legal framework is also
important – here it must be taking into consideration the differences that exist in the
legal systems around the world and to be understood that one model can't fit all needs
(European Commission, 2019, 2). Nevertheless, an important aspect to look at is the link
with the latest technology; Industry 4.0 involves huge productivity gains in the
manufacturing industry and there is no doubt that similar benefits may be reaped by
public administration, particularly on the municipal level (Prosser, 2018).
Smart leadership
According to the literature, the biggest barrier in implementing IT solutions at the

municipal level is management failure (Vrabie, 2016; OECD, 2019; UN, 2019). A British
initiative called CITIE (City Initiatives for Technology, Innovation, and
Entrepreneurship) raised up as a product of a partnership between Nesta – and
innovation charity with a mission to help people and organizations bring great ideas to
life, Accenture – a leading global professional services company, providing a broad range
of services and solutions in strategy, consulting, digital, technology and operations, and
the Future Cities Catapult – a consortium between universities and city leaders in the
UK, to support city managers to ‘develop policy to catalyze innovation and
entrepreneurship’ (Accenture, 2019). It is, in fact, an idea to smart up the city managers.
On the CITIE’s website, there are a lot of ideas of partnership’s use – some as described
above. CITIE aims to bring these together and systematically analyze them. By that, the
team observed an increased focus of policy instruments that were emerging from a
growing number of cities to support their innovation and entrepreneurship ecosystems.
CITIE focuses exclusively on the policy levers that city government leaders have at their
disposal, equipping city leaders with a guide to support innovation and
entrepreneurship. Policy levers are measures that change the behavior of individuals or
groups (Nesta, 2019).
The principal components of CITIE are as follows:

 a framework for assessing how well policy supports innovation and

entrepreneurship;
 a diagnostic tool to help cities assess how they compare to their peers;
 a package of case studies containing global best practices across the nine policy
areas.
The framework identifies three key areas in which a city can support innovation and
entrepreneurship.
 Openness: how open is the city to new ideas and businesses?
 Infrastructure: how does the city optimize its infrastructure for high-growth
businesses?
 Leadership: how does the city build innovation into its own activities?
Within each of these areas, it identifies roles a city can play, with city case studies.
For example, by focusing on the topic of ‘Openness’ a city can promote itself and its small
business community to the outer world. Smart city start-ups need to invest a great deal
of time, energy, and resources in building their reputation and networks. This is an area
where city leaders have precisely the kind of reach and convening power that small
businesses need, so by working in partnerships they can support innovation and
entrepreneurship. Berlin provides extensive support for start-up companies to test out
the city, allowing them to get established, operate, and expand in the city at minimal cost
(Nesta, 2019).
In ‘Leadership’ a city can be a strategist. This is where the city sets a clear direction and
builds the internal capabilities required to support innovation. The Smart London Plan,
for example, was published by the Smart London Board to set out the role of digital
technology in helping to address key city challenges such as rapid population growth
and to improve Londoners’ lives (Nesta, 2019).
Romanian municipalities insights
We conduct qualitative research at the level of Bucharest municipality by interviewing

city managers from all of the six districts of the Romanian capital – Bucharest is divided
into six districts, asking them to deliver their views on the actual or future strategies
that are to be adopted by the city. During the interviews we extract the following as
being the main operational issues to be considered in a partnership agreement between
a town hall and some other entities (such as private companies, other public institution,
academia, civil society):
 Degree of commitment;
Most of the municipality’s officials consider important how much work each partner
is to do in a specific project. Often, public institutions (i.e. town hall) get involved only
financially and in situations like this one, they do not want to be required to take part
in the daily running of the project. Also, they might want to get involved partially or
only to supervise the implementation. An agreement should set out the degree of
commitment of each partner. For a full-time working partner – usually a private
company but sometimes a university or a consortium, this may be expressed as
devoting its whole time and attention to the project.
 Leadership Hierarchy;
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All officials agreed that it is mandatory to maintain a clear-cut leadership hierarchy

to be effective and efficient. However, this does not mean that the rest of the partners
do not have a say in the project, but there is a strong need that one clearly defined
leader exists. The same goes for the financial hierarchy and who will be responsible for
fiscal requirements the project must meet.
 Decision-making;
Unless otherwise agreed, all partnership decisions should be made on a majority basis
by one partner one vote. However, if it is a decision on changing the nature of the
project or the involvement of a new partner, then every partner must agree. Therefore,
it might well be that this is not what partners in a particular project want. For
example, it may be a good idea to state that certain decisions can be made by one
partner alone – the project coordinator (usually the town hall), while some other
decisions might require a majority vote or the consent of all the partners. In any case,
all those scenarios should be clearly stated from the very beginning.
 Liability;
partners are jointly responsible for all the commitments, debts, and obligations of the
project, including loss and/or extra charges, damages arising from wrongful acts or
omissions of their fellow partners, and potential liability to third parties.
 Flexibility;
the partnership structure should be flexible, with full freedom to agree on how the
project should be managed and financed.
Smart partnerships
A strategy sets the main direction to be followed by a smart city initiative; a course of
action that heads towards the aims and objectives (Kasparov, 2008). It might also
contain a roadmap in which actions are positioned along a timeline (Pham et al, 2013).
Some cities start creating a smart city strategy and/or roadmap when they initiate their
smart city work, (e.g. Bucharest) (Capital, 2019). Others are focusing first on building
innovative projects and after they get enough experience with it, they start to develop a
strategy or roadmap (e.g. Dubai) (Smart Dubai, 2019).
The Smart City concept is not new. It gained most of its volume in today’s researches due
to the wider sustainability and technology initiatives and to the approaches that involve
inserting smart city actions into existing city development strategies. The term ‘digital
plan’ or ‘digitalization plan’, as is most commonly used in Romania, is sometimes used
in place of ‘strategy’ or ‘roadmap’. Often, smart city tactical actions might be integrated
into a wider city development plan.
In the specific case of a city, the main value of a strategy is in bringing together all the
actors to create a common vision. They will commonly consider where a city is today
and its aims for the future, and by that, they will build up plans to get there finding the
proper investment areas and prioritize them (IoT World Today, 2019). It is also
important to take into consideration that as soon as a strategy is written it will go
outdated because cities and technology are changing at a very fast rate. But if it is flexible
it can provide a useful framework for measuring and reviewing a city’s progression
towards becoming smart(er) (IoT World Today, 2019). Having a strategy in place, along
with good leadership, can also maximize its potential and help design different kinds of
funding and form of investment.
How does a city determine where to start? The administration must carefully consider
what it wants to achieve by looking at the challenges and opportunities of the city and
its citizens, and what the city’s strengths are. All of these should be used to create a smart
city vision and guiding principles.
It’s also important for all the actors engaged in to process to see and understand what a
city has already: for example, existing partnerships and programs on which a smart city
initiative would be built. A smart city partnership might obtain this by engaging a broad
range of actors and stakeholders. Political leadership is important but equally important
is the involvement of citizens and businesses in shaping the future direction of their city
(Future Learn, 2019).
It might be also important to have a timetable for city initiatives to ensure these are
properly done and a timescale to measure them. What is known in the literature as key
performance indicators (KPIs) allow progress and success of the city strategy by being
easily tracked, review, and reported (Vrabie & Dumitrașcu, 2018).
One of the biggest challenges in creating a strategy or roadmap is not to focus on setting
up clear actions early on (Van Beurden, 2011) due to the high risk of limiting creativity,
innovation and enterprise. Cites demands and the technologies made to fulfill them are
constantly evolving. Expert smart city strategist Ger Baron, who was deeply involved in
establishing Amsterdam Smart City (being now Amsterdam’s chief technology officer),
observed that ‘the concept of smart cities is like art: the context is more important than
the product’ (Euroforum Nederland, 2014). He has some concerns about the idea of
building up a roadmap and believes that while an instrument to measure progress is
needed, this should not be the same type of roadmap used by the private sector who is
focused on financial gains and not on public interest. Amsterdam has focused on creating
a platform on which all actors involved can work together on innovative projects,
bringing together innovators and investors.
Amsterdam Smart City
The city of Amsterdam – the capital city of The Netherlands, built up a dedicated
platform for innovation aiming to bring together proactive citizens, innovative
companies, knowledge institutions, and public authorities to shape the city of the future.
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Figure 1. Amsterdam Smart City Web platform

(Amsterdam Smart City, 2020)
The idea behind consists of establishing public-private partnerships among national and
international actors (Amsterdam Smart City, 2019). By the end of 2019, the platform
managed to bring at the same table more than 7000 innovators (users as individuals and
companies or institutions) connecting everyone with energy and ambitions to improve
the livability in urban areas. The platforms help communities to connect and share
expertise and strengthens new projects that make the region futureproof.
By the moment of the research conducted for the present article, the platform
successfully published a number of 299 projects divided into six categories such as
Digital City, Energy, Mobility, Circular City, Governance & Education, and Cities & Living.
The most voted projects are getting attention and by that partners might get involved
either financially or by other means (i.e. human resources, voluntaries, expertise in
different areas, etc.).
Birmingham Smart City
Birmingham City Council published in 2010 its Core Strategy 2026 integrating the Smart
City Vision statement. Soon after that, the Birmingham Smart City Roadmap has been
developed – for doing this a group of city stakeholders was involved. The roadmap
describes an initial range of activities and sets up actions that are designed to influence
the city’s approach to create a sustainable living environment. It identifies threats like
unemployment, skills gap, and/or digital divide, a different form of inequalities, and sets
up targets like effective mobility and carbon reduction. All those are grouped into three
main areas: technology and place, people, and economy. The actions are being tackled
in collaboration with both the private and public sectors.
Figure 2. Birmingham Fast Forward 2026

(City of Birmingham, 2019)
As an important tool, there is also a Birmingham Smart City blog, which is run by the
community as a place to share ideas and developments for making Birmingham a
smarter city (City of Birmingham, 2019).
Chicago Smart City
Figure 3. Chicago SmartData Platform

(City of Chicago, 2019)
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As far as 2013, the city of Chicago in the United States of America published `The Chicago
Technology Plan`, highlighting 28 initiatives on five broad areas that are set up to fuel
opportunity, inclusion, engagement, and innovation to empower Chicago to realize its
vision of becoming the city where `technology is driven by the people who use and
benefit from it` (City of Chicago, 2019). The plan’s stated main purpose is to enable
Chicago’s residents and businesses to be digitally-connected and by that the technology
to contribute to enriching the quality of life, employment opportunities and business
growth in the city. The officials are actively engaged in the following trend lines:
 Cutting costs/improving taxpayer and government finances;
 Improving the type of services/information provided by the City;
 Bringing Chicago’s citizens together to solve issues through innovation;
 Providing access to the Internet, computers, software, and support;
 Developing computer skills and a level of comfort in becoming digitally active;
 Creating new jobs;
 Attracting/retaining Science, Technology, Engineering, Math professionals.
However, a city doesn’t become smart based on just the reach of its broadband network
or the detail of its data sets, but by empowering citizens to work together, to pursue
opportunities, and to make the city a better place to live and work – that’s what makes
a city smart. Five years later than `The Chicago Technology Plan` was publicly released,
Chicago reached the top three on the `most sociable and friendly cities in the world`
ranking according to Business Insider (Business Insider, 2019).
Dubai Smart City
The Dubai Plan 2021 describes the future of Dubai through holistic and complementary
perspectives, starting with the people and society. It has six main areas of development,
each of them highlighting a group of strategic aims for the city. For example, one theme,
‘The experience: the preferred place to live, work & visit’, focuses on high-quality
experiences that Dubai provides to its residents and visitors as being one of the most
critical advantages the city has to offer. This theme focuses on improving Dubai’s
livability by building on and improving this experience. It addresses the need to provide
the best educational, health, and housing services to all residents, while availing a rich
cultural experience and entertainment options such as parks, beaches, and sports
facilities that cater to residents and attracts tourists, in the safest and most secure
environment possible (Smart Dubai, 2019).
Now, in 2020, and by that mostly on the edge of the Dubai Plan 2021, researches made
on the city are not arguing about its success. According to MasterCard (MasterCard,
2019), Dubai is one of the world’s most visited cities with about 16 million tourists
yearly. According to the same article, each visitor is spending about four nights in the
city and around 550 USD per day. To compare, Paris – as being a well-known routinely
tourist destination for decades, with no further citing needed, however, according to the
same source, attracts around 20 million tourists that are spending on average three
nights inside the city and a total amount of money equal to 300 USD per day.
Figure 4. 2021 Dubai Plan

(Smart Dubai, 2019)
Iasi Smart City
A Romanian example worth mentioning is that of the city of Iași, which was selected by
the European Commission at the beginning of 2018, through The Digital Cities Challenge
program, to be given high-level advice and support by both local and international
experts to help develop and implement strategic plans for economic growth and social
welfare (Digital Cities Challenge, 2019). The dialogue with other city officials in Europe
that have been involved in the transition process to become smart, together with the
access to a whole network of European partners who can provide assistance and advice,
helped developing a strategy and, based on it, an action plan to digital transform the city.
Those are just a few of the benefits of such partnership programs.
Figure 5. Iasi Smart City

(Iasi official Web Page)
588 Strategica 2020
If ten years ago the city of Iași was not to be found on any rankings on smart cities, at
the end of 2019 the city proudly participated at the Digital Cities Challenge, winning the
Best Smart City Project of the Year 2019 at Smart City Industry Awards (Business
Review, 2020). Also, Iași holds the presidency of the Open & Agile Smart Cities Romania
– all those because of the partnerships that he managed to be part of.
Conclusions
The style of a smart city project development and/or implementation depends on the
priorities and aspirations of whoever leads the work, as shown in the case studies
presented in the present article. Currently, it is still common for the city government to
manage smart city programs and tender projects when they need other parties to
deliver aspects of the program. In this case, a memorandum of understanding should be
used. However, in the future, some other approaches might appear.
Usually, the municipalities officials are convinced that the changes necessary for the city
to move forward can only be achieved through collaboration. Pooling brainpower, skills,
and networks will facilitate creating better streets, neighborhoods and cities, and
address the most important transitions we’re facing today.
If we are to take, as a final example, the city of Amsterdam, its partners are governments,
knowledge institutions, companies, and foundations. ln the smart city program they
build up they are focusing on four societal transitions: Energy, Digital City, Circular City
and Mobility. The idea was copied by the second large city in Romania – Cluj-Napoca,
who managed to acquire a well-deserved place in the smart cities ranks in Romania
being, arguably, the smartest city in the country – and this was done by multiple
partnership agreements.
Acknowledgments
This paper was possible with the financial support of the National University of
Political Studies and Public Administration, Bucharest, Romania, under the
project ‘Minigranturi SNSPA 2019’ with the title "From smart cities to the smart
nation. Synergy of smart projects implemented at the city level in Romania ".
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TOWARDS INCLUSIVE CITIES MEETING IMMIGRANTS
Mauro ROMANELLI
Via G. Parisi, 13 80132 Napoli, IT
Abstract
Cities of tomorrow as communities promote social, economic, and inclusive growth, designing the
future by strengthening the relationships between diversity, community, and sustainability to drive
an inclusive city and improve the high quality of urban life. Cities evolve as communities, working for
social and economic integration of immigrants, developing both sustainability and inclusion as
sources for urban value creation, and managing diversity. Cities have a critical role in defining
initiatives to ensure the social inclusion of immigrants within communities in the long-term,
designing inclusive local policies and ensuring services, strengthening the participation, and making
local institutions and services equally accessible.
Keywords
Inclusive cities; urban sustainability; social inclusion; communities; immigration.
Introduction
Rethinking cities of tomorrow relies on rediscovering urban communities that drive

sustainable, social and economic growth, promoting a high quality of life as a source to
shape urban competitiveness and promotion (Rogers, 1999). Cities develop local
policies for managing immigration as a source for urban development, acquiring skilled,
talented and diverse workforces, strengthening decentralized immigration, and pro-
growth policies (Kühn, 2018).
Urban sustainability relates to social, ecological, and economic dimensions and relies on
cities to achieve a high quality of life for the whole community. «Sustainable cities ensure
the well-being and good quality of life for citizens, are environmentally friendly, and
socially integrated and just» (Giddings, Hopwood, Mellor & O’Brien, 2006, p. 24). Urban
social sustainability relates to community development and relies on promoting social
interaction in the community, strengthening participation in groups and networks in the
community, promoting community stability, safety and security, and sense of place
(Dempsey, Bramley, Power & Brown, 2011).
In the New Urban Agenda, cities have a key role in promoting sustainable urban
development in an increasingly urbanized world, by embracing diversity and
strengthening social cohesion and intercultural dialogue, and promoting pluralism and
peaceful coexistence within increasingly heterogeneous and multicultural societies.
Sustainable as inclusive cities contribute to creating urban services and spaces where
newcomers build their social networks and participate in the cultural and political life
of the city enabling immigration as sustainable diversity as a part of the public life of the
polis (United Nations, 2017).
592 Strategica 2020
Sustainable development relies on inclusive development in terms of social, relational,

and ecological inclusiveness (Gupta & Vegelin, 2016) and implies to promote effective
stakeholders’ management to ensure inclusive environments (Zbuchea & Bira, 2019).
Social inclusion refers to community development and connection to social networks
within the community and enables people to participate in a process of changing their
lives and collective life (Busatto, 2007). Inclusion is a two-way, long-term, and urban
community-led process where collaborative processes involve national and local
governments, public and private actors, no governmental organizations, and community
representatives that provide sources and capabilities to support sustainable diversity
within the urban community (Papillon, 2002).
Cities as a sui generis form of organization identify, define, and implement strategies for
managing human resource diversity, developing learning capabilities (Dass & Parker,
1999). Cities as sustainable communities promote an inclusive and integrated urban
ecosystem, strengthening diversity as a source that helps urban regeneration and
change (Haapio, 2012).
Understanding how cities can design and implement the future relies on strengthening
the relationship between diversity, community, and sustainability to improve the high
quality of urban life. Cities of the future enhance social sustainability as a source to
create public value, driving economic and urban development. As sustainable,
innovation-oriented, socially enabled, and inclusive communities, cities promote urban
and social cohesion to ensure a high quality of life within the urban landscape.
As communities and agents of social change, cities invest in both sustainability and
inclusion as sources for urban value creation, managing diversity. The study aims to
elucidate how cities identify a pathway to evolve as inclusive urban communities
encouraging social and political integration and participation of immigrants in urban life
for social and economic urban growth.
The social and economic sustainability of cities relies on inclusive urban communities
that contribute to engendering social value and innovation, promoting an inclusive
vision to the integration of immigrants within urban communities.
The paper is structured into six sections. Following the introduction and methodological
section, in the third section, the international and European framework regarding
sustainable and inclusive cities is elucidated. In the fourth section, inclusive and
sustainable cities contribute to social value creation, constructing the urban community
as an organizational framework to drive growth in the urban landscape and improve the
quality of life. In the fifth section, it is elucidated how cities are dealing with immigrants’
integration in the European scenario. In the sixth section, a framework of analysis is
presented to elucidate that cities identify some pathways to develop as inclusive and
sustainable urban communities, welcoming immigrants, integrating and including them
within social, cultural and economic urban spaces of participation. Finally, conclusions
are outlined.
Methodological section
The study is theoretical and relies on a review of the literature that is related to
understanding the concepts of sustainable and inclusive city and community as drivers
of integration and social inclusion of immigrants within urban communities as a source
that helps cities to rediscover a sustainable pathway for social and economic growth.
Inclusion, sustainability, diversity and community are key values that help cities to
rethink themselves as communities that define strategy, promoting actions and
initiatives about future urban development. The selected contributions are interpreted
in a narrative synthesis to elucidate new perspectives and advance theoretical
frameworks on emerging issues (Denyer & Tranfield, 2006; Dixon-Woods, Agarwall,
Young, Jones & Sutton, 2004).
The International and European frameworks for inclusive and sustainable cities
Following the UN 2030 Agenda for Sustainable Development (United Nations, 2015)
urban communities, cities and human settlements need to be inclusive, safe, resilient,
and sustainable by enhancing inclusive and sustainable urbanization and the capacity
for participatory, integrated, and sustainable human settlement planning and
management in all countries by 2030 (11.b3).
According to the New Urban Agenda, cultural diversity contributes to both enriching
humankind and promoting sustainable development of cities empowering citizens to
actively play in development initiatives. Cities promote inclusivity and ensure that all
inhabitants can produce safe, healthy, accessible, resilient and sustainable cities to
foster prosperity and quality of life. In particular, it is stated that «sustained, inclusive
and sustainable economic growth, with full and productive employment and decent
work for all, is a key element of sustainable urban and territorial development and that
cities and human settlements should be places of equal opportunities, allowing people
to live healthy, productive, prosperous and fulfilling lives» (United Nations, 2017, p. 14).
Cities contribute to developing sources for European sustainable and inclusive growth,
promoting competitive and high-employment economy, and fostering social and
territorial cohesion (European Commission, 2010). Social inclusion relies on
strengthening the community as a value and source to promote and develop the
inclusion of people and groups. The inclusive city is an inclusive community that
provides opportunities for the optimal well-being and healthy development of all
children, youth, and adults. Cities need to become more inclusive communities avoiding
entering into decline (Council Edmonton Social Planning, 2005). Today, cities are
sustaining efforts for building an inclusive, open, and cohesive city developing creativity,
diversity, and social innovation (European Union, 2011). Cities contribute to creating
social and public value promoting urban development that relies on a long-term vision
and implies promoting socially inclusive, sustainable and prosperous cities (European
Commission, 2017).
594 Strategica 2020
Cities as inclusive and sustainable urban communities
Cities evolve as sustainable and inclusive communities, constructing urban and future
developments, following a shared and social value view, and empowering citizens to
actively play a key role in urban value creation, achieving urban sustainability (Haapio,
2012). Building urban sustainability relies on strengthening the community,
empowering citizens to contribute to urban development and social capital (Bridger &
Luloff, 2001; Haapio, 2012).
As sustainable ecosystems and engines of economic and social growth, cities are social
incubators of change and innovation within urban communities (Newman & Jennings,
2008; Evans, Joas, Thundback & Theobald, 2005).
Stren and Polèse (2000) define the social sustainability for a city as «development
(and/or growth) that is compatible with the harmonious evolution of civil society,
fostering an environment conducive to the compatible cohabitation of culturally and
socially diverse groups while at the same time encouraging social integration, with
improvements in the quality of life for all segments of the population» (p. 15-16). «The
primary focus of the city needs to be its people, operating at a human scale, rich in
symbolism and with spaces and places for social interaction and the daily business of
life» (Giddings, Hopwood, Mellor & 0’Brien, 2006, p. 29).
Cities as sustainable communities contribute to developing an intelligent urban system,

promoting social interaction by improving the wealth of people within the community
(Innes & Booher, 2000). Cities contribute to shaping urban sustainability of
infrastructures, making the city as an inclusive urban community (Bhattacharya, Patro
& Rathi, 2016).
Community development helps to strengthen civil society, focusing on the actions of

communities to develop social, economic and environmental policies (Craig, Gorman &
Vercseg, 2004). Inclusive cities and communities contribute to promoting the well-being
of individuals and the social and economic health of nations. (Council Edmonton Social
Planning, 2005). According to Freiler (2008), social inclusion implies that people are
respected and contribute as members of their community. As an inclusive urban
community, a city promotes integration, cooperation and interactivity, and offers a place
to enable public and private sectors towards social and economic health and well-being
of the whole community, is equitable, and strengthens diversity (Clutterbuck & Novick,
2003). Pathways to inclusion mean to develop social change and rely on social and
community-driven innovations and collaboration by involving individuals and
communities (Lord & Hutchinson, 2007).
An inclusive city helps support sustainable urban development and promotes growth
with equity, develops social inclusion by strengthening a collaborative and participatory
space of action and strategy among public and private actors and stakeholders, stresses
urban citizenship, enabling the inhabitants who belong to it to exercise their rights and
responsibilities (Varma & Gill, 2010). Inclusive cities promote growth with equity
enabling everyone to fully contribute by participation to the social, economic, and
political opportunities that cities have to offer addressing the issue of sustainability
(Newman & Jennings, 2008).
Cities as inclusive communities meeting immigrants
Sustainable and inclusive cities are successful and intelligent cities that emphasize and
embrace diversity both culturally and ethnically (Briggs, 2006). As dealing with
migration’s matters, cities develop policies for the integration and the construction of
new spaces of coexistence that make the contemporary city as an inclusive community
(Monno & Serreli, 2020).
Cities are an important locus for driving immigrant integration and local factors
contribute to effectively shaping integration dynamics (De Graauw & Vermeleen, 2016).
In particular, immigrants contribute to changing the social and cultural shape of the
cities they settle in (Benton-Short, Price & Friedman, 2005).
Immigrants’ inclusion is a process and ongoing challenge that develops within urban
communities and spaces (Gebhardt, 2014). In particular, the social inclusion of
immigrants and the governance of ethnocultural diversity emerge at the level of local
policies (Ambrosini & Boccagni, 2015). Integration begins from the moment migrants
arrive in their host countries and where migrants settle can affect their paths to
integration. As newcomers, migrants have a significant role in defining the social and
economic shape of a city (Broadhead, 2020).
Despite the introduction of rigid legislation and anti-immigrant policies, recently cities
are introducing policies that help social inclusion of immigrants within urban
ecosystems, reflecting varying levels of receptivity toward newcomers. There is a
growing trend of cities labeling themselves as welcoming or immigrant-friendly toward
immigrants and refugees (Rodriguez, McDaniel & Ahebee, 2018).
Cities contribute to developing inclusion by creating welcoming communities that

prosper because everyone feels welcome, including immigrants and refugees (McDaniel,
Rodriguez & Wang, 2019). Cities can face the question of immigrant citizenship
following an inclusion-oriented view, becoming a polity that guarantees equal
opportunities, recognizes the diversity and supports social interaction (Gebhardt,
2016).
Cities are frontrunners of integration policies that often develop innovative blueprints
for welfare societies as a whole. According to Costa and Ewert (2014) «cities may be
localities where migrants become integrated as users and co-producers of social
services and where communities of de facto outsiders get strengthened» (p. 134).
According to Shrider (2018) cities need to support immigrants’ integration creating a

context of reception to support immigrant-driven revitalization strategies. Individuals
and communities contribute to fostering collaborative processes that involve
individuals, groups, and organizations and developing the commitment to the
community for urban value creation (Housel, Saxen & Wahlrab, 2018). Cities contribute
to exerting influence on the cultural and social dynamics of a place by designing urban
policies to support the social inclusion of immigrants (George, Selimos & Ku, 2017).
Cities contribute to developing multiculturalist policies that enable political and

economic inclusion and citizenship to actively recognize and value cultural diversity, to
facilitate social and political integration of immigrants as future members and citizens
596 Strategica 2020
of the society in terms of rights acknowledged in the country and participation facilities
(Bloemraad, 2007).
Towards immigrants’ inclusion within European urban communities
Migrants and refugees inclusion is one of the goals of smart, sustainable, and inclusive
growth in the European Union. Historically, in the post-war period Northwest European
countries conceived the immigrant workforce as a source to support economic
development on a temporary basis and stay without thinking about the chance of
attracting people with their families. So, this perspective did not consider the need for
cultural, political and economic integration policies of newcomers (Pennix, 2014).
In 2003 the European Commission formulated a more comprehensive and explicit

view on integration policies conceptualizing the integration as a two-way process
that involves both immigrants and the receiving society (Pennix, 2014).
In the European agenda on migration (2015) migration will increasingly be an important

way to enhance the sustainability of the welfare system and growth and will ensure the
equipment of qualified talents and skills coming from outside.
In the Action Plan on the integration of third-country nationals, it is acknowledged that

integration policies help people participate and contribute to driving future well-being,
prosperity, inclusiveness, and cohesion of European society (European Commission,
2016). In particular, «integration policies work best when they are designed coherent
systems that facilitate participation and empowerment of everyone in society – third-
country nationals and the communities into which they settle. This means that
integration should go beyond participation in the labor market and mastering the
language of the host country; integration is most effective when it is anchored in what it
means to live in diverse European societies» (European Commission, 2016, p. 3-4).
According to European Commission (2019), it is stated that «Integration is a key step in

the migration process, to ensure that skills and competences of those who have a right
to stay are used and developed for the benefit of all, but also to ensure inclusive and
cohesive societies. Successful integration of legally residing third-country nationals is
thus critical to making migration work both economically and socially» (p. 17).
European cities can emerge as central actors driving the immigrant integration process
and active players in developing inclusion policies and removing obstacles to immigrant
participation and contribution to urban sustainable social and economic growth. Cities
have developed strategies to increase awareness and appreciation of diversity,
promoting intercultural orientation, inclusion, and equal opportunities to create
inclusive institutions and services. In particular, cities play a vital role in ensuring that
immigrants are integrated within urban communities they live over the long term
(Gebhardt, 2014).
Cities are leading the way in setting up local institutions and services to reflect the
diversity of those they serve and promoting inclusive local identities (Gebhardt, 2014).
With regards to local immigration policies that concern some European capitals
immigrant integration is essentially used as a tool to foster and to maintain economic
growth in the city. Ethno-cultural diversity is seen increasingly as a competitive asset,

with which to improve the socio-economic performance of cities (Hadji-Abdou, 2014).
Local context provides opportunities for the political inclusion of immigrants in policy
processes (Morales & Giugni, 2011). The effective integration of migrants is a critical
issue for local and regional development. In particular, European small and medium
cities as migrant destinations need to develop policies to integrate new community
members by ensuring service delivery, working with local civil society to provide
complementary integration measures to create more inclusive and sustainable cities.
There are local integration policies that encourage the integration of immigrants within
cities as urban communities: enhancing effectiveness of migrant integration policy
through improved coordination and implementation; seeking policy coherence in
addressing the multi-dimensional needs and opportunities of and for migrants;
accessing to and using financial resources adapted to local responsibilities for migrant
integration; taking account throughout migrants’ lifetimes and status evolution;
creating spaces where integration brings migrant and native-born communities closer;
building capacity in the civil key services that receive migrants ad newcomers;
strengthening cooperation with no governmental organizations and stakeholders;
matching migrant skills with economic and job opportunities (OECD, 2018).
Developing socio-economic processes that involve immigrants helps reduce the levels
of residential segregation and facilitate the social and economic of immigrants in urban
communities (Malheiros & Vala, 2004). The answers that cities provide can be different
in terms of political and administrative context and economic issues. Despite dominant
political orientations cities tend to govern migration equality policies in different ways
going beyond integration and non-discrimination: the relationship between city
government and national government, European funding and peer exchange, civil
society capacity in managing migration on the municipal agenda, and the paths of local
civil servants contribute to exerting influence on the design of migration governance
(Flamant, 2020).
Economic interests and competition matter. Cities can view immigrant integration as a
means to support and advance urban economic growth and promote ethnocultural
diversity as a competitive asset that helps improve the social and economic performance
of cities. As stated by Hadji-Abdou (2014) «immigrant integration is not necessarily or
exclusively about granting immigrants a better position in their societies of settlement,
but that immigrant integration is driven to a great extent by economic interests» (p.
1891).
Discussion
As communities and engines of social innovation and inclusion, cities contribute to

shaping civic citizenship and driving social, economic, cultural value creation,
identifying a pathway towards a sustainability-oriented vision for urban growth and
learning in the long-term.
Rethinking a pathway for driving cities as inclusive urban communities relies on

reconsidering the strategic role of cities as sustainable communities that contribute to
598 Strategica 2020
supporting the social and economic development of urban societies to improve the
urban quality of life and competitiveness.
As agents of social change, cities contribute to the social inclusion of immigrants in

urban society. Constructing an open, democratic and diverse society relies on shaping
cities as inclusive and sustainable urban communities that contribute to improving the
quality of life and competitiveness in local and global environments, strengthening both
integration and inclusion of immigrants within urban communities. Increasingly, cities
become incubators and spaces that enhance social and economic sustainability and
innovation.
As future-oriented communities oriented, cities consider sustainability as a vision that

guides urban communities to design urban planning to develop innovation-driven and
community-oriented pathways.
As sustainable communities, cities promote social and economic growth to develop the
city as an inclusive and open, sustainability-oriented community, moving from ensuring
services to involving all the stakeholders to play a proactive role in the urban value co-
creation process, rediscovering knowledge sources and promoting innovation to
construct better policies for urban governance.
As shown in figure 1, the main contribution of this study is to identify a framework of

analysis to understand how cities evolve becoming sustainable and inclusive
communities enhancing diversity and valuing the contribution of migrants as members
of urban society and community. Sustainability as a source for action and vision for
change helps cities to address initiatives and organizational capabilities to promote the
social inclusion of migrants within urban ecosystems.
from Services to Participation

Cities contribute Cities involving
from Cities from Integration
to integration the community
Cities becoming Cities as sustainable and

to Communities to Inclusion
communities inclusive communities
from Diversity to Sustainability
Figure 1. Driving cities towards sustainable and inclusive urban communities
Cities promote initiatives for the integration of immigrants in urban spaces by managing
diversity as a source for sustainable urban development and moving from providing
services to developing policies for citizen participation. Cities as communities identify a
pathway to drive sustainable and inclusive urban communities, meeting the needs of
citizens and ensuring high quality of life, and promoting better democratic participation
in urban policy processes.
Cities as communities design the future promoting sustainability and developing

inclusion-oriented policies as a strategic and organizational source for driving urban
development and constructing organizational frameworks for social innovation design
that relies on collaboration, participation, partnerships, and connection to networks

within urban environments.
Conclusions
Cities of tomorrow evolve as inclusive and sustainable communities, integrating

newcomers and immigrants in the urban space. Cities have a key role in becoming a
bridge for social and economic inclusion of immigrants, managing diversity through
policies and initiatives that contribute to enhancing the sustainability of urban
communities.
There are managerial, organizational, and social implications. Cities develop

organizational patterns to enable social inclusion of immigrants within urban
communities as a source that helps social and economic growth of the city and
contributes to enhancing the urban identity and citizenship. Cities construct a pathway
for social inclusion by developing social innovation as a source that helps urban
communities to drive social and economic growth and promote sustainable
development by involving all the stakeholders of urban ecosystems, mobilizing
organizational and managerial competencies that enhance urban and social value
creation.
The study is conceptual and provides only a theoretical framework of analysis. It does
not provide any empirical analysis. Future urban development relies on more inclusive
and open cities as communities. Future research perspectives imply to consider how
Italian cities are designing and implementing welcoming, inclusive, and
entrepreneurship policies to foster immigrants’ integration in urban society and
economy drives value creation.
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6
Sustainable Human Resource
Management and Employee
Wellbeing
Chair
Živilė STANKEVIČIŪTĖ
604 Strategica 2020
PRINCIPAL OF EQUAL OPPORTUNITIES AS AN IMPLICATION FOR

SUSTAINABLE HUMAN RESOURCES MANAGEMENT: LEGAL AND
MANAGEMENTAL APPROACHES
Aurelija PŪRAITĖ
Mykolas Romeris University
27 Maironio St., 44211 Kaunas, LT
aurelija.puraite@mruni.eu
Rūta ADAMONIENĖ
27 Maironio St., 44211 Kaunas, LT
rutadam@mruni.eu
Abstract
The well-being of employees is inseparable from the concept of sustainable human resources
management. To fully guarantee the well-being of an individual in a market economy, the state must
inevitably control this area of legal relations by establishing certain principles and methods binding
in both public and private labor relations. Every employer must implement equal opportunities in all
areas related to the employment relationship. Reviewing the situation in the Lithuanian labor
market, it can be seen that as many as 57 per cents of employees say they have experienced age
discrimination in employment, 12.2 percent - due to disability, 9.3 percent - due to the social
situation. Therefore, it is obvious that research on the implementation of the principle must focus on
several aspects: identification of possible social, cultural, and legal reasons for the violation of this
principle; analysis of the legal environment and legal measures to prevent possible breaches of the
principle of equal opportunities; the search for management solutions to maximize the right of
employees to equal opportunities. The aim of the paper is through theoretical and practical
approaches to reveal problematic issues in the implementation of the principle of equal opportunities
in Lithuanian labor law, formulate conclusions and submit proposals for more effective
implementation of the principle of equal opportunities by using both legal and managerial solutions.
The article was carried out presenting two different perspectives on research object - legal and
managerial. The aim is not only to analyze legal regulation and legal solutions for effective
implementation of the principle of equal opportunities but also to reveal another dimension of the
problem - the presumption that the employer's perception of social responsibility and managerial
competencies have a direct impact on ensuring equal implementation.
Keywords
Equality of opportunities; legal regulation; managemental measures.
Introduction
The well-being of employees is inseparable from the concept of human rights protection.
The protection of human rights in labor relations takes a special form, first of all, to
protect the rights and legitimate interests of the economically weaker party to the labor
relations (Bell, 2019). To fully guarantee the well-being of an individual in a market
economy, the state must inevitably control this area of legal relations by establishing
certain principles and methods binding in both public and private labor relations. This
requires a legal framework that is logical, consistent, and aligned with international
human rights instruments (Lahuerta, 2016; Zbyszewska, 2016), at the same time state
interference must be reasonable and justified (Bell, 2018; Waddington, 2011). Lithuania
Sustainable Human Resource Management and Employee Wellbeing 605
is no exception, and there have been recent qualitative changes in employer-employee

relations (for example, the re-conceptualized approach of work-family reconciliation
(Busby, 2018) has been introduced). Paradoxically, however, in a market economy, the
state has decided to tighten control over some aspects of this largely private
relationship. This is especially true discussing the theoretical paradigm of labor law,
where the state, at the highest, legislative level, established modern, contemporary
principles of employee protection, obliging the employer to take concrete actions and
measures to implement these theoretical concepts (new Labor Code entered into force
on July 1, 2017). Among such fundamental principles of labor law is the principle of
equal opportunities, which implements the theory of non-discrimination. The principle
of equal opportunities in labor law includes the concepts of gender equality (Buribayev
& Khamzina, 2019), non-discrimination on the grounds of race, nationality, language,
origin, social status, age, sexual orientation, disability, and ethnicity. Every employer
must implement equal opportunities in all areas related to the employment relationship:
in hiring, paying, creating conditions for professional development, determining the
duration of work, adapting working conditions to people with disabilities, and so on.
Reviewing the situation in the Lithuanian labor market, it can be seen that as many as
57 per cents of employees say they have experienced age discrimination in employment,
12.2 percent - due to disability, 9.3 percent - due to the social situation. In 2018, the
Office of the Equal Opportunities Ombudsman was mostly contacted regarding possible
discrimination on the grounds of gender (40% of all applications) (Office of the Equal
Opportunities Ombudsman 2018). However, in case enshrining the principle of equal
opportunities in legislation is not based on a strong mechanism to guarantee its
effectiveness, equal opportunities policy will only be seen as just a formal concept.
Individual aspects of the implementation of the principle of equality are still not
uniformly and sufficiently revealed in the doctrine (Caracciolo di Torella & Masselot,
2020; Bogg et al., 2015; Cebrelli, 2014), neither well understood by the entities using the
legal acts nor entities applying the guarantees provided for in the legislation in practice.
Therefore, it is obvious that research on the implementation of the principle must focus
on several aspects: identification of possible social, cultural, and legal reasons for the
violation of this principle; analysis of the legal environment and legal measures to
prevent possible breaches of the principle of equal opportunities; the search for
management solutions to maximize the right of employees to equal opportunities.
Although the legal framework formally enables the protection of the principle of equal
opportunities and obliges employers to take appropriate real measures to implement
this principle, legal measures are usually analyzed by researchers in isolation, i.e. as if
legal norms operate autonomously, without a real social, managerial, economic context.
It is therefore important to examine the relationship between the legal obligations
imposed on employers and the potential factual management decisions that the latter
may use in carrying out their duties. Research of this interdisciplinary nature are
lacking, but this type of research will likely contribute to the sustainable management
of human resources. The aim of the paper is through theoretical and practical
approaches to reveal problematic issues in the implementation of the principle of
opportunity in Lithuanian labor law, to formulate conclusions and submit proposals for
more effective implementation of the principle of equal opportunities by using both legal
and managerial solutions.
For that purpose, the structure of the article was chosen appropriately: the theoretical
paradigm of the principle of equal opportunities was discussed, indicating the most
606 Strategica 2020
important research in the field, the present situation of Lithuanian labor law and other
relevant regulations, and presenting the most important case-law practice of the EU
level. The second part of the article analyzes the correlation between legal provisions
and managemental measures that could be introduced in the management of human
resources implementing the principle of equal opportunities. Due to limitations of the
article, the focus is made on the aspect of work-life balance as a criterion of non-
discrimination based on family status, specific managemental measures applied by
employers, in this case, are introduced and discussed.
The article was carried out presenting two different perspectives on research object -
legal and managerial. The aim is not only to analyze legal regulation and legal solutions
for effective implementation of the principle of equal opportunities but also to reveal
another dimension of the problem - the presumption that the employer's perception of
social responsibility and managerial competencies have a direct impact on ensuring
implementation of the principle of equal opportunities.
Theoretical perspective: principal of equal opportunities in labor law
Both scientific discourses and jurisprudence have repeatedly confirmed that the
principle of equality is one of the fundamental principles of the modern democratic
state. Concepts of equality, discrimination, manifestations of discrimination on different
grounds, and related issues have been addressed by many foreign law scientists:
Barbera (2002), Bell (2001, 2008), Bamfort, Malik and O’Cinneide (2008), Fredman
(2008), McColgan (2005), McCrudden and Prechal (2009), Waddington and Lawson
(2009), and other. The Court of Justice of the European Union (further ECJ) has
repeatedly held that the social damage caused by acts which infringe the principle of
equal opportunities cause physical, pecuniary, and non-pecuniary damage not only to
the victim but to the whole society as well (for example, ECJ cases Case 149/77, Gabrielle
Defrenne v Société Anonyme Belge de navigation aérienne Sabena [1978] ECR 01365;
Case 283/83, Firma A. Racke v Hauptzollamt Mainz [1984] ECR 03791; Case C-292/97,
Kjell Karlsson and others [2000] ECR I-02737; Case C-15/95, EARL de Kerlast v Union
régionale de coopératives agricoles (Unicopa) and Coopérative du Trieux [1997] ECR I-
01961; Joined cases 75/82 and 117/82, C. Razzouk and A. Beydoun v Commission of the
European Communities [1984] ECR 01509; Case C-13/94, P v S and Cornwall County
Council [1996] ECR I-02143).
The prevailing model of individual remedies for violated rights is common to many
countries, enshrined in the relevant legislation, and is an unquestionable right of every
individual to defend his or her violated rights in the relevant courts or quasi-judicial
institutions. However, to ensure equal opportunities in the employment relationship
based on the application of only individual remedies, that is, by appealing before the
judicial authorities, is not entirely sufficient to achieve equality, therefore parallel
proactive measures must be encouraged – the changes at the institutional level must be
initiated, which means embedding positive duties on employers.
The first step to the development of the sustainable implementation of the principle of
equal opportunities is at the legislation level, as it reflects the official position of a state
and its determination to provide legal measures for the protection of this principle.
There are quite a few legal documents in Lithuania, determining the concept of the
principle and foreseeing measures for its implementation: EU directive on the

implementation of the principle of equal opportunities and equal treatment of men and
women in matters of employment and occupation (2006), EU Directive on work-life
balance for parents and carers (2019), Lithuanian Labor Code (2016), The Law on Equal
Opportunities (2003), the Law on Equal Opportunities for Women and Men (1998), Law
of the Republic of Lithuania on Social Integration of the Disabled (2004). According to
these acts, equal opportunities must be granted in all stages of employment relations:
recruitment; creating equal working conditions and opportunities for professional
development; evaluating the work performed; dismissal; paying wages; adapting
working conditions for people with disabilities; prevention of discrimination,
harassment and sexual harassment; ensuring the possibility of reporting discrimination
and harassment and effective and impartial handling of complaints; planning and
implementing the organization’s equal opportunities policy. Directive 2006/54/EC
prohibits direct or indirect discrimination on the grounds of gender in the labor market,
including conditions of access to self-employment. It stresses the importance of equal
treatment concerning access to employment (including vocational training), working
conditions (including payment), and social security schemes.
The Lithuanian Labor Code (Article 26) prohibits discrimination on the following
grounds: gender; races; nationality; languages; origin; social situation; age; sexual
orientation; disability; ethnicity; membership in a political party or association;
religions; faith; beliefs or opinions, except for cases where this is necessary professional
activity requirement religious organizations; intention to have a child (ren);
circumstances unrelated to employee’s properties. Discrimination occurs when: the
person is treated or subjected to an unfavorable measure (for example, a lower salary is
paid for the same work, different promotion criteria apply, etc.) than another person is
subject to or with similar circumstances treated; this conduct or measure is unlawful
(subject to the laws prohibited grounds such as gender, race, nationality, ethnicity
addiction, etc.); the conduct or measure is unreasonable (there are no compelling and
objective reasons; measures are not proportionate to the aim pursued). Article 26, Para.
1 and 2 of the Labor Code, Article 7 of the Law on Equal Opportunities, and Article 5 of
the Law on Equal Opportunities for Women and Men provisions relating to the
principles of gender equality and non-discrimination are applied for all employers,
regardless of the number of employees. Article 26, Para. 6 of the Labor Code provides
for the obligation to draw up an equal opportunities policy, its implementation and
enforcement supervisory measures to employers having more than fifty employees.
Labor law governing the principles of gender equality and non-discrimination is applied
to all current and potential employees and job candidates’ places. They apply regardless
of the type of employment contract concluded with the employee. Any policy or rule of
the organization that may have unequal effects on different groups of workers should
be formally enshrined in the organization's rules or be well-known and consistently
applied practice for all employees.
Another important factor is the procedural legal norms, that impose the burden of proof
on the employer. In case a person claiming to have been discriminated against or
harassed presents a complaint to the judicial authorities, it is sufficient for him or her to
bring the so-called prima facie evidence. This evidence means that “at first sight” shows
that discrimination or harassment was actually. Such evidence is generally considered
as sufficient for the court to find discrimination unless the contrary is stated very clearly
presenting objective evidence by the employer. Thus, when a court accepts prima facie
608 Strategica 2020
evidence, the burden of proof is transferred to the employer, i. e. the employer must
prove that he did not discriminate. Whether specific evidence will be considered
sufficient, it is decided by the court on a case-by-case basis. For example, the woman
who reported the pregnancy to her employer was a week later dismissed, indicating
insignificant, with the performance of work functions unrelated reasons. The woman
suspected of being discriminated against and presented a lawsuit, such unjustified
dismissal shortly after notification of pregnancy in court could be considered prima facie
discrimination on the grounds of gender. In this case, the employer should prove that
the woman was fired for reasons other than pregnancy.
However, it should be noted that those legal provisions are still on the level of theoretical
norms. The individual aspects of the implementation of the principle of equality are still
not unanimous and sufficiently reveal in both scientific doctrine and jurisprudence.
Basic anti-discrimination legal concepts are not uniformly applied and interpreted by
the courts, therefore it is not yet possible to talk about the effective implementation of
the principle of equal opportunities. Despite the abundant and sufficiently detailed
regulation, many implementation programs, and practical measures, the principle of
equal opportunities is not universally implemented in practice. Violations of equality
occurring in many forms have deep social, economic, political, historical, cultural
reasons that are closely interlinked. Although discrimination in Lithuania, as in many
European countries, is a widespread common phenomenon and manifests itself in
various forms, participants of the legal relationship (employees, employers, trade
unions, employers ’organizations), and sometimes even subjects of application of the
law (courts, institutions implementing the principle of equality) (for example, the
Decision of the Chamber of Judges Lithuanian Supreme Administrative Court, in 2010
May 10, in the case S.B. and Prosecutor General's Office of the Republic of Lithuania v.
Vilnius City Municipality Administration, case No. No. AS(822)-339/2010) does not
recognize discrimination occurring in various situations, or if discrimination is
recognized, its victims do not defend their violated rights.
Legal and managemental measures for sustainable implementation of the

principle of equality: a practical approach
„Having laws and institutions to prevent discrimination at work and offer remedies is
not enough; keeping them functioning effectively is a challenge“ (ILO, 2011). The
management of an organization affects the quality of life of all its employees, so the
organization is bound by a legal and moral responsibility to implement an equal
opportunities policy. According to a broad study, performed by a group of scholars
(Sansonetti, De Micheli, Palmen, & Wroblewski, 2017) some procedural innovations
have been suggested preventing a violation of equality: analysis phase, including data
collection/analysis and procedures, processes, and practices for possible violations
assessment (where is your organization at the moment? Where do you want to be (and
why)?) – diagnostics of equal opportunities; a planning phase, where objectives are
defined, targets are set, actions and measures are planned, resources and
responsibilities are attributed and timelines are agreed upon – strategy of equal
opportunities; an implementation phase, in which activities are implemented and
outreach efforts are undertaken – plans of actions; and a monitoring phase, in which the
process and the progress are regularly followed through and assessed - impact
assessment. The management of organizations must not only adopt and introduce
measures for the implementation of equal opportunities policies in the usual way in the
workplace but also decide how the implementation of the measures will be monitored.
Once the equal opportunities strategy and the annual action plan have been developed
and approved, it is important to set goals, objectives, and constantly monitors the
indicators, i.e. monitor equal opportunities policy.
Employment ensures social well-being, full life, and social security protection. It is
therefore clear that this area is very sensitive to irregularities and can lead to quite
relevant consequences if the unlawful conduct involves discriminatory actions such as
the refusal of employment, dismissal, payment of not the same salary for work of equal
value because of a person's sex, race, ethnic group, age category, sexual orientation, etc.
According Lithuanian labor law (Lithuanian Labor Code, Article 26), in implementing
the principles of gender equality and non-discrimination on other grounds, the
employer, regardless of gender, race, nationality, language, origin, social status, age,
sexual orientation, disability, ethnicity, religion, belief, belief or opinion, intends to have
a child (children) basis or other grounds provided by law, must apply non-
discriminatory norms and measures in all levels and areas related to the employment
relationship: hiring, paying, creating conditions for professional development,
determining the duration of work, adapting working conditions to people with
disabilities (for example, to apply the same selection criteria and conditions when
recruiting; to create equal working conditions, opportunities to improve qualifications,
pursue professional development, retrain, gain practical work experience, as well as
provide equal benefits; to use the same job evaluation criteria and the same dismissal
criteria; to pay equal pay for equal work and work of equal value; to take measures to
ensure that the worker is not harassed, sexually harassed or instructed to discriminate
in the workplace, and that he or she is not persecuted and protected from hostile
behavior or adverse consequences if he or she files a complaint of discrimination or
participates in a discrimination case; to take appropriate measures to enable persons
with disabilities to access employment, work, careers or training, including appropriate
accommodation, provided that such measures do not impose a disproportionate burden
on the employer).
Employees' “well-being” indicates that working people perceive their work as

meaningful and rewarding in a safe, healthy, well-managed work environment with
competent management. The adequate implementation of the principle of equal
opportunities is one of the key components of this perception. It is important to note
that research of recent years (Skučienė et al., 2015; Šumskienė, Jankauskaitė, &
Levickaitė, 2014) have indicated that discrimination on the grounds of sex,
discrimination against older persons in the labor market, and the issues of equal
opportunities for employees with family responsibilities are the most common grounds
for breaches of the principle of equal opportunities. The latter two criteria are relevant
to almost every individual - in case it is a young employee – he or she most probably will
need to balance between family and work responsibilities, and when this criterion is no
longer applicable – most often that means that an employee has entered into the zone of
being “older”, as in the age classification proposed by the World Health Organization the
category of people includes persons who are 45 years of age and older (WHO, 1993);
according to International Organization for Economic Co-operation and Development
(OECD), the age limit of 50 years is the one after which participation labor market
indicators are starting to decline in many countries (OECD, 2006), also is important the
fact that due to increasing life duration and steadily declining birth rates Lithuanian
610 Strategica 2020
society is aging rapidly. According to Eurostat statistics (Eurostat, 2020), this

phenomenon is common to many European Union countries and this trend is likely to
continue for the next few decades. That is why until 2060 about one-third of the EU
citizens will be 65 years old or even older. In this research, we shall discuss more broadly
as an example the field where managemental measures have the biggest potential to be
implemented to ensure the implementation of the principle of equal opportunities –
balancing work and family responsibilities
The work-life balance felt by employees is an important condition for experiencing their
well-being. Such employees have less stress, greater motivation to work, and
workability, better physical and mental health, greater job satisfaction (Jang, 2009).
Until 2017, the idea of socially responsible management of the enterprises and
implementation of practices ensuring the possibility to balance between family and
work obligations (forming and maintaining positive attitudes towards employees
seeking to exercise their rights granted by the state and related to family
responsibilities, for example, paid incapacity to work due to the child’s illness or
additional rest days) were recognized more in a theoretical level and depended
exclusively from the benevolence of a particular employer and his/her level of
understanding of social responsibility. From 2017, Article 28 of the Labor Code of the
Republic of Lithuania explicitly provides that the employer must take measures to assist
the employee in fulfilling his or her family responsibilities. According to this norm, all
requests of employees related to the fulfillment of family obligations must be considered
by the employer and answered in a reasoned manner in writing. Besides, the employee's
behavior and actions at work must be assessed by the employer to implement the
principle of work-life balance practically and comprehensively. Thus, for example, in a
situation where a worker raising a young child is late for work, the employer should
assess the reasons for such a delay and should inspect whether the delay was due to
certain family responsibilities, such as transporting the child to school and so on.
Neither Article 28 nor other norms specify what includes the employee's family
responsibilities, therefore both parental responsibilities for children or spouse (for
example, the possibility to care for a sick child or go to his or her holiday in kindergarten,
school) and responsibilities for other close relatives (for example, the need to care for
elderly parents or to care for another cohabiting relative should be understood as the
family responsibilities of the worker. It should be noted that the Labor Code provides
for certain benefits and more flexible working conditions for employees raising children.
These benefits and guarantees for reconciling family and work responsibilities will be
briefly discussed below.
Different provisions of the Labor Code foresee certain additional benefits and more
flexible working conditions for employees raising children. Article 40 provides the
possibility for employees having children to reduce their working hours simply upon
the request of such an employee. The employer must also comply with the employee's
request to work remotely at least one-fifth of the total working time requirement, in case
such a request is presented by a pregnant employee, employees who have recently given
birth or employees who are breastfeeding, employees raising a child under three years
age and employees raising a child under fourteen as a single parent or raising a disabled
child to eighteen years alone. The principle of reconciling family responsibilities and
work is also understood in the context of the right to longer holiday periods and
additional rest days established in Article 138. For example, employees raising a child
under the age of fourteen or a disabled child under the age of eighteen are granted
twenty-five working days of annual leave (if working five days a week), in comparison
with twenty-two standard terms of the holidays for other employees. Employees raising
a disabled child under the age of 18 or two children under the age of twelve are entitled
to one additional day of rest per month and those raising three or more children under
the age of twelve are entitled to two additional days of rest per month by paying the
employee his average wage. The queuing for annual leave at the workplace is also based
on the priorities of employees with family responsibilities. Employees raising small
children are often confronted with working and family responsibilities, as they face the
difficulty of not being able to find pre-school for a child, as well as in summertime when
pre-schools or primary education institutions are not working. In such cases, managerial
decisions could be applicable, and there are quite a lot of institutions – employers (not
only in a private sector), that implement innovative managerial decisions to create
favorable and attractive working conditions for employees and could share good
practice with others.
Some of the measures require investments, and therefore big corporations are those
who can afford it. There are certain examples in Lithuania when private enterprises
established children's rooms - a space in the workplace, intended for the care and
education of employees' children during work (according to information gathered by
the authors, there are about twenty private enterprises that have implemented this
possibility). It is easier for employers to provide childcare services to retain qualified
employees, attract more potential candidates for jobs, increase the productivity of the
company, reduce the absence of employees. Interestingly, public sector institutions are
at the forefront of implementing those measures, for example, in 2018 the room for
children has been established in the Ministry of Social Security and Labor, and the
Government Office. There are 2 workplaces and a children’s play area in the room.
Children's toys, books, and other means of educating and employing children were
provided by the children's parents themselves.
However, some measures do not require financial investments, for example, settling
flexible working time. Work flexibility and flexible working time arrangements facilitate
the reconciliation of work and family life, as well as reduce stress and improve the
microclimate. Setting a flexible work schedule does not require additional investment,
but it is where the manager's principled approach to equal opportunities and creativity,
innovation, and the ability to make non-standard decisions are revealed. Another
innovative and very simply implemented managerial measure could be an appointment
of a contact person (or a permanent group, a commission) to whom employees can
safely tell about a problem related to the violation of equal opportunities at work. The
contact person, at the request of the employee, depersonalizes the situation, and raises
the issue, resolving it at the management level.
In summary, it is necessary to emphasize that the individualized approach to employees
is decisive, it is necessary to consider individual circumstances. There is no one-size-
fits-all solution - people of different ages working in different positions and different
type of work may consider different working conditions as relevant
612 Strategica 2020
Conclusions
Despite the recent qualitative changes in legal regulation and the development of the
principle of equal opportunities from a purely theoretical concept to a real norm
requiring factual implementation, real changes in labor relations are not happening as
fast. Research shows that a large proportion of employees continue to experience
discrimination in one form or another. The legislator has taken the initiative to establish
obligations in the legal regulation for the employer to take specific measures to
implement this principle. However, at the legislative level, it is not possible to describe
all management methods and tools available to employers to implement the principle of
equal opportunities properly and fully. Some of these measures (such as setting up
children’s rooms in the workplace) require some financial or other investments. Other
measures (such as flexible working hours or the introduction of clear and transparent
salary calculation standards) do not require financial investment but managerial
decisions and expertise. Therefore, it is obvious that it is not possible to ensure the
protection of the principle of equal opportunities only through legal regulation, this
requires changes in the mentality of both society and employers, as well as employers’
competencies of qualitatively another level, determined by the perception of social
responsibility.
It is considered that the research analysis of the implementation of the principle of equal
opportunities is relevant not only from a theoretical but also from a practical point of
view, as the research conducted creates preconditions for a clearer understanding of the
principle of equal opportunities, defining which phenomena fall within the scope of the
prohibition of discrimination, also the research implicates improvement of the
implementation mechanisms (legal and managemental), using the burden of proof shift
methodology, testing, questionnaire. This article should be valuable both for employees
and employers and their representatives, as well as the institutions implementing the
principle of equal opportunities (Office of the Equal Opportunities Ombudsman, State
Labor Inspectorate, courts). However, the research is limited to the scope of the
principle of equal opportunities itself, more precisely, the content of this principle. The
principle of equal opportunities includes non-discrimination on grounds such as race,
nationality, language, origin, social status, age, sexual orientation, disability, ethnicity,
such a broad content of the principle actualizes the need for more detailed and deeper
analysis and other aspects of this principle than were discussed in this article.
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616 Strategica 2020
LINKAGE BETWEEN THE MILLENNIALS’ PERCEPTION OF CSR

AND THEIR OCCUPATIONAL WELL-BEING
Živilė STANKEVIČIŪTĖ
Kaunas University of Technology
Gedimino g. 50, LT-44343 Kaunas, LT
zivile.stankeviciute@ktu.lt
Wioletta WEREDA
Military University of Technology
Sylwestra Kaliskiego 2, 01-476, Warsaw, PL
weredawioletta@tlen.pl
Abstract
Changes in the nature and context of work require a greater focus on well-being, more specifically
on occupational well-being describing it as a balance between the resources and the workload of the
employee. Although various drivers of well-being have been studied in the previous literature, only
several studies can be found that attempt to understand the impact of corporate social responsibility
(CSR) on employee well-being. Moreover, to date, there is still a lack of empirical studies dealing with
the Millennials’ perception of CSR and occupational well-being, even though they see many issues
differently from previous generations and form a growing percentage of the employee base. Trying
to close the gap, the paper covers three aspects: occupational well-being, perception of CSR, and
Millennials. The paper aims to reveal the linkage between CSR and occupational well-being
considering the Millennials’ perspective. To achieve this, the paper examines the way the Millennials
perceive the CSR activities and their occupational well-being and finally, whether the Millennials’
perception of CSR affects their occupational well-being. In doing this, quantitative data were
collected (230 responses in total). Consistent with the expectations, the survey indicated that the
Millennials’ perception of CSR plays a vital role in enhancing occupational well-being. The same holds
for all dimensions of CSR, supporting the idea that a higher perception of economic, legal, ethical,
philanthropic, and environmental CSR leads to higher occupational well-being. Generally, the
provided empirical evidence supports the idea of higher organizational engagement in CSR activities,
as it brings benefits in the form of enhanced occupational well-being of the Millennials.
Keywords
Corporate social responsibility; occupational well-being; Millennials; employee perception of CSR.
Introduction
The dominating ambition of each business is to survive in a highly competitive business

world. One of the recipes for sustainable survival highlights the necessity of
organizations to do well for their employees (Gupta & Sharma, 2016). Given such
challenges as the diversity of employee generations in the labor market, shortage of
skilled workforce, or changing nature of work as a result of COVID-19, organizations
need to take employee concerns seriously changing their focus from “what employers
want” to “what employees want” (Boselie, 2010; De Prins et al., 2014). Given the fact
that one-third of a person’s life is spent at work, well-being becomes a hot topic in
organizational and individual life (Grant, Christianson, & Price, 2007). The concepts of
well-being and occupational well-being have been studied from a multi-disciplinary
perspective and used in very diverse ways across the literature (Guest, 2017; De Voorde,
Paauwe, & Van Veldhoven, 2012). In this paper, the focus is placed on occupational well-
being describing it as a balance between the resources and the workload of the
employee (Saaranen et al., 2012). The employees’ resources provide a way to control
the demands of their work and mitigate the impact of their workload (Saaranen et al.,
2012). In other words, occupational well-being is about the maintenance of the working
ability. Given the relevance of having healthy, happy, and socially active employees, the
question of the potential drivers of occupational well-being arises.
In recent years, few studies have started considering corporate social responsibility
(CSR) in relation to organizational survival and prosperity (Wang, Yu, & Choi, 2014).
Typically, being socially responsible means that the organization prioritizes its activities
in such a way as to better meet the economic, environmental, legitimate, and social
demands of the society (Park, Lee, & Kim, 2014). By doing this, organizations not only
improve their dialogue with the stakeholders, but also gain returns from the CSR actions
(Bhattacharya, Korschun, & Sen, 2009). Based on the previous studies, the benefits of
engaging in CSR could be consumer favorable perceptions, positive attitude of current
and potential employees towards the organization, or willingness of the business
partners to do business with the organization (Lee et al., 2012). Accordingly, such
benefits refer to employee well-being. However, only several studies analyze the way
employees perceive the CSR and the impact of CSR on employees, demonstrating, for
instance, the positive relationship between CSR and employee engagement (Gupta &
Sharma, 2016; Park, Lee, & Kim, 2018), CSR and hotel employee well-being (Su &
Swanson, 2019), or CSR and organizational commitment (Turker, 2009). Moreover,
occupational well-being has received even less attention (Perko et al., 2016). Narrowing
the gap, the paper deals with the employee perception of CSR and the way CSR
influences occupational well-being. More specifically, the paper focuses on Millennials
as they see many issues differently from previous generations, and to date, empirical
studies dealing with the Millennials’ perception of CSR and their occupational well-being
are scarce (Alonso‐Almeida & Llach, 2019).
The paper aims to reveal the linkage between CSR and occupational well-being
considering the Millennials’ perspective. To achieve this, the paper examines the way
the Millennials perceive CSR activities and their occupational well-being and finally,
whether the Millennials’ perception of CSR affects their occupational well-being.
The paper contributes to the literature in several ways. First, the paper enriches the
literature on occupational well-being by analyzing its four aspects, namely: working
community, worker and work, working conditions, and professional competence.
Second, as the paper analyses CSR, the literature on corporate responsibility is extended.
Third, the paper contributes to the literature of generations by investigating the
perception of members of the generation, which accounts for a growing percentage of
the employee base. The main practical implication of this paper relies on the notion that
practitioners will benefit from considering the Millennials’ perception of CSR activities
as a source for improving their occupational well-being.
The remainder of this article proceeds as follows: at the beginning, a literature review
and proposed hypotheses are presented; further, the methodology is explained; then,
the paper presents the empirical results, followed by the discussion and conclusions
with some important implications.
618 Strategica 2020
Corporate social responsibility
Extended literature on CSR confirms that it is still challenging to find a universally

accepted definition of CSR. Lee et al. (2012) argue that CSR is a term grounded on the
perspective that organizations “should make direct or indirect contributions to the
society by performing socially responsible behaviors and/or engaging in actions that
advance some social good or welfare” (p. 746). The European Commission (2011) treats
CSR as “the responsibility of enterprises for their impacts on society. To fully meet CSR,
“enterprises should have in place a process to integrate social, environmental, ethical,
human rights and consumer concerns into their business operations and core strategy
in close collaboration with their stakeholders” (EU, 2011, p.6). Generally speaking, CSR
refers to the relationship between business and society, which denotes activities of the
organizations intended to balance financial performance, impacts on the environment
and society (Park & Levy, 2014). Being socially responsible requires conducting more
than organizations are obligated legally (Wang et al., 2014). Concluding, CSR can be
broadly defined as “the activities making companies good citizens who contribute to
society’s welfare beyond their own self-interests” (Kang, Lee, & Huh, 2010).
The perfect illustrations of CSR activities imply product safety, eco-friendly design,
decent work practices, or community development (Yu & Choi, 2014). As seen from
these examples, CSR activities are characterized by their variety. Responding to this, the
literature acknowledges the multi-dimensionality of the construct, often categorizing
CSR by stakeholder types (employees, customers, community, etc.) or by aspects of
responsibility (economic, legal, etc.) (Park & Levy, 2014). This paper analyses the
perception of CSR of one of the most salient stakeholder groups, namely employees. In
doing this, this paper employs CSR practices with the following five responsibilities
attributes: environmental, philanthropic, ethical, legal, and environmental.
Following Carroll (1979), CSR typically incorporates four dimensions: economic, legal,
ethical, and philanthropic. More recently, an environmental dimension was added (Lee
et al., 2013), and this paper captures all five. Thus, the economic dimension of CSR
addresses the organization’s economic responsibilities to its stakeholders (Kim et al.,
2018). Initially, economic responsibility was perceived as “responsibility to produce
goods and services, that society wants and to sell them at a profit” (Carroll, 1979, p.500).
A more sophisticated understanding of economic responsibility encompasses operation
efficiency or business competitiveness (Lee et al., 2012). Based on the "social contract"
between business and society, organizations are expected to pursue their economic
missions within the framework of the law (Carrol, 1991). Thus, the legal dimension is
related to the organization’s obligation to abide by regulations and rules (Kim et al.,
2018; Lee et al., 2012). As stated by Carroll (1991), “legal responsibilities reflect a view
of “codified ethics" in the sense that they embody basic notions of fair operations as
established by our lawmakers” (p.41). The next aspect, namely ethical, is concerned with
the organization’s responsibility to be fair in making the decisions and conducting
performance (Kim et al., 2018; Lee et al., 2012). Ethical responsibilities imply the
standards, norms, or expectations that reflect a concern for what employees, consumers,
or other stakeholders regard as fair (Carroll, 1991). Philanthropy addresses the actions
that are in response to society's expectation that organizations should be good
corporate citizens (Carroll, 1991). The philanthropic dimension refers to the
organization’s responsibility to engage in activities that promote human welfare or
goodwill (Kim et al., 2018; Lee et al., 2012). Finally, the last dimension of CSR tackles
environmental concerns by maintaining and preserving the environment (Lee et al.,

2013).
As CSR requires dealing with the interests of numerous stakeholders, it is not surprising
that incongruity between the actual organization engagement in CSR activities and the
way these activities are perceived by different stakeholders might occur. This paper
analyses employees, namely Millennials’, perceptions of CSR. The paper defines
employee perception as “the degree to which employees perceive an organization
supports the activities related to a social cause” (Lee et al., 2013, p.1717).
Millennials’ perception of CSR
According to Kupperschmidt (2000), a generation of employees consists of individuals

born approximately within the same time span of two decades each. It has been
acknowledged that generational cohorts develop similarities in their beliefs and
attitudes based on shared life experiences (Meriac, Woehr, & Banister, 2010).
Employees from different generations are believed to have different values and react
differently to common life events (Kupperschmidt, 2000). As the Millennial generation
(born in 1981-2000) forms a growing percentage of the employee base (Stewart et al.,
2017), their preferences and attitudes become highly relevant. Consistent with this, the
paper focuses on the Millennials’ perception of CSR and further, on the linkage between
CSR and occupational well-being.
The values of the Millennials include civic-mindedness, collectivism, and positivity

(Dries, Pepermans, & De Kerpel, 2008). Millennials prefer work-life balance and
teamwork, and value diversity (Angeline, 2011). Meaningful work, work autonomy,
transformational leadership, workplace friendship, and work-life balance significantly
predict Millennials’ happiness in the workplace (Yap & Badri, 2020). They are motivated
by recognition and public acknowledgment; they need not only a balance between
personal and professional life but also a comfortable environment; they require a
flexible work schedule and are willing to become part of various social networks
(Pînzaru et al., 2016). Summing up, Millennials is often credited with transforming the
business environment from being customer-focused to more employee-focused
(Mahmoud et al., 2020).
In line with the mentioned values and approaches, it seems from the previous studies
that Millennials display a heightened sensitivity toward ethical and CSR issues
(Klimkiewicz & Oltra, 2017; Cone Communications, 2006; Michailides & Lipsett, 2013).
The survey of 4,000 Millennials from 44 countries by PwC (2011) demonstrated that
they consciously seek employers whose corporate responsibility behaviors reflect their
values and consider an employer’s policy on climate change and environment
important. According to Deloitte (2014), Millennials are rapidly assuming positions of
greater responsibility. Waples and Brachle (2020) revealed that Millennials treated a
fictitious organization to be more attractive when CSR activity was explicitly included in
the company's recruiting materials than when it was not. The study of Cone
Communication (2006b) demonstrated that Millennials not only feel personally
responsible for making a difference in the world, but a majority of them also believe that
companies have a responsibility to join them in this effort. Summing up, it can be
assumed that “Millennials are interested in working in responsible companies because
620 Strategica 2020
they provide the opportunity to achieve individual goals, help others and contribute to
developing a better world“ (Alonso‐Almeida & Llach, 2018).
Occupational well-being
In general, well-being at work is a key priority for the EU. The paper focuses on
occupational well-being describing it as a balance between the resources and the
workload of the employee (Saaranen et al., 2012). Job resources are defined as “those
physical, social, or organizational aspects of the job that may do any of the following: (a)
be functional in achieving work goals; (b) reduce job demands and the associated
physiological and psychological costs; (c) stimulate personal growth and development”
(Demerouti et al., 2001, p.501). Referring to occupational well-being, resources are
factors that decrease the number of situations increasing workload and reduce the
experience of workload by producing more efficient methods of control (Saaranen et al.,
2007). Usually, the resources may originate from the organization in which the
employees work or the individuals themselves (Saaranen et al., 2007; Schaufeli & Taris,
2014; Schaufeli, 2017). The employee has the main responsibility for maintaining and
developing their resources; however, the businesses have an extremely important role
in supporting their occupational well-being (Saaranen et al., 2007; Schaufeli, 2017).
Based on the earlier literature, in the current research, occupational well-being covers
four aspects: working community, worker and work, working conditions, and
professional competence (Saaranen et al., 2012).
Working community refers to the psychosocial factors, such as social support or good
work management and organization (Saaranen et al. 2012). Supportive organizational
practices help to shape employee attitudes such as job satisfaction, organizational
commitment, or turnover intention (Tuzun, Çetin, & Basım, 2017). In turn, the attitudes
may determine behavior, in terms of doing more than is required in a formal job
description (organizational citizenship behavior). Finally, when employees perceive
their organization and supervisor as supportive, they feel obligated to deliver better
performance and achieve specified targets. Conversely, when employees perceive their
organization as unsupportive, they may develop negative attitudes and demonstrate
negative behavior toward the organization (Tuzun et al., 2017). The perfect illustrations
of support imply having good fellow workers, a good working atmosphere and active co-
operation between the co-workers, information dissemination between employees
through common meetings, and possibilities for development in terms of mentoring
programs (Saaranen et al. 2006a).
The aspect of work and worker covers the employee’s mental and physical health as well
as the factors related to the resources and the workload that influence the employees’
occupational well-being. A large proportion of the working population is confronted
with high levels of workload; for example, in Europe, 36% of workers report working to
tight deadlines, while 33% report working at high speed (Eurofound, 2015). Such high
levels of workload are a key driver of employee ill-health and absenteeism (de Reuver,
Van de Voorde, & Kilroy, 2019).
The third aspect, professional competence, refers to the availability of adequate

professional skills and the ability to maintain and improve these skills (Saaranen et al.,
2006a). Finally, the fourth aspect, namely working conditions, encompasses the physical
working environment and conditions such as sound insulation and appropriate size of
the working space, as well as issues related to occupational safety, such as ergonomically
good working postures and equipment (Saaranen et al., 2006b).
Summing up, occupational well-being is about maintaining the ability to work while
dealing with four aspects, namely working conditions, working community, worker and
work, and professional competence.
The link between the Millennials’ perception of CSR and occupational well-being
Referring to the impact of employee perception of CSR on their well-being, the studies
generally focus either on separate dimensions of well-being or on well-being in general.
Thus, previous literature provides evidence that employee perception of CSR drives
individual dimensions of well-being, such as organizational commitment (Bramer et al.,
2007, Hofman & Newman, 2014), organizational citizenship behaviors (Cheema, Afsar,
& Javed, 2020), helping behavior (Supanti, & Butcher, 2019) or job satisfaction
(Valentine & Fleischman, 2008). Drawing upon the idea that employee well-being
encompasses both physical and mental aspects, Su and Swanson (2019) found that CSR
positively affects hotel employee well-being. The same evidence demonstrating that the
perceived CSR practices have significant direct effects on employee well-being was
provided in a study by Wang et al. (2019).
Turning to the Millennials, they play an important role in CSR as they are very likely to
significantly influence the society toward a more stakeholder-centered approach
(Reavis, Tucci, & Pierre, 2017). From the perspective of the current paper, the
Millennials must be demanding changes in the workplace that focus more on their needs
instead of their employer’s needs (Reavis et al., 2017). As they are activists, they seek to
influence economic, environmental, legal, philanthropic, and ethical aspects (Howe &
Strauss, 2000). In such a case, the Millennials’ perception of CSR may likely serve as a
driver for their well-being.
Referring to theoretical insights and previous empirical findings, the paper hypothesizes
as follows:
H1. The Millennials ‘perception of CSR will have a positive effect on their occupational
well-being.
H1a. The Millennials’ perception of economic CSR will have a positive effect on their
occupational well-being.
H1b. The Millennials’ perception of legal CSR will have a positive effect on their
H1c. The Millennials’ perception of ethical CSR has a positive effect on their occupational
well-being.
H1d. The Millennials’ perception of philanthropic CSR has a positive effect on their
H1e. The Millennials’ perception of environmental CSR will have a positive effect on their
622 Strategica 2020
Methodology
Sample and data collection. Keeping in mind the objective of the research, data were
collected by using a convenience sampling type from working-age employees in
Lithuania. Convenience sampling is a type of non-probability sampling where members
of the target population that meet certain practical criteria, such as easy accessibility,
availability at a given time, geographical proximity, or the willingness to participate are
included for the study (Etikan et al., 2016).
The questionnaires were distributed via LinkedIn, Facebook, and other social networks.
Due to the way of disseminating the questionnaire, it is impossible to estimate the
number of persons the questionnaires were sent to and the response rate. While
distributing the questionnaires, the information about the purpose of the survey and a
link to a survey were sent. Data collection took about 2 weeks. At the end of the research,
230 questionnaires from the Millennials were collected. The profile of respondents is
presented in Table 1.
Table 1. Respondents’ profile

Characteristics Frequency (n) Percentage (%)
Gender
Female Main154
body 67.0
Male 76 33.0
Education
University degree 162 70.4
College degree 44 19.2
Vocational education 10 4,4
Secondary school 14 6.0
Total working experience
Up to 5 years 61 26.5
5-10 years 85 37.0
11-20 years 78 33.9
More than 20 years 6 2.6
Measures. The paper integrates well-established scales. The paper treats the concept of
the Millennials’ perception of CSR as a second-order construct composed of economic,
legal, ethical, philanthropic, and environmental dimensions. The scale of Lee et al.
(2012) was used to measure the economic, legal, ethical, and philanthropic dimensions.
To measure the environmental dimension, the scale of Lee et al. (2013) was used. The
Millennials’ occupational well-being was assessed using the scale of Saaranen et al.
(2007). The respondents were requested to indicate their agreement with each
statement on a 5-point Likert scale, where 1 means strongly disagree, 5 – strongly agree.
All measures were subjected to reliability analysis. Reliability was assessed using
Cronbach’s alpha coefficient. Cronbach’s alpha of economic CSR was 0.832, of legal CSR
– 0.857, of ethical CSR – 0.882, of philanthropic CSR – 0.898, and environmental CSR –
0.851. The general construct of the Millennials’ perception of CSR had a Cronbach’s alpha
of 0.950. Accordingly, the Millennials’ occupational well-being had a Cronbach’s alpha of
0.905. As all of Cronbach’s alpha coefficients exceeded 0.7, all measures were considered
acceptable for the analysis (Nunnally, 1978).
Results
As already identified, this paper aimed to reveal the linkage between the Millennials’
perception of CSR and their occupation well-being. To achieve this, the paper examines
the way the Millennials perceive the CSR activities and their occupational well-being and
whether the Millennials’ perception of CSR has an effect on their occupational well-
being.
The means, standard deviations for the scales, and correlation matrix are provided in
Table 2.
As expected, the Millennials’ perception of CSR and all its dimensions was related to
occupational well-being. To test the study hypotheses, multiple regression analyses
were conducted (Table 3). The results are discussed below.
Overall, H1 and H1a-H1e propose a positive effect of the Millennials’ perception of CSR
on their occupational well-being. Columns 2-7 of Table 3 show the results of the
regression analysis. The results indicated that the Millennials’ perception of economic
CSR (0.588., p<0.001); legal CSR (0.657, p<0.001), ethical CSR (0.682, p<0.001);
philanthropic CSR (0.531, p<0.001) and environmental CSR (0.376, p<0.01) were
predictors of the Millennials’ well-being. In general, the Millennials’ perception of CSR
had a positive impact on their occupational well-being (0.702, p<0.001). Thus, these
results provide support for H1, H1a, H1b, H1c, H1d, and H1e.
Table 2. Means, standard deviations, and correlations
Variable Mean SD 1 2 3 4 5 6 7 8 9 10
1. Gender 1.6696 .47140

2. Education 1.68 1.398 -.054
3. Total working period 2.13 .834 -.316** -.112
4. Economic CSR 3.9373 .68340 .026 -.121 .011
5. Legal CSR 4.1708 .67259 -.183** -.030 .085 .643**
6. Ethical CSR 3.9106 .75190 -.038 .002 -.015 .697** .740**
7. Philanthropic CSR 3.9234 .74152 .054 -.003 -.001 .624** .588** .662**
8. Environmental CSR 3.1884 1.05467 -.070 -.151* .044 .447** .444** .463** .475**
9. CSR 3.9088 .61580 -.043 -.061 .026 .842** .841** .887** .846** .642**
10. Occupational well-being 3.9066 .56457 -.052 -.118 .086 .588** .657** .682** .531** .376** .702**
**p<0.01. *p<0.05
Table 3. Results of the multiple regression analysis

1 2 3 4 5 6 7
Dependent variables
Independent variables OcW OcW OcW OcW OcW OcW
H1a H1b H1c H1d H1e H1
Economic CSR .588***
Legal CSR .657***
Ethical CSR .682***
Philanthropic CSR .531***
Environmental CSR .376***
CSR .702***
R2 .346 .431 .465 .282 .141 .493

Total F 120.631*** 173.019*** 197.884*** 89.689*** 37.432*** 221.595***
Adjusted R2 .343 .429 .462 .279 .137 .491
OcW – Occupational well-being
*** p<0.001, **p<0.01, *p<0.05
The paper aimed at presenting the linkage between the Millennials’ perceptions of CSR,
including its five dimensions, namely economic, legal, ethical, philanthropic, and
environmental, and the Millennials’ occupational well-being. The provided hypotheses
fitted in with the emerging literature on the Millennials’ attitude towards CSR. Generally,
the results supported all the hypotheses raised, strengthening the basic premise that the
Millennials take CSR seriously and that perception of CSR is one of the antecedents of
their occupational well-being.
The way the Millennials perceive CSR and the CSR dimensions that, according to the
Millennials, are expressed most by organizations, are among the important questions of
the discussion. The relevance of these questions is related to startling statistics
announced by the Deloitte Millennial Survey (2018): 75 percent of the Millennials
surveyed believe that businesses focus on their agenda rather than society at large, and
62 percent of them think that businesses have no ambition beyond wanting to make
money. Thus, the opinion of the Millennials about business engagement in CSR and its
dimensions is extremely negative. Turning to the research presented in the paper, the
findings demonstrated that the Millennials perceive legal CSR as most expressed by a
business (mean – 4.1708), implying that products and services meet the legal standards
and managers comply with the law. Accordingly, Millennials think that from all
dimensions, business is least engaged in environmental CSR (mean- 3.1884). This
implies that the Millennials still think that there is a space for businesses to improve
their products towards more environmentally friendly, as well as to put more effort into
preserving the environment. Given the Millennials’ care and love for nature (Pinzaru et
al., 2016), organizations should deal effectively with environmental issues and devise
strategies to manage the environment effectively (Cheema, Afsar, & Javed, 2020).
Generally, the research findings revealed that the Millennials rate organizational
commitment to CSR as quite high (mean – 3.90). This in turn might be beneficial for
organizations addressing the labor shortage issue, as the Millennial generation is more
likely to make employment choices based on the CSR practice of an organization (Zaman
& Nadeem, 2019), they have a strong desire to contribute to creating a sustainable
environment (Madhoud et al., 2020). Jahn and Knopf (2019) found that the Millennials
did not want to be associated with "bad" companies; moreover, they considered that
CSR was important to strengthen their "own" brand and reputation. Millennials are, in
fact, more prosocial than other generations (Choi, Lee, & Hur, 2020). They are more
informed, mobile, and sensitive to wider global social issues and less loyal to
organizations that are less engaged in CSR (Ahmad, 2019). Hereby, higher Millennials’
perception of CSR should be a target for organizations willing to benefit.
Another important discussion question is whether the Millennials’ perception of CSR

leads to better occupational well-being. The core message in the previous literature
provides support and encourages organizations to act in a socially responsible manner
as their operations and functioning directly affect the natural environment, society, and
employees (Cheema et al., 2020). Comparing to other generations, Millennials are more
informed and sensitive to wider global social issues and less loyal to firms, which are
less engaged and lacking in CSR policies (Ahmad, 2019). As it was mentioned before,
Millennials are those who appreciate good working conditions, work-life balance,
development opportunities, and other aspects of occupational well-being. Turning to
this research, H1, which proposes the impact of the Millennials’ perception of CSR on
626 Strategica 2020
their occupational well-being, was supported (0.702, p<0.001). Thus, when the
Millennials perceive CSR more positively, their occupational well-being increases. It
implies that a higher degree of CSR perception increases the Millennials’ working ability.
When they perceive that organizations are trying to make the world a better place
(Klimkiewicz & Oltra, 2017), they evaluate working conditions, health, working
community, and development opportunities more positively. This finding is in line with
several studies published recently. For instance, Su and Swanson (2019) revealed that
CSR positively affects the well-being of the hotel employees, while Wang et al. (2019)
supported the proposition that the perceived CSR practices have significant direct
effects on employee well-being.
Turning to the dimensional nature of CSR, the H1a-H1e were supported, revealing that
economic, legal, ethical, philanthropic, and environmental dimensions have a positive
impact on the Millennials’ occupational well-being. In other words, organizations that
are perceived as economically responsible, meeting legal standards, behaving ethically,
being philanthropic, or environmentally friendly are likely to increase the Millennials’
The paper has certain limitations that suggest directions for future research. It might be
impossible to generalize the outcomes of the research to other geographic contexts. A
study including the Millennials from different countries might yield the results that
could be transferable outwards. Another limitation refers to the fact that only
Millennials were included in the research. For better understanding if and how the
perception of CSR predicts the occupational well-being, a comparable study including
all generations of employees would be useful.
The main practical implication of the paper is about the engagement of organizations in
CSR activities. No doubt, Millennials prefer socially responsible organizations as
promising employers (Waples & Brachle, 2020). Businesses should take the
responsibility for making the world a better place to live and move towards more
socially responsible initiatives. In turn, such initiatives may not only increase the
occupational well-being of current employees (Millennials) but also attract new talents,
increase employee morale and retention (Mahmoud et al., 2020) and finally enhance the
corporate performance, as was found by Lee et al. (2013). This conclusion has recently
found empirical support by Waples and Brachle (2020), as their study showed that
participants receiving information about the organization's CSR activity found the
organization to be more attractive.
In conclusion, this paper challenges the researchers and managers to move towards
more sophisticated assessments as to how and why the Millennials’ perception of CSR
and their occupational well-being are related, seeing that proper understanding of
relationships enables the organizations to move towards corporate sustainability.
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GEOGRAPHICAL MOBILITY BARRIERS IDENTIFICATION FOR

PERSONS TO BECOME ACTIVE
Adriana GRIGORESCU
30A Expoziției Blvd., District 1, 010324, Bucharest, RO
54 Spl. Independentei, 50085, Bucharest, RO
Cristina LINCARU
National Scientific Research Institute for Labor and Social Protection - INCSMPS
6-8 Povernei St., 010643 Bucharest, RO
cristina.lincaru@yahoo.de
Cristina STROE
cristinaradu@incsmps.ro
Speranța PÎRCIOG
pirciog@incsmps.ro
Abstract
The purpose of this paper is to provide solutions to accelerate sustainable development in a balanced
manner across the territory and to reduce poverty. Periphery Locations far from the Centre and their
people could be integrated through labor market place-based policies focused to increase
geographical access to jobs. During 2016-2019 the number of employees that beneficiated from
geographical mobility activation measures increased almost 2.5 times. Even if there is progress, there
is still enough to do to fully exploit the geographical mobility advantages, due to the most vulnerable
categories as Guaranteed Minimum Income (GMI) beneficiaries from rural marginalized
communities, clusters with the highest density, etc. The research question is ”What are the
geographical mobility barriers for persons to become active”, using dynamic traffic maps and the big
data facilities provided by ESRI- GIS Exploratory Spatial Data Analysis (ESDA) instruments. We
visually identify the geographical mobility barriers for persons to be activated using the Map
overlay technique for normal layers and big data layers. The normal layers cover the target
group area and road transport infrastructure development. The big data layer provided by the
World Traffic Service presents the traffic monitoring history from the last 3 years at Romania’s
European network roads level. The main results indicate that the marginalized communities
structured as clusters could be comparable by vulnerability but differentiated by geographical
mobility factors. It is the moment to fully exploit the advantages of GIS and Big data instruments and
develop also network smart solutions. The labor market policy-based interventions, harmonized with
network smart solutions could reduce inequalities and the proportion of disadvantaged both inside
Romania and among the countries.
Keywords
Vulnerable persons; vulnerable communities; activation measures; spatial mobility; GIS; Big data.
632 Strategica 2020
Introduction
Geographical mobility barriers identification for persons to be activated has practical

relevance for public policies focused on ending poverty and deprivation. Any person of
working age, with work capacity and willingness to work when gain a decent income
from work is integrated into the labor market. If the income is decent, in the sense that
it is enough to support a decent life for the adult and its dependents, then the family gets
out of the social assistance benefits support. To get and preserve a job, the person
searches, finds and accesses a job, actively.
The topic of ending poverty and deprivation is assumed by the 2030 Agenda for
Sustainable Development, adopted by all United Nations Member States in 2015 (SDKP,
2015). The 10th SDG focuses to reduce inequalities, one of the 17 Sustainable
Development Goals (SDG). It targets to progressively reduce inequalities and the
proportion of disadvantaged groups both inside the countries and among the countries.
Romania, as a UNO and EU State Member, assumes the National Sustainable
Development Strategy 2030 (SNDDR 2030, 2018),
Our target groups of interest are the most vulnerable persons in rural areas, Minimum
Guarantee Revenue (GMI) beneficiaries. These persons need support to transit into
employment through labor market policies. Rural areas offer jobs in agriculture,
forestry, fishery, etc. that demand geographical mobility. The labor allocation in rural
areas for activate persons (searching for a job) is non-functional. Romania’s rural tend
to accumulate unemployed and long-term unemployed. The rural share of unemployed
of 52% in 2019, increasing by 5 pp since 2016 and a share of 55.3% of long-term
unemployment in 2019 compared to 2016. (TEMP INS: AMG130L - AMIGO)
Recent literature (Duranton & Venables, 2018) points out that place-based policies
deliver more diverse benefits than direct and indirect effects. One important benefit is
the proximity, which decreases the transport costs, increasing returns to scale
(agglomeration economies). Transport improvement direct effect saves time and
operating costs. Its indirect effect increases private investment, job creation, and
productivity.
The research of urban and rural gap is signaled under the 10th SDG. People at risk of
poverty or social exclusion (sdg_01_10a, Eurostat) are mostly concentrated in rural
areas. In 2019 their share is for Romania 44.3% and 23.5% in the EU. This gap is still
huge, even the trend is to decrease with 7.4pp since 2016 for Romania and with 2 pp for
EU. Signs of progress in rural are very slow, compared to urban and even towns and
suburbs. The presence of very high gap urban-rural levels indicates the presence of
inequalities due to income, sex, age, disability, race, class, ethnicity, religion, and
opportunity. These urban-rural inequalities demand public policy solutions
differentiated by place.
The purpose of this paper is to end poverty and other deprivation across the territory
through the increasing spatial allocation of the vulnerable labor, Space mobility improve
the labor allocation in Centre Periphery spatial economic structures, on the trends of the
labor deficit and aging population. Our research question is “What are the geographical
mobility barriers for persons to become active”, especially for the very most vulnerable,
The originality and the scientific contribution of the paper are the GIS big data
instruments using in the poverty alleviation topic. ESRI- GIS Exploratory Spatial Data
Analysis (ESDA) of the dynamic traffic maps provide new useful insight for mobility
measures update.
The structure of the paper comprises an introduction, theory and public policy aspects
regarding the geographical mobility of vulnerable labor force, the research design and
methodology, followed by results and discussions, and finalized with conclusions
regarding barriers and solutions in increased access to the labor market.
Space mobility in the theory of Agglomeration Economy and New Economic

Geography literature
Marshall, (1920 p. 268) explained the economic principles of agglomerations, and since
1890 launches the concept of positive externalities. Fischer and Nijkamp (1987) note
that “labor markets are segmented by firm, industry, job type, worker type, occupation,
and spatial location. In other words, the macro process of labor market segmentation is
associated with a spatial segmentation process.”
The Dixit-Stiglitz (1977) model, based on the principle that “a commodity should be
produced if the costs can be covered by the sum of revenues and a properly defined
measure of consumer's surplus”. Starting in 1985 the NEG theory emerges, which
integrates geography with new trade and new growth. Fujita, Krugman, and Venables
(1999) present a spatial version of the Dixit Stiglitz Model (FKVM). The spatial
heterogeneity of resources induces inherent differences among locations, as a result of
cumulative processes: urban and rural, industrial belts, etc. In FKVM model acts three
localization forces: two of agglomeration forces and one of dispersion. Costs and
demand act as agglomeration forces and local competition acts as dispersion forces.
Kancs (2014) synthesize the increasing returns to scale and localized externalities as
Agglomeration Forces with the market access and the price index effect. On the other side,
the trade costs and imperfect competition (monopolistic or oligopolistic competition)
are the main Dispersion Forces with market crowding effects.
Core-periphery is a tool to model labor mobility and migration. The dynamics of

agglomerations are developed by Perroux (1955) which presents the case of growth
poles, Myrdal launch in 1957 the cumulative causation through the dispersion or
concentration-effect (Myrdal, 1957). The Core locates abundant capital while the
periphery locates abundant labor in a static image. The difference across space in both
dimensions generates labor flows and capital flows in contrary directions. Abundant
labor or capital demand for adequate capital-labor. This new equilibrium is created
through migration/mobility/brain drain of labor towards the core, for higher wages and
incomes.
Virtuous or vicious cycles of development, are present at the same time, but in different
locations. Success locations (OECD, 2006) attract labor, resources, and capital while
634 Strategica 2020
donor locations lose their labor, resources and do not attract capital, lose their
population, and remains only the aged and children.
Space mobility in public policies and place-based labor market interventions
The labor market policies develop a specific intervention, place-based approaches, in

view to support the employment transitions for the most vulnerable persons, i.e. long-
term unemployed and inactive persons. The target group is eligible for geographical
mobility measures if its location or the employer location is a location affected by vicious
development cycles.
The most vulnerable persons’ short profile
The European Union (2018), when delineates the intervention for activation, defines the
most vulnerable. The most vulnerable are: the prime-aged women with low education,
Roma, and young people, mainly from rural areas. Conventionally each of these groups
is classified as target groups and beneficiate by adequate activation policy design.
The spectrum of the most vulnerable is large and each demands a specialized approach.
One particular case is the social aid beneficiaries, a means-tested benefit applied by the
Law 416/2001 for a person or a family called Minimum Guarantee Revenue (GMI). The
activation reform is visible. The GMI beneficiaries decreased by one third from 247
thousand in June 2016 at 169 thousand in June 2019 (MMPS, 2019)
The standard activation measures are not enough, especially when these populations
are agglomerated in marginalized locations with no or less economic opportunities.
Therefore, the minimum income beneficiaries from marginalized locations, rural ones,
are the very most vulnerable ones!
Locations with vicious development cycles
The National Mobility Plan (NMP) is active since 19 December 2016 and amended by GD
903/2016 [HG nr. 903/2016 pentru aprobarea Planului național de mobilitate] on 19th
September 2017 till present (HG 903, 2016). The NMP, based on a World Bank Project,
contains two lists, result of multi-criteria spatial analysis:
The LIST of (798 localities) rural-administrative territorial-administrative units with a

degree of marginalization above average and degree of severe marginalization, of “low”
administrative-territorial units according to the values of the local human development
index and of the administrative-territorial units in which the share of registered
unemployed or beneficiaries of minimum guaranteed income and family support
allowance in the population by residence, aged 18-62, is over 10%, except for the
administrative-territorial units in the counties of Iasi and Vaslui (HG 903, 2016).
The LIST of the administrative-territorial units in the Jiu and Roşia Montană Valley Pilot
Areas, as well as the administrative-territorial units from Iaşi and Vaslui counties with
a degree of marginalization above average and a degree of severe marginalization with
a low degree of development according to the values of the local human development
index and those in which the share of registered unemployed persons or beneficiaries
of minimum guaranteed income and household support allowance in the 18-62-year-
old population is over 10% provided in the Memorandum approved by the Romanian
Government, with the theme: Development of Integrated Programs from European

Funds and the National Budget for Improving the Social and Economic Situation of the
Residents in the Jiu Valley Intervention Pilot Areas, the Roşia Montană - Apuseni
Mountains and Marginalized Communities in Moldova. (HG 903, 2016)
Lincaru et al. (2020) concluded that in Romania, the minimum income beneficiaries
from rural areas are agglomerated in locations with vicious development cycles. Authors
use the Exploratory Spatial Data Analysis (ESDA) (Anselin, 2005) and map of the
minimum income benefit beneficiary’s spatial density distribution at the locality level
(LAU former NUTS 5). These areas are called in this paper in view to identify barriers
for the most vulnerable from the marginalized locations in supporting the geographical
mobility access to a job.
Space mobility place-based labor market specific measures for most vulnerable
persons from rural areas interventions in Romania
Active labor market policies (ALMPs) following 2015 improved significantly in scope
and design “an appropriate mix”. Since 2019 the legislative framework reform towards
accessing EU-financed ALMPs has become functional. LTUs and inactive that could
become active, are beneficiaries of active measures that encourage job search. These
geographical measures are provided as allowances for jobseekers (activation as a new
measure, reallocation), the mobility schemes (installation and integration). A specific
mobility allowance is an activation allowance for the LTUs and inactive.
The mobility allowances (Hiring or Installation) suffer legislative improvement in the

L76/2002, fact that mark the Reform of Place-Based Policy applying including digital
solutions adopting. Linking the people with space and increasing significantly the
mobility allowance through OUG 60/2015 is made also in the employment policy the
Reform of spatially integrating administrative, social and economic dimensions, setting
the sound foundations for future holistic approaches. National Mobility Plan (NMP) links
the people and their present and future locations by common characteristics in spatial
patterns distributions. On this background, these active measures present the objective
to increase the geographical mobility, to improve the spatial allocation of the labor force
across areas with problems in a smart manner. This Plan is approved and updated by
Government Decision, at the proposal of the MMJS regularly. Both Mobility allowances,
the Hiring and Installation allowance quantum was raised by OUG 60/2016 by 2.5 times
and were applied Starting 3 December 2016.
a) Hiring Allowance ([prima de incadrare) Art.74. (1) L76/2002 modified by OUG

60/2016, let the unemployed taking up employment at more than 15 km away from the
locality of residence to beneficiate of a Hiring allowance, untaxable. The quantum of
allowance is calculated 0.5lei/day but not higher than 55lei/day for transport expenses,
relative to the working days of commuting, for a maximum of 12 months’ duration. The
employing unit or the applicant must be domiciled in a locality according to the national
mobility plan;
b) Installation Allowance (prima de instalare) Art.75. (1)/L76/2002 modified by OUG

60/2017, let the unemployed taking up employment in other location, by changing their
residence > 50km to beneficiate of an Installation allowance, untaxable. The quantum of
636 Strategica 2020
Installation allowance is differentiating by the appurtenance of the person to a specific

target group. This quantum is, 12500 lei if a person is registered unemployed; 15500 lei
if the registered unemployed is accompanied by family members according to the law,
including the case of monoparental families, their children in this case; 3500 for the
second registered member of the couple in the case when both husbands meet the
condition for granting this allowance. If the employer assures housing service or refunds
housing expenses, then the allowance decreases by 9000 lei for each of the first two
cases. The Installation allowance is granted in two tranches. One trance equal to 50% at
the installation date and a tranche equal to 50% of the amount set after the expiry of the
12 months after employment, in the case of a primary registered unemployed family
member. The employing unit or the applicant must be domiciled in a locality according
to the national mobility plan
c) Relocation allowance (Prima de Relocare - Prima chirie) since 25 January 2017, as a

consequence of OUG 6/2017. Covers 75% from the housing expenses in the new
domicile or new residence, but under the 900 lei floor, for persons with net monthly
incomes below 5000lei/month, for a maximum 36 months’ duration. The Relocation
allowance is granted at the request and it is not additive with Activation, Hiring, or
Installation Allowance.
During 2016-2019 the increased almost 2.5 times the number of employed that
beneficiated of geographical mobility activation measures, from 1 .1 thousand employed
persons to 2.5 thousand employed persons, while the total number of employed persons
through the Employment Program decreased from 288.6 thousand to 275.8 thousand.
(See Table 1) Also, the rural persons, employed in a higher share. In 2109 were 46.9%,
higher than in 2016 with 3.7pp. In short, even there is progresses, there is enough
potential to fully exploit the geographical mobility advantages.
Table 1. Number of persons employed as a result of the implementation of the Program for
Employment through the stimulation of the labor force mobility on December 31, in 2016 and
2019 (MMPS, 2017, 2018, 2020)
PNAO Active measure type, executed 2016 2017 2019
TOTAL employed persons, out of which: 288589 300474 275830
The share of employed persons from rural areas 43.2% 45.2% 46.9%
Through the stimulation of the labor force mobility 1106 1879 2528
Unemployed taking up employment at more than 15
km away from the locality of residence (prima de 411 1200 1418
încadrare)
Unemployed taking up employment in other location
by changing their residence > 50km (prima de 695 258 251
instalare)
Relocation allowance / prima de relocare 421 859
From which: Persons employed from rural areas through
5788 6683 7410
the Program 155 (153 in 2017) special for rural localities
Persons employed from rural localities through
8 41 38
geographical mobility of the labor force
Note: Administrative data. The reference year is 2016 because it is the year of the activation reform
with implementation of the space mobility place-based labor market interventions
The research design and methodology
Exploratory Spatial Data Analysis
Exploratory Spatial Data Analysis (Anselin, 1995, 2002, 2005) is a family of new
visualization techniques that exploit the “spatial” aspects of data. The geographic
information systems (GIS) increased the capabilities for visualization, rapid data
retrieval, and manipulation of social data in spatial distribution, showing and finding
interesting patterns. GIS power of visualization empowered with Big Data since 2011.
Deogawanka (2014) points that “Big Data analysis pulled disparate Spatio-temporal
data in real-time, aggregate terabytes and more of spatial information, run analysis, and
visualize results as maps to a better understanding of spatial trends and relationships”.
Big data provide dataset volume, variety, variability, velocity, and veracity that are
summarized, more than interpret in maps (Kraak, 2017).
On this background, we visually identify the geographical mobility barriers for persons
to become active using the Map overlay technique for normal layers and big data layers.
Map overlay initiated by (McHarg, 1971) McHarg (1971) “is a procedure for combining
the attributes of intersecting features that are represented in two or more geo-
registered data layers”(DiBiase & Dutton, 2009).
The normal layers of the target group area and road transport infrastructure
development:
a) the layer of the very most vulnerable from rural GMI Marginalized Communities.
Lincaru et al. (2020) mapped the clustered patterns of the rural density of GMI
beneficiaries at the locality level (LAU2 level, former NUTS 5) in June 2018. In our paper,
the target group of interest is reduced to the social aid beneficiaries from rural GMI
Marginalized Communities. The rural GMI Marginalized Communities are identified by
(Lincaru et al., 2020) with ANPIS data for June 2018, and presented as layers in Figure
1(blue shapes) and Figure 2(an and b), as dark blue areas. Social aid (for ensuring the
minimum guaranteed income) was received by 199.2 thousand GMI beneficiaries in
June 2018 (3196 locations), 84% of which in a rural area (2874 rural locations), and 7%
(from total) are in rural GMI Marginalized Communities (76 rural marginalized locations
LAU2). We focus our spatial analysis on clusters [Iași-Vaslui-Bacău and Galați- Vrancea]
(called in short Vaslui cluster) and [Mehedinți-Dolj] (called in short Dolj cluster),
clusters with the highest density, covering large areas, with persistent presence. On
average, the number GMI beneficiaries is 438/LAU2, higher by 3 times than the average
national rural mean of the GMI of a LAU2, and higher by 14 times than the average of the
Low-Low national rural mean of the GMI beneficiary at LAU2.
b) the layer of the density of the public road length (code Territorial Observatory –
Development Ministry od: 4.4.1.1, provided by INS). In the public roads, the indicator
includes “represents all roads open to public traffic throughout the country, grouped
administratively, respectively the national, county and commune level roads network.
The big data layer provided by the World Traffic Service
World Traffic Service, (Esri, 2019) is a dynamic data traffic service that presents the
average of observed speeds over the past three years, with an option to map the updated
data every 5 minutes. The traffic monitoring is at Romania’s European network roads
638 Strategica 2020
level (Annex - Figure 3). On these roads is visualized the “traffic speeds relative to free-
flow speeds as well as traffic incidents”. (Annex - Figure 4) In the map of Romania’s
traffic incidents snapshot on 11th June 2020, the “traffic speeds are displayed as a
percentage of free-flow speeds, which is frequently the speed limit or how fast cars tend
to travel when unencumbered by other vehicles. The streets are color-coded as follows:
Green (fast): 85 - 100% of free-flow speeds; Yellow (moderate): 65 - 85%; Orange
(slow); 45 - 65% and Red (stop and go): 0 - 45%”. (Esri, 2019)
Results and discussions
The main results are presented in Figure 1. Vaslui cluster and Dolj cluster are
comparable by structure, both have a high density of GMI beneficiary. Looking at the
road access as a factor of geographical mobility, is visible a huge difference, important
when design active measure for mobility support. Vaslui cluster presents a high-density
road network infrastructure while the Dolj cluster is located in poor road infrastructure.
The World Traffic Service indicates a barrier by traffic intensity and high risks of
incidents on E574 around Târgu Secuiesc, with the second blockage at the Bacau city.
These two nodal points are factors to decrease the geographical mobility, on the internal
artery E574 and B class road that link: Bacău – Onești – Târgu Secuiesc – Brașov – Pitești
– Craiova.
Another barrier is, even it is indirect, but important, is visible in Figure 2(c), represented
by the Bucharest ring road. Under the Centre periphery approach, Bucharest is the
economic pumping hearth of Romania. The high intensity of traffic incidents projects
high negative externalities across the entire economy, in terms of connectivity and
transport efficiency.
More to emphasize that mobility is cross border. Dolj cluster, as a peripheral region, far
from the Center – Bucharest is market by another barrier, pointed by the traffic regime.
Calafat is opposite the Bulgarian city of Vidin, to which it is linked by the Calafat-Vidin
Bridge, opened in 2013. As a frontier Municipium has a potential still underexploited.
We mention that Calafat is a nodal point in the E79 A class road which link: (Hungary) –
Borș – Oradea – Beiuș – Deva – Petroșani – Târgu Jiu – Filiași – Craiova – Calafat –
(Bulgaria, Greece).
Figure 1. Geographical mobility barriers for persons to become active

(Made by authors in Arc GIS Pro 2.3.0 ESRI, using the instrument World Traffic Service, ESRI,
downloaded on 11th June 2020, shapefile ESRI Ro, VMG data ANPIS Romania, OD 4.4.1 – The public
road length Territorial Observatory of Environment Ministry, DP_Loc_441_1 the road length
density calculated by authors)
640 Strategica 2020
a) Iași-Vaslui-Bacău and Galați- Vrancea Clusters with high density of GMI beneficiaries’
persons
b) Mehedinți-Dolj Cluster with high density c) Bucharest Cluster with the highest
of GMI beneficiaries’ persons density of traffic incidents overview
Figure 2. Detail for the main Clusters of persons to become active and
geographical main mobility barriers
(Made by authors in Arc GIS Pro 2.3.0 ESRI, using the instrument World Traffic Service, ESRI,
downloaded on 11th June 2020, shapefile ESRI Ro, VMG data ANPIS Romania)
NMP is the base for location eligibility in vulnerable labor allocation across the territory.
The localities list is identified in a static manner using socio-economic characteristics.
Our results point out the importance of a dynamic regime of road infrastructure
exploitation.
The traffic bottlenecks are valuable diagnostic priorities for action that allow the cause
treatment against the effect.
Conclusions
The 2020 Country Report mentions that “Regional disparities in Romania are amongst
the highest in the EU. Significant gaps across regions persist in investment, productivity,
competitiveness, and employment. Addressing them and prioritizing investment at a
regional level would help increase the country’s competitiveness and support long-term
growth, development, and modernization.” (European Commission, 2020).
In the 4th Country Recommendation, CSR 4, is recommended the ”focus investment-

related economic policy on transport, notably on its sustainability, low carbon energy,
and energy efficiency, environmental infrastructure as well as innovation, taking into
account regional disparities has made limited progress (European Commission, 2020).
Geographical mobility barriers are not only physical but also given by the traffic regime.
GIS and Big Data instruments offer new insights regarding the barriers and priorities to
increase the effacing of labor market place-based measures. The inclusion of the very
most vulnerable persons is not an intervention at the individual level, but at the
community level.
The labor force mobility measures prove in recent times a positive impact in general,
but not enough exploited. Spatial connectivity and labor force mobility are short-time
solutions to increase sustainability for marginalized communities. A solution that
emerged from spatial analysis with big data is personalized. Not only is the presence of
physical road infrastructure important but also its functionality and regime of
functioning. Solutions could be localized – improve the cross-border flow Bulgaria –
Romania in Calafat, unblock the network points in Târgu Secuiesc, and Bacău as well as
the Bucharest ring traffic flow improvement. Now it is the moment to fully exploit the
advantages of GIS and Big data instruments and develop also network smart solutions.
The labor market policy-based interventions, harmonized with network smart solutions
could reduce inequalities and the proportion of disadvantaged inside Romania. Some
solution is at the border, and positive externalities should be shared with its
neighborhoods (Bulgaria), and so, it contributes to reducing inequalities and the
proportion of disadvantaged groups among the countries.
The main limitations of our research are the absence of the NMP map of localities and
their updated version. The practical implication of our research is that, using BIG data
we could update NMP dynamically for short and medium intervals of time. This
representation offers information to employers about the potential mobility of active
persons and geographical barriers. This could influence the recruitment policies and
strategies of the companies but could be also supported for public policies to overcome
the regional disparities stimulating the labor force mobility for the disadvantaged
regions. The findings of our study could be used to develop alternative transport
solutions, as well as stimulating companies to open small branches in isolated areas.
642 Strategica 2020
Acknowledgments
This work was supported by a grant from the Romanian Ministry of Research and
Innovation, The Government of Romania, the National Research and Development Plan
– Program NUCLEU, 2019-2022, InovSoc program of the INCSMPS – the National
Labor Research Institute of Romania, project no: Perspective funcționale ale piețelor
locale ale muncii în România, în contextul economiei inteligente și innovative /
[Functional perspectives of local labor markets in Romania, in the context of the smart
and innovative economy] PN 19130101, coordinator Dr. Speranța Pîrciog.
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Annexes
Figure 3. Romania’s European network roads

(https://commons.wikimedia.org/wiki/File:Drumurile_europene_in_Romania.svg#/media/Fișier:D
rumurile_europene_in_Romania.svg)
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(World Traffic Service, ESRI, downloaded)
MOTIVATION OF ACADEMIC STAFF:

INTERNAL MARKETING CONCEPT
Natalia POLZUNOVA
Vladimir State University
79 Gorkogo st. 600000 Vladimir, RU
natalya.polzunowa@yandex.ru
Lyudmila KOSTYGOVA
Financial University under the Government of the Russian Federation
49 Leningradsky Prospekt 125993 Moscow, RU
kostmisis@yandex.ru
Abstract
Technical progress in modern conditions is an integral component of innovative development. Its
implementation directly depends on the competitiveness of the educational environment, capable of
preparing a highly qualified specialist. Today, there is a maximum inclusion in any economic process
of human creativity. The current state of the market requires the introduction of the principles of
marketing activity in all processes of the organization. The implementation of internal marketing in
organizations allows creating, stimulating, integrating, and coordinating team activities for the
effective implementation of corporate and functional strategies. Therefore, the problem of
introducing a system of internal marketing of personnel is one of the most important tasks of the
educational organization of higher education and is an urgent area for conducting scientific
research. The purpose of this work is to reveal the features of the internal marketing of teaching staff
of an educational institution of higher education and offer a motivation system taking into account
the concept of internal marketing of staff. As a result of the study, the following results were obtained:
the features of the internal marketing of the teaching staff of the educational institution of higher
education were identified. Elements of internal marketing of the teaching staff of the educational
institution of higher education are highlighted. Labor motivation is called the key system-forming
element of internal marketing in the educational organization of higher education. Motivational
factors that are effective for people of teachers of different age categories using the theory of
generations are identified and motivation maps for employees of a certain age group are drawn up.
An algorithm is proposed for introducing the system of the internal system of internal marketing into
the educational organization of higher education.
Keyword
Internal marketing; educational organization; competitiveness; motivation; academic staff.
Introduction
Technical and informational progress in modern conditions is an integral component of

innovative development. Its implementation directly depends on the competitiveness of
the educational environment, capable of preparing a highly qualified specialist. Today,
there is an increase in the consumption of high-quality (Gaidar, 2015) labor and the
maximum inclusion of human creative abilities in the economic process. The most
important condition for obtaining the status of a competitive organization in the
educational market is the quality of the teaching staff as a source of knowledge,
experience, innovative ideas, its ability to produce scientific and pedagogical activity.
Moreover, the key goal of including a person in the teaching staff of an educational
646 Strategica 2020
organization is to use his abilities in the labor process to obtain the target result of the
university.
The teaching staff in the educational process manifests itself as a person, is a member of
a group, and an active member of the team as a social organization. In accordance with
this, the management of teaching staff is required to be carried out through:
• personality management involves the targeted development of the individual
properties and qualities of the employee, as well as taking into account the
psychophysiological properties of the individual;
• management of the labor collective as a social organization consists of a targeted
influence on the totality of social relations;
• group management includes the impact on workers at both the formal and informal
levels.
The implementation of these functions requires the mandatory consideration of the high
level of the spiritual, intellectual, and creative content of the work content of the
teaching staff. This combination of personnel management functions with filling the
content of labor is fully disclosed by the concept of internal marketing of personnel. So,
WR George believes that internal marketing is the best approach to establish service
orientation as an organizational imperative. The emphasis in this case is on achieving
effective internal exchanges between the organization and its groups of employees as a
prerequisite for a successful exchange with foreign markets (George, 1990). At the same
time, it was proved that the use of the internal marketing system in an organization
affects its operational performance indicators (Fernando, 2012) and stimulates the
innovative behavior of employees (Haider, 2017a; Haider, 2017b).
Literature review
Internal marketing is a modern technology of personnel management in the 21st

century. Although the concept of internal marketing itself appeared in the mid-1970s
and implied the application of marketing principles to the design of jobs and employee
motivation (Ahmed & Rafiq, 2002). This concept was not widely used, according to
Ahmed and Rafik (2020), because it was far ahead of its time.
Internal marketing is the use of a marketing approach in relation to employees, built on

building, stimulating, coordinating, and integrating personnel for the effective
application of corporate and functional strategies to satisfy consumers through a
process of interaction with motivated and customer-oriented personnel. Thus, the
internal marketing of staff is a kind of “intersection” of conventional marketing systems
oriented to the consumer and the personnel management system in the enterprise
(Figure 1).
In relation to the system of higher education, internal marketing implies ensuring the
flexibility of the educational process in accordance with the needs of the real economy
based on building a development strategy for university staff. The staff acts as a
consumer in relation to a higher educational institution, as a buyer of a workplace, a
position with its rights and obligations (Kukhtinova, & Firsova, 2012). Thus, the
university emphasizes the retention and activation of their activities, career growth,
advanced training, motivation, and stimulation of innovative activities, creating a
favorable psychological climate, corporate culture. In fact, through the internal

marketing system, the university should build the conviction of the teaching staff in the
successful choice of the employer. However, the needs of the teaching staff in terms of
strategic development are not well understood. The staff of the university is still
considered as a resource, in relation to which methods of stimulating their intensive
methods are applied.
Marketing Internal marketing Human resource

management
Figure 1. The boundaries of the concept of «internal marketing»

Source: own elaboration
With the development of internal marketing, several approaches to its consideration

have been formed (Table 1).
Table 1. Schools of Internal Marketing

Scientific school Representatives Scientific approach
North American Berry, L. “Internal marketing is the attraction,
school of service Parasuraman, A development, motivation, and retention of
marketing qualified personnel by the proposed work that
meets their needs. Internal marketing is a
philosophy of treating an employee as a client
and a strategy for creating a work product in
accordance with the needs of an employee
client”.
Scandinavian Gronroos, C. “The idea of internal marketing is that
school of employees of the organization should be
marketing motivated to provide meaningful customer
service, customer focus and interest in the
results of work by actively applying the
marketing approach to the internal
organization market of employees”.
English school of Ahmed, P. Rafiq, M. “Internal marketing is a systematic action to
marketing overcome staff resistance to changes,
motivation and integration of employees in
order to effectively implement corporate and
functional strategies”.
Source: Berry, & Parasuraman, 1991; Gronroos, 1985; Ahmed, & Rafiq, 2013.
The use of the internal marketing system is currently being studied in various activities:
in the field of transportation (Fernando, 2012), by airlines (Fu, 2013), in the field of
entertainment (Kim, Song, & Lee, 2016); in the healthcare system (Karasa, et al., 2008),
in production.
Studies on the use of internal marketing of staff in the education system are few. Meg
Maguire, Stephen J. Ball, and Sheila MacRae show how Northwark Park School uses
marketing tools to develop its internal environment (Maguire, Ball, & MacRae, 2001).
The influence of some interrelated aspects of internal marketing on the satisfaction and
648 Strategica 2020
loyalty of researchers E. Kyriacou and G. Panigyrakis (2020). It is known that

organizational culture is one of the key factors in creating and retaining loyal employees
(Anitha, 2016; Hamidi et al., 2017). Lundkvist & Amedi found in their research that
organizational culture in the faculties of business administration and economics is weak.
To strengthen it, it is necessary to create values, norms, beliefs, which will increase the
long-term loyalty of university staff (Lundkvist & Amedi, 2019). There are also studies
examining the impact of internal marketing strategies on employee performance at
selected public universities (Lydia, Maru, & Kosgei, 2016; Mbengo, 2014). M. Singh
(2017) considers not only teachers and employees of the university as objects of internal
marketing, but also students.
The use of internal marketing tools by faculty is especially relevant.
Materials and method
The purpose of this study is to study the peculiarities of internal marketing of the
teaching staff of an educational organization and to reveal the motivation system, taking
into account the concept of internal marketing of personnel.
The study was carried out following the following stages:

1. Describe the model of the internal marketing system of the educational organization
of higher education.
2. To identify motivating factors for the university staff of a certain age group.
3. To propose a procedure for implementing an internal marketing system in an
educational institution of higher education.
The study used a combination of qualitative and quantitative methods. As qualitative

methods, desk research was used to identify the studied indicators and collect data on
them. During the study, authors' publications were used, which are available in the
bibliographic and abstract database Scopus, Web of Science, and Elibrary. The method
of theoretical analysis and modeling in the formation of the internal marketing system
of the educational organization of higher education.
Empirical data were obtained in a series of surveys conducted in educational institutions

of higher education in Russia. This study involved 250 teachers from 5 universities in
Russia. The survey was conducted for 1 month (February 2020). An email was sent to
faculty members asking them to take part in the survey. The purpose of the survey was
also indicated in the letter. The questionnaire consisted of 2 parts: 1 part contained
personal information about the respondent, 2 parts - these are questions related to the
research topic.
Results
Thus, the elements of internal marketing regardless of the approach used include:
1) Employee Motivation
2) Professional and personal development of staff
3) Attracting highly qualified employees
4) Optimization of interaction processes.
It is the internal marketing of the organization that is essential to ensure employee

motivation (Santos & Gonçalves, 2018)
It has been proved that it is the effective motivation of staff that is an effective tool for
the formation of the organization's unique intellectual resources (Starkova, 2010),
including educational and internal climate, which helps to unleash the potential of both
teachers and students.
The motivational complex used should take into account the complexity and ambiguity
of the mutual influence of different factors, the importance of motivating factors
different for different categories of personnel, and the age of the personnel.
The age of the staff has a strong influence on motivational events.
It is known that there is a theory of generations (Heller, 1993), according to which they
distinguish:
The Greatest Generation (1900 - 1923)
The Silent Generation (1923 - 1943)
The Baby Boomer Generation (1943 - 1963)
Generation X ("X") (1963 - 1984)
Generation Y (The Game) (1984 - 2000)
Generation Z "Zed" (since 2000)
The basis of this theory was the judgment of the difference in the value system of people
born in different historical periods. As you know, the formation of values takes place up
to 12 years and is influenced not only by family attitudes, education but also by other
more global conditions and events in which an individual develops (social, economic,
technological, political, and other factors).
An analysis of the literature and the results of other studies on the topic of motivation
from the perspective of the theory of generations made it possible to identify
motivational factors that are effective for people of a particular age group (Table 2).
Table 2. Motivational factors

The Baby
The Silent
Motivator factor Boomer Generation X Generation Y
Generation
Generation
The preservation and

transfer of experience
Authority, respect 
Recognition of merits
(photos on the honor

Board, certificates,
gratitude)
Compliance with rules

and laws
Social package and health

support programs
Good atmosphere 
Positive relationships
 
with colleagues
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Official salary 
Discount for long stayers 
Stable conditions 
Clear hierarchy 
Charismatic leader 
Common goals of
employees and the 
company
Additional social package 
Fixed salary 
Choice 
Recognition of

professionalism
Gradual career growth 
Personal success 
Possibility of continuous

training
Individual workspace 
Awareness of the

company's strategy
Possibility of self-

realization
Immediate reward 
Comfortable working
conditions (good

technical equipment of
the workplace)
Getting pleasure from

work
Social recognition 
Participation in the

decision-making process
Fast and transparent

career growth
Achieving your own goals 
The analysis of the level of motivation of various generations in universities of Russia

made it possible to draw up motivation cards for employees of a certain age group and
present the results of the rating of motivating factors in Figure 2 – 5.
Positive relationships with colleagues

Good atmosphere
Social package and health support programs
Compliance with rules and laws
Recognition of merits
Authority, respect
The preservation and transfer of experience
0 1 2 3 4 5 6 7 8 9
Anti-motivation score (Moda) Motivation score (Moda)
Figure 2. Evaluation of motivating factors in Russian universities of the silent generation
Additional social package

Common goals of employees and the…
Charismatic leader
Clear hierarchy
Stable conditions
Team relations
Discount for long stayers
Official salary
0 2 4 6 8 10
Figure 3. Assessment of motivating factors in Russian universities of the Baby Boomer

generation
Awareness of the company's strategy

Individual work space
Possibility of continuous training
Personal success
Gradual career growth
Recognition of professionalism
Choice
Fixed salary
0 2 4 6 8 10
Figure 4. Assessment of motivating factors in Russian universities of generation X

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Achieving your own goals

Fast and transparent career growth
Participation in the decision-making process
Social recognition
Getting pleasure from work
Comfortable working conditions
Immediate reward
Possibility of self-realization
0 1 2 3 4 5 6 7 8
Figure 5. Evaluation of motivating factors in Russian universities of generation Y
Adapting the practice of successful companies to higher education to build effective

motivation as an element of the internal marketing system, a question system should be
used (Figure 6).
Preliminary answers to these questions should be laid down already in the

organization’s culture, industrial climate, and the educational organization’s leadership
system.
Analysis of the answers will allow the leadership of the university, firstly, to revise the
motivation system based on the theory of generations; secondly, to form a clear
conviction about the need to implement a system of internal marketing of staff and the
implementation of measures to transform the self-awareness of managers; thirdly, to
analyze the existing personnel management system using benchmarking tools; fourthly,
to carry out formal regulation of the main processes and provisions of the internal
marketing system at the university.
Why? Why
do I work
here?
Where?
Where are
What? What
my
do I do in my
development
Motivation as workplace?
opportunities
hidden? an element of
internal
marketing
system
How much? Нow? How

How much does the
am I needed Manager
here? rate me?
Figure 6. University attractiveness assessment system for faculty
The introduction of effective motivation as an element of the internal marketing system

of universities is a sequential process, which we will present graphically in Figure 7.
Changing the Regulation of Formation of a system Monitoring

identity of the main of motivation and and
managers provisions. incentives optimization
Planning
Analysis of the Responsible Formation of a

existing situation, person system of motivation
benchmarking selection and incentives
Figure 7. The procedure for the introduction of effective motivation
The main task that is solved by the effective motivation of the teaching staff as an
element of the internal marketing system is to form their belief in the successful choice
of the employer. This is done through a range of functions and responsibilities of the
employee in the workplace; career prospects and implementation of career ambitions;
the possibility, if desired, of continuing education and professional retraining; positive
moral and psychological climate in the team, corporate culture; effective labor
stimulation.
Conclusions
Our research complements other research on the application of internal marketing in

universities.
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Since the key parameter characteristic of the internal marketing system of the staff is
the attitude to the employee “as a client”, we cannot talk about its holistic existence
within the framework of Russian universities. However, we can argue that some of its
inherent components are present in Russian universities. Internal marketing is a
concept to be considered in university management (Chasanah, Hidayat, & Mustafa,
2020). This study focuses on the motivation of academic staff as an element of the
internal marketing system. Our results show that different motivational factors are
effective for university staff of different age groups. We also proposed a model for
introducing an internal marketing system into the activities of universities. This will
increase the loyalty of academic staff at universities and their job satisfaction.
Our research has limitations that future research will need to take into account. First, it
was conducted at universities located in the same country. It would be interesting to
make a comparison across several countries. Second, it was conducted in an
environment where all universities were offline, before the spread of COVID-19. It will
be helpful to identify whether online work has influenced the motivation of different
generations of academic staff.
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656 Strategica 2020
TRANSFORMATIONAL LEADERSHIP AND EMPLOYEE AFFECTIVE

WELLBEING: THE MEDIATING ROLE OF PSYCHOLOGICAL EMPOWERMENT
Dan F. STĂNESCU
dan.stanescu@comunicare.ro
Alexandra ZBUCHEA
alexandra.zbuchea@facultateademanagement.ro
Florina PINZARU
florina.pinzaru@facultateademanagement.ro
Abstract
The link between transformational leadership and psychological empowerment as well as
psychological empowerment and employee work attitudes have been previously discussed
Specifically, transformational leadership represents an important factor that influences
psychological empowerment among salespersons. In the same context, there is a significant direct
effect of transformational leadership on employees’ sense of empowerment. Moreover,
transformational leadership is positively related to psychological empowerment. Regarding the
relation between transformational leadership and well-being, transformational leader behaviors
influenced employees' job satisfaction. Furthermore, the positive effects of transformational
leadership behaviors on both work-related and general well-being are documented. Specifically,
leaders who encouraged employee’s decision making and treated them with respect increased their
followers’ job-related and general well-being. Similarly, those types of transformational leadership
behaviors were related to psychological well-being. The current paper explores the relationship
between transformational leadership and employee affective wellbeing, considering the mediating
effect of psychological empowerment. The research is based on a cross-sectional design, data is
collected from 139 employees through the following structured questionnaires: MLQ – Multifactor
Leadership Questionnaire, JAWS – Job-related Affective Well-being Scale, and Psychological
Empowerment Instrument. The results show a positive and significant relationship between
transformational leadership and both affective well-being and psychological empowerment.
Additionally, transformational leadership through psychological empowerment foster affective well-
being. The paper contributes to the empirical research in the area of transformational leadership
and its influence on employee outcomes and attitudes, confirming the mediating role of psychological
empowerment.
Keywords
Transformational leadership; psychological empowerment; well-being; mediation.
Introduction
To meet the provocation of the current business environment transformational

leadership creates the necessary “radical change” (Laohavichien et al., 2009, p.8).
Therefore, transformational leadership, by producing entrepreneurial and

organizational champions, contributes to performative management. According to Bass
and Riggio (2010) and Northhouse (2010) conceptualization, transformational
leadership has an essential impact on organizational performance, as well as on the
employees’ attitude and emotional encouragement.
Psychological empowerment and transformational leadership are modern used by

managers to motivate employees (Thomas & Velthouse, 1990; Srivastava, Bartol, &
Locke, 2006). Psychological empowerment seems a psychological mechanism mediating
between transformational leadership and job-related well-being. From the employee's
point of view, psychological empowerment relates to intrinsic task motivation,
perceptions of competence, and self-determination to work (Deci, Connell, & Ryan,
1989).
As Afsar, Badir, and Bin Saeed (2014) show, transformational leaders delegate authority,
empower employees, encourage participative decision-making and cooperation.
Employees would carry out tasks with a high degree of control and freedom (Jung &
Sosik, 2002). Therefore, employees’ confidence level and self-efficacy increase, they feel
empowered, motivated and competent (Avolio, Zhu, Koh, & Bhatia, 2004; Zohar &
Tenne-Gazit, 2008).
Another approach focuses on the psychological empowerment as a psychological

attitude reflecting individuals’ response to leadership behaviors (Spreitzer, 1995;
Thomas & Velthouse, 1990). Dewettinck and van Ameijde (2011) observed that affective
commitment and job satisfaction are also connected to psychological empowerment,
pointing towards a direct link between different organizational behaviors and attitudes,
and psychological empowerment, leadership behaviors playing an essential role in this
process (Arnold, Arad, Rhoades, & Drasgow, 2000; Conger & Kanungo, 1988).
Employee well-being represents one of the most important research topics among the
psychologists who are working on organizational psychology. As Danna and Griffin
(1999) stated, well-being can be defined in relation to the mental, psychological, or
emotional states of workers. Therefore, psychologically well employees tend to
experience more positive emotions than negative ones in the workplace (Wright &
Cropanzano, 2000). Within an organizational context, well-being is often defined and
measured as employee affective well-being (Van Katwyk, Fox, Spector, & Kelloway,
2000).
A series of factors in the workplace can affect an individual’s well-being and mental
health (Danna & Griffin, 1999). In the last decades, scholars have examined a wide
variety of individual and organizational variables that can influence employee’s well-
being such as self-efficacy (Siu, Lu, & Spector, 2007) and leadership (van Dierendonck,
Haynes, Borrill, & Stride, 2004). Also, in a series of studies using cross-sectional data,
Nielsen and colleagues (Nielsen, Yarker, Brenner, Randall, & Borg, 2008; Nielsen, Yarker,
Randall & Munir, 2009) have explored the indirect relationships between
transformational leadership and psychological well-being.
A series of previous empirical studies have already used psychological empowerment

as a mediating or moderating variable between different leadership styles and different
work-related employees’ attitudes, such as job satisfaction (Seibert, Wang, & Courtright,
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2011), organizational commitment (Avolio, Zhu, Koh, & Bhatia, 2004) and workplace
aggression (Hepworth & Towler, 2004). Previous research shows that psychological
empowerment has a mediating role between transformational leadership and
organizational commitment (Avolio, Zhu, & Koh, 2004), as well as between the
transformational leadership and the employees’ effectiveness (Özaralli, 2003).
Methods
In this study, we aim to investigate the relationship between transformational

leadership and employee affective wellbeing, additionally examining the mediating
effect of psychological empowerment (figure 1).
Psychological
empowerment
Transformational Job-related affective

leadership well-being
Figure 1. Conceptual framework
Figure 1 presents the theoretical framework proposed, considering the study of the
relations between transformational leadership, psychological empowerment, and job-
related affective well-being. The investigation also aims to analyze the mediating role of
the psychological empowerment between the transformational leadership and job-
related affective well-being.
To achieve the aforementioned objective, the following hypotheses were formulated:

Hypothesis 1. Transformational leadership is positively related to psychological
empowerment.
Hypothesis 2. Transformational leadership is positively related to job-related affective
well-being.
Hypothesis 3. Psychological empowerment is positively related to job-related affective
well-being.
Hypothesis 4. Psychological empowerment mediates the relationship between
transformational leadership and job-related affective well-being.
The sample includes 139 employees (men = 42, women = 97), of ages ranging from 19
to 63 years (M = 32.80, SD = 11.17), and with educational levels from graduation
(35.3%), master (48.2%) to doctorate level (16.5%). A purposive convenience sampling
technique was used to collect data. Participants were invited to fill in a questionnaire
compiling the following measures:
- Psychological empowerment. It was self-reported using a 12-item scale composed of 4

subdimensions: meaning, competence, self-determination, and impact (Spreitzer,
1995). The validity of the instrument is very good, with a strong reliability (Spreitzer &
Quinn, 2001). For the present study, the reliability was .94.
- Multifactor Leadership Questionnaire (Form 5X). We used this structured, verbal,

omnibus measure of leadership styles, comprising 45 items, covering what is known as
the ''full-range'' leadership model (Bass & Avolio, 1990). The leadership model
considers differences in the effectiveness of leadership styles based on the
active/passive distinction, leading to broad categories of leadership. The MLQ scales
range from Passive / Avoidant Leadership (Laissez-Faire), through the classical model
of Transactional Leadership and up to Transformational Leadership. The Cronbach
Alpha obtained for this study was .87.
- JAWS. The Job-related Affective Well-being Scale (Van Katwyk, Fox, Spector, &
Kelloway, 2000) is a 20-item (short version) scale designed to assess people's emotional
reactions to their job. The JAWS include a wide variety of emotional experiences, both
negative and positive. Internal consistency reliability estimates (coefficient alpha)
reported by Spector, Fox, Goh, and Bruursema (2003) for the total score (.95), negative
emotions (.92) and positive emotions (.94) subscales were excellent. The Cronbach
Alpha obtained for this study was .67.
Results
The data obtained was analyzed using SPSS 22.0, including the PROCESS macro for SPSS
version 3.2.02 developed by Andrew Hayes. Then, we carried out a Sobel test
(quantpsy.org/sobel/sobel.htm) to probe the mediation effect (Preacher & Hayes,
2004).
Hypothesis 1. Transformational leadership is positively related to psychological

empowerment.
To test this hypothesis, the Pearson intercorrelation coefficients were calculated, both
between the Transformational leadership and the psychological empowerment score
and between Transformational leadership sub-scales and psychological empowerment.
The results presented in Table1 and Table 2 highlight the existence of significant
positive relationships, both at the composite score (r = 0.502, p < 0.01) and for all five
dimensions of transformational leadership, according to the Full Range Leadership
Model.
Table 1. Transformational Leadership and Psychological empowerment (N=139)

Psychological
empowerment
Transformational Pearson Correl. .502**

Leadership
The in-depth analysis highlights the strongest correlation between psychological

empowerment and the idealized influence (behavior) (r = 0.499, p<0.01) and idealized
influence (attributed) (r = 0.415, p<0.01) scale of transformational leadership. Thus, the
higher the level of psychological empowerment, the higher the level of influence. This
component of transformational leadership allows leaders to take actions that benefit
their employees‘ health and well-being in the long-term. The scale of idealized influence
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detects through its high scores a person's ability to exert influence, inspiring power,
arousing pride among his "followers", ensuring and offering trust, overcoming
individual "interests" in favor of the group, and serving as a reference model for those
who follow them (Avolio & Bass, 2004, p.5).
Moreover, the individualized consideration scale also correlates with psychological

empowerment (r = 0.397, p<0.01). People with high scores on the Individualized
consideration scale pay attention to the achievement and development needs of each
individual, demonstrate empathy and compassion, acting as a mentor or a coach,
allocating time, effort, and individual resources to help those around them to develop
and provide employees with guidance and support which impacts the employee‘s
wellbeing (Avolio & Bass, 2004, p. 6).
Although the correlations between psychological empowerment and intellectual

stimulation (r = 0.349, p <0.01) and between psychological empowerment and
inspirational motivation (r = 0.363, p <0.01) are smaller, they highlight significant
intercorrelations, of lower intensity. Therefore, leaders with high scores on the
intellectual stimulation scale identify the people who stimulate and cultivate the
innovation and creativity of those around them. This type of leader avoids mocking or
publicly criticizing the mistakes of team members, thus encouraging them to experiment
and be creative. These leaders constantly ask their subordinates to find new ideas and
creative solutions to common problems, being continuously involved in the resolution
process (Avolio & Bass, 2004, p. 6). Through Intellectual stimulation, employees can feel
an increased sense of self-confidence solving different work-related problems in their
way, and by doing this they enhance their well-being (Kelloway et al., 2012). Moreover,
a transformational leadership style could also influence employee‘s task clarity which in
turn leads to low levels of perceived stress (Liu et al., 2010). Regarding the relation with
inspirational motivation, Avolio and Bass (2004) observed that these leaders speak
optimistically about the future, having a confident vision about it, and express
confidence in achieving the established goals (Avolio & Bass, 2004, p.6).
Table 2. Transformational Leadership scales and Psychological empowerment (N=139)

Idealized Idealized
Influence Influence
(Attributed) (Behavior)
Psychological Pearson Correl. .415** .499**

empowerment
Sig. (2-tailed) .000 .000
Inspirational Intellectual Individualized

Motivation Stimulation Consideration
Psychological Pearson
.363** .349** .397**
empowerment Correl.
Sig. (2-
.000 .000 .000
tailed)
Hypothesis 2. Transformational leadership is positively related to job-related affective

well-being.
The results showed in Table 3 highlight the existence of a significant positive correlation
between transformational leadership and job-related affective well-being (positive
emotions) (r = 0.416, p <0.01), which leads to the confirmation of the previously stated
hypothesis. In other words, the higher the level of transformational leadership, the
higher the positive emotions experienced by the employees. In the same vein, Gilbreath
and Benson's (2004) findings indicate that positive supervisory behavior made a
statistically significant contribution to employee well-being.
Table 3. Transformational Leadership and Affective well-being (positive emotions) (N=139)

Positive emotions
Transformational Leadership Pearson Correl. .416**
Current findings are supported by previous studies that highlighted positive

correlations between transformational leadership and well-being (Arnold, Turner,
Barling, Kelloway, & McKee, 2007; Nielsen & Daniels, 2012; Nielsen & Munir, 2009;
Stenling & Tafvelin, 2014). Moreover, Bono and Ilies (2006) stated that “charismatic
leaders enable their followers to experience positive emotions” (p. 331). “The potential
mechanism accounting for this finding may be that charismatic leaders express more
positive emotions themselves and these positive emotions are “caught” by their
followers” (Arnold, Turner, Barling, Kelloway, & McKee, 2007, p.194). Similarly, Van
Dierendonck et al. (2004) found that high-quality leadership behavior was associated
with increased employee well-being. The results are further supported by prior studies
that demonstrated the direct or mediated effects of transformational leadership on well-
being (Sivanathan et al., 2004; Skakon et al., 2010).
Hypothesis 3. Psychological empowerment is positively related to job-related affective

well-being.
Table 4 shows psychological empowerment to be positively correlated with the job-

related affective well-being (positive emotions) (r = .517, p < .01), thus confirming the
hypothesis.
Table 4. Psychological empowerment and Affective well-being (positive emotions) (N=139)

Positive emotions
Psychological empowerment Pearson Correl. .517**
A substantial body of literature has investigated the links between psychological

empowerment and a range of work outcomes such as work engagement, organizational
commitment, job satisfaction, and well-being (Nielsen, & Randall, et al., 2008; Nielsen, et
al., 2008). Furthermore, previous research has found psychological empowerment to be
associated with increased work effectiveness (Koberg et al., 1999), organizational
662 Strategica 2020
commitment (Meyerson & Kline, 2008), and psychological well-being (McClain, 2001),
in line with current findings. Previous studies also showed similar findings in the case
of a positive relationship between wellbeing and empowerment (Deepa, 2005; Biswas-
Diener, 2011).
Hypothesis 4. Psychological empowerment mediates the relationship between

transformational leadership and job-related affective well-being.
To test the proposed mediation model, the PROCESS (Hayes, 2012) macro for SPSS was
used (version 3.2.02). In this regression analysis, assertiveness was used as a predictor,
transformational leadership as a mediator, and job performance as an outcome variable.
In Step 1 of the mediation model, the regression of the transformational leadership on
the affective well-being, ignoring the mediator, was significant - F(1,137) = 28,64,
p<0,01, R2 = 0,17, b = 9,30, t(137) = 5,35, p<0,01.
Step 2 showed that the regression of the transformational leadership on psychological
empowerment, the mediator, was also significant - F(1,137) = 49,92, p<0,01, R2 = 0,27,
b = 1,27, t(137) = 7,07, p<0,01.
Step 3 of the mediation process revealed that the mediator (psychological
empowerment), controlling for transformational leadership, was significant - F(2,136)
= 27,17, p<0,01, R2 = 0,28, b = 4,76, t(136) = 7,39, p<0,05.
Step 4 of the analyses revealed that controlling for the mediator (psychological
empowerment), transformational leadership were a less significant predictor of
affective well-being, b = 3,55, t(136) = 4,63, p<0,01.
As recommended by Baron and Kenny (1986), the Aroian version of the Sobel test was
conducted. It revealed that psychological empowerment mediated the relationship
between transformational leadership and the affective well-being (z = 2,31, p = 0,020).
Hence, employees who work with transformational leaders will have a higher level of
well-being when they experience psychological empowerment.
Conclusions
According to the findings of this study, it was seen that both transformational leadership
and psychological empowerment had a big contribution to the outcome of psychological
well-being (positive emotions), and this finding are further supported by previous
studies results which have revealed that well-being was an important outcome of
psychological empowerment (McClain, 2001; Tahira et al., 2010) and transformational
leadership (Arnold, Turner, Barling, Kelloway, & McKee, 2007; Nielsen & Daniels, 2012).
In conclusion, this study has found a positive relationship between transformational
leadership and psychological well-being that was mediated by the psychological
empowerment.
This study extends our understanding of the positive effects of transformational

leadership, and practical application of the current results suggests that leadership
training in this area, along with a better understanding and implementation of
psychological empowerment in the workplace could be associated with an increase in
the psychological well-being of followers (Barling, Weber, & Kelloway, 1996; Kelloway
& Barling, 2000).
In the present study, there are several limitations worth noting. First, all the data are
cross-sectional. Therefore, an assessment of the cause-effect relation is not possible.
Also, another limitation is related to the fact the questionnaires were self-reported, and
the participants' sample was relatively small. Therefore, results are difficult to
generalize.
Future research could focus on investigating what workplace factors encourage

behaviors related to transformational leadership to better understand how leaders’
transformational behaviors can be developed, and how employee well-being can be
promoted in the workplace. Future research directions could be also targeted at
expanding the topics addressed in this study by adding new variables such as innovative
work behavior, organizational greed, and various personality factors.
References
Afsar, B., Badir, Y.F., & Bin Saeed, B. (2014). Transformational leadership and
innovative work behavior. Industrial Management & Data Systems 114(8),
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Arnold, J.A., Arad, S., Rhoades, J.A., & Drasgow, F. (2000). The empowering leadership
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7
Crisis and Risk
Management
Chair
Sergiu STAN
668 Strategica 2020
MANAGING THE UNEXPECTED: THE FIRST EFFECTS OF COVID-19

OUTBREAK ON THE GLOBAL ECONOMY
Adriana GRIGORESCU
30A Expoziției Blvd., Sector 1, 010324 Bucharest, RO
54 Spl. Independentei, Bucharest, 50085, RO
Denisa-Atena COSTOVICI (MEMA)

30A Expoziției Blvd., Sector 1, 010324 Bucharest, RO
denisa21co@gmail.com
Abstract
The COVID-19 pandemic is the worst global crisis since World War II. The outbreak of the COVID-19
pandemic has dramatically affected two main pillars of society: public health and the economy. From
a health risk perspective, the figures show that more than 8 million people have been infected with
the new coronavirus and more than 500,000 have died. From a financial perspective, the
unprecedented disruptions in most sectors of activity have generated a major economic shock to
which authorities, states, and international organizations are trying to respond promptly. To
mitigate the socio-economic impact, decision-makers develop and implement measures to
strengthen the economic resilience of states and social welfare. The COVID-19 pandemic spread fear
and panic over the population and stopped most economic activities for several months. Practically
the SARS-CoV-2 virus froze the world economy. The measures taken to limit the spread of the virus
adopted in the first phase – isolation/ social distancing and the blockage of economic activities –
have led to the increase of the population`s distrust in the quality of the managerial act. The
programs implemented in the first months of the COVID-19 pandemic affected the poverty level
marking an increase worldwide. It is undeniable that the COVID-19 epidemic has increased social
inequality. To counteract these immediate effects, respectively to support citizens, businesses, and
states in the process of a financial recovery, the leaders of international organizations have agreed
upon certain recovery plans. The research paper covers the ongoing situation, focusing on an
emerging problem worldwide: the continuous outbreak induced by COVID-19. We will analyze the
dynamics of the event based on the elements of everyday reality, highlighting the repercussions on
the world economy and the management of emergencies undertaken by states. The main hypothesis
outlines the first effects on different economic sectors and their evolution scenarios. The analysis of
the pandemic`s impact on the economic field will contain indicators of negative consequences on the
living standard of the population and the overall economy. The purpose of this paper is to highlight
the measures taken by the authorities in an attempt to optimally manage this crisis. The research
paper will highlight the authorities’ efforts to mitigate the effects of the COVID-19 epidemic. Public
health and economic policy are two of the areas subjected to global coordinated actions.
Keywords
COVID-19; crisis management; economy; effects; resilience; globalization.
Introduction
The Geopolitical context brings forward a new threat to the world's population. On
December 31st, 2019, several pneumonia cases of unknown ethology were reported in
Wuhan, Hubei Province, China. Shortly after (9th January 2020), China reported a new
Crisis and Risk Management 669
type of coronavirus as a causative agent of this outbreak, which is phylogenetic in the

SARS-CoV clade. The discovery associated with the virus is called the novel coronavirus
2019, being shortened COVID-19. In a two-month time span, the virus spread
throughout Europe wreaking havoc and causing thousands of deaths. As a result of the
rapid spread of the virus, the Director-General of the World Health Organization
declared on March 11, 2020, the phenomenon as a global pandemic. At the time, over
100 countries had reported about 119,000 such cases. With a history that crosses
continents, COVID-19 is the main topic of all news, TV shows, and discussions at all
levels.
Nassim Taleb, a risk analyst at the Polytechnic Institute of New York University and one
of the experts who predicted the 2008 financial crisis in his book The Black Swan,
published in 2007, recently said in an interview that the events such as the coronavirus
outbreak are very harmful to the economy and that a “white swan” type event, which he
considers the coronavirus pandemic to be, could have been prevented.
The visionaries consider the coronavirus outbreak a global opportunity to apply a

powerful crisis management mechanism. From this perspective, we will treat the period
as a test of the consolidation of the European community and the global population. In
the context of panic and the possible (very probable) economic consequences
manifested by undermining investments and consumerism, slowing down the
development or even the recession, solidarity will be clearly defined by the settlement
of States’ self-protection.
Currently, the virus has disrupted supply chains and slowed global trade, with negative
predictable effects on corporate income and employment. The tourism and transport
sectors were particularly affected, as a result not only of the travel restrictions imposed
by the government but also of the voluntary (or not) "social distance" and reductions in
movement. As a direct consequence, global demand is already diminished, reflected in
lower oil prices - usually a reduction in the global recession. We will analyze the first
effects on different economic sectors and their evolution scenarios, considering that the
COVID-19 phenomenon will challenge the resistance of public health systems, labor
relations, and formal/informal solidarity mechanisms throughout the EU and beyond
(Mahar, 2020).
More than 200 countries around the world are facing severe shock. Cooperation
between states and citizens significantly decreases every day, inversely proportional to
the number of people infected. The COVID-19 trajectory so far indicates a spike in the
number of infections in the following months and proactive measures are expected from
the governments and policymakers.
For the EU, the pandemic is not only a test of resilience but also an opportunity to create
a strong mechanism for crisis management, combining resources of Member States and
directing them to a coordinated fiscal policy. The idea of such an "insurance fund" is not
new: several economists backed up the idea after the last crisis when discussions on
governance reform were in full swing. COVID-19 should serve as a powerful wake-up
call to governments around the world. The combination of environmental degradation
and deep economic interconnection has made the world more vulnerable than ever to
sudden and large shocks.
670 Strategica 2020
This paper aims to analyze the political reaction and the response mechanisms of states
to cope with the first effects of the COVID-19 outbreak on the global economy.
State of the art
Regarding the conceptual framework, the notion is treated from a dual perspective,
subjecting the phenomenon of COVID-19 to the analysis of the two theories: "Black
Swan" developed by Nassim Nicholas Taleb (Taleb, 2010) and "The Gray Rhino" by
Michele Wucker. If part of the literature considers the event as unforeseen, of great
magnitude with adverse global consequences, presenting atypical characteristics,
extreme impact, and the drawing of possible explanations a posteriori (the "Black Swan"
theory), other specialists consider that the appropriate metaphor of the crisis is the
"gray rhino", which refers to extremely probable, but neglected threats with a high
potential impact (Wucker, 2016).
The pandemic generated by the new SARS-CoV-2 coronavirus has already installed a
global recession. Weaknesses in the economy occur in all countries, in proportion to the
increase in the number of information and safeguards institutions and authorities to
prevent the spread of the virus (Bluedorn, Gopinath, & Sandri, 2020). The economic
consequences of the pandemic have a direct and major impact on the affected states,
being spread rapidly and without precedent. In the United States in the last two weeks
of March 2020, almost 10 million people have applied for unemployment benefits. Such
a high demand exceeds even the peak of the global financial crisis in 2009.
Following the analysis carried out so far, experts say that it is the worst global crisis
experienced since the Second World War. The first severe effects of the COVID-19
pandemic have been categorized as affecting public health and disrupting economies
and labor markets.
To examine the first effects on the population as a result of the COVID-19 outbreak, we
used as a matrix the official databases and reports published by governments and
international organizations. The variables used in the research paper include the
financial repercussions on several sectors of activity. To strengthen the analysis’s
soundness qualitative tools such as observation, analysis, and interpretation of global
reports and documents have been used.
Using these matrices and the latest estimates of epidemiologists’ parameters, we tried
to simulate a possible economic trajectory of states in the struggle for social recovery
from this global shock.
Strategies and measures implemented by the decision-makers of this emerged crisis will
be analyzed, emphasizing both aspects - the functional and the less reliable ones - in the
medium and long term.
The methodology used in the research study involves the thematic desk analysis of the
first effects of the COVID-19 outbreak on the global economy. Empiric research is based
on directly observing the overall financial decline. The research aims to identify and
define current economic parameters and interpret the results in a key that generates
optimal solutions for global financial recovery. The presented data were collected
through the empirical study and then processed to validate or invalidate the working
hypothesis.
Data
The study finds its utility by emphasizing several crisis management policies which
helped the states to face easier the negative repercussion of COVID-19 pandemic. This
research paper analyses the most important sectors of economic activity affected by the
COVID-19 pandemic from the perspective of the first repercussions and evolution
scenarios.
Educa-
tion Healthcare
&
Unemploy- Pharmaceuti
ment cal industry
The effect of
Petroleum Covid-19 on Food
and Oil the world industry
economy
Real estate Sports

industry
Finance
industry
Figure 1. The main affected socio-economic fields resulted from the COVID-19 outbreak
Source: author’s processing scheme
Unemployment
The unemployment rate has reached unprecedented levels in the last century. There is
a directly proportional relationship between the states affected by the new coronavirus
and the growing number of people losing their jobs. Globally, there have been set the
following figures:
- In Australia in April 2020, approximately 300,000 people were registered as
unemployed (Hinton, 2020);
- In Russia, in the same month, 4 million people were fired;
- The US-registered in May 2020 over 40 million people who lost their jobs;
672 Strategica 2020
- In the European Union, the unemployment rate rose to 6.6% in April 2020, according
to data released by the European Statistical Office (Eurostat) (Statistic, 2020). In the
euro area, the unemployment rate stood at 7.4% in March, leveling up from 7.3% the
previous month.
- Worldwide, the International Labor Organization (ILO) has estimated that half of the
world's workforce - about 1.6 billion people are at risk of losing their jobs (ILO, 2020).
Interestingly, this affected category is also the most vulnerable sector of the population
in the labor market. The most affected economic activities will be retail, production,
vehicle repair, HoReCa, and real estate business.
ILO estimates have shown that the first month of the crisis led to a 60% drop in the
income of informal workers globally. Revenues decreased by 81% in Africa and America,
21.6% in Asia and the Pacific, and 70% in Europe and Central Asia. Without alternative
income sources, these workers and their families will have no means to survive.
Job loss in millions

Caribbean 1.2
Middle East 2.6
Latin America 4.7
Africa 7.6
North America 8.2
Europe 13
Asia Pacific 63.4
Total 100.8
0 20 40 60 80 100 120
Figure 2. Predicted employment loss in the travel and tourism industry due to the COVID-19
pandemic worldwide in 2020, by region
Source: Authors’ processing based on the information published by STATISTA.COM
A speech in this regard was given by the Egyptian authorities who announced that
keeping the hotels closed and blocking the state's tourism will accentuate the poverty of
the population (Hamada Elrasam, Heather Murdock, 2020). Between attempts to limit
the spread of the SARS-CoV-2 virus and efforts to resuscitate the state's economy,
Egypt's decision-makers have decided that there are too many shortcomings in the
medical system that cannot be remedied without sustainable resources. Authorities
have announced that the risk of health infrastructure not coping with COVID-19
infection will persist, as there are no financial resources to improve the medical system
to an optimal level so quickly. Under these conditions, the Executive has decided not to
let the population starve to death - tourism being the main means of income - and will
reopen its borders (Emam, 2020). The management of the crisis and the effects of the
decision taken can be observed and analyzed in the long run.
Education
In the countries affected by the coronavirus pandemic, a series of innovative measures

have been adopted to continue the educational act. The performance of the actions taken
varied according to several criteria. We admit that the COVID - 19 phenomenon is
certainly a pressing medical problem, and the slowdown in the spread of the new
coronavirus has been and is the zero priority of all states. This event put on the table
great challenges for all the persons involved in education: students, teachers, parents,
legislators. Nevertheless, it brought the huge opportunity to test and adjust solutions
and systems that could bring the contemporary educational act up to date as it should
have been done long before the outburst of COVID-19.
In Romania, for example, the measures adopted were beneficial mainly for students who
had an average to a high financial situation. The decisions taken by legislators, ministry,
inspectorates, and schools influenced the daily life and education of 2,824,594 students
in Romania. The Romanian Ministry of Education and Research has assumed as main
objectives during this period the pedagogical continuity and the preservation of the
communication specific to the learning process. A well-thought-out measure for 21st
century Europe, but without a unitary fund in Romania. When adopting the measure, the
52,000 households in Romania, which still do not have electricity and in which there
certainly are children, were not taken into account (IRES, 2020).
To reveal the low percentage of access to online education for schoolchildren in

Romania, the Romanian Institute for Evaluation and Strategy (IRES) conducted in May
2020 a study (IRES, 2020) that highlighted the following:
- 32% of children, totaling approximately 900,000 of the students enrolled in pre-
university education in Romania do not have individual access to a functional device (eg
laptop, tablet, desktop) for the online school;
- 12% of students enrolled in pre-university education in Romania do not have a strong
enough internet connection to be able to support online courses;
- During the state of emergency, only two-thirds of the children benefited from online
lessons organized daily, according to the parents' statements;
- Only half of the students had contact with teachers for all subjects during the state of
emergency.
Petroleum and Oil
Amid disagreements between Russia and Saudi Arabia at a meeting of the Organization
of the Petroleum Exporting Countries (OPEC) on the 6 th of March in Vienna, the price of
oil has fallen sharply (Domonoske, 2020). Besides that, COVID-19 creates a supply and
demand crisis for oil and gas. The price of oil has reached historic lows, registering
anomalies such as negative quotations on futures contracts, which target future
transactions. In the short term, cheap oil means cheaper fuels and lower prices, but in
the long run, the risks to the economy are much higher. The historic collapse in oil prices
is hitting the global economy, already weakened by the restrictions imposed by the
coronavirus pandemic. Oil has come to cost less than water, and some traders even offer
money to get rid of surplus oil. The imbalance was created on the premises of drastic
traffic restrictions imposed to prevent the spread of the novel coronavirus, 2019-nCoV.
Thus, globally there is a huge surplus of oil reserves for which there is no demand and
no storage space – oil companies no longer have storage space for this oil surplus.
674 Strategica 2020
Agri-food sector
Measures imposed globally by the authorities, such as social distancing, travel

restrictions, and the prohibition of congregations have led to a decrease in consumption.
Therefore, another sector affected was the agri-food sector, especially for perishable
food. The verification and transport schedule of products was delayed by the lack of
available inspectors and delivery staff. Several actions such as “Panic buying” or the low
level of pharmaceuticals (such as preservatives) in certain sectors have also complicated
the situation.
Finance Industry
In less than half a year since its outbreak, the new SARS-CoV-2 coronavirus has had a
major impact on communities, businesses, and organizations globally, unduly affecting
financial markets and the global economy.
The impact of the COVID-19 pandemic is gradually proliferating in a negative direction

on the world economy according to estimates made by international fora. The causes
underlying this state of affairs are the temporary interruption of an important part of
production; dysfunctions in the supply and distribution chain; the emergence of
imbalances on both the demand and supply side of products on the market and
uncertainties about short- and medium-term developments.
Financial institutions resisted the measures taken by governments and authorities

during this period, proving adaptability in cooperation and resilience in the context of
increased market volatility. Romania was no exception to the global trade fluctuations.
According to the economic forecasts calculated by the European Commission (EC, 2020)
in May, in Romania, the GDP will decrease by 6% in 2020 and will increase by 4.2% in
2021. Inflation will reach 2.5% during 2020, being followed by 3.1% in 2021, while the
unemployment rate will reach 6.5% in 2020 and 5.4% in 2021.
Tourism and hotel industry
Tourism understood as a global industry was the first economic sector severely affected
by this emergence crisis. Recent history has shown that epidemics and pandemics have
a direct and immediate impact on hotels and restaurants, airlines, travel agencies, etc.,
due to international travel restrictions, media coverage, and government measures.
Following the easy spread of the SARS-CoV-2 virus, several measures were adopted,
including - social isolation/distancing, which includes limiting or even stopping travel.
This has led to negative economic effects in the hotel and aviation industry.
According to the latest statistics from the World Travel and Tourism Council, the
tourism and hotel industry currently contributes 10% of global GDP and one in 10 jobs
in the world is related to this field. Following the global COVID-19 pandemic, a bleak
scenario has been projected regarding the situation of the global travel and tourism
market. According to data analyzed by the World Travel and Tourism Council, by 2020,
100.8 million jobs will be lost worldwide (STATISTA, 2020). The region that is expected
to suffer the most losses due to the emergence of COVID-19 is the Asia Pacific.
Approximately 63.4 million jobs will be lost in this area. Europe is the second hardest-
hit area, with a projected 13 million job losses.
Mobility Market Outlook on the effects of COVID-19 estimates that in 2020 global
revenues from the tourism industry will reach only $ 447.4 billion. This amount
indicates a significant decrease compared to the previous year, which brought in
revenues of about 685,065 million US dollars. Besides, we note that the forecast initially
made for 2020 was about 712,000 million US dollars.
Global revenue in million US dollars

800,000
711,944
685,065
700,000
600,000
500,000 447,412
400,000
300,000
200,000
100,000
0
2019 2020 INITIAL 2020 RESTATED
FORECAST
Figure 3. Forecasted change in revenue from the travel and tourism industry due to the
COVID-19 pandemic worldwide from 2019 to 2020
Source: authors’ processing based on the information published by STATISTA.COM
Healthcare and the pharmaceutical industry
The COVID-19 pandemic poses an unprecedented challenge to health care systems

around the world. The overburdening of the medical sector as a result of the emergence
of the new coronavirus highlighted the risks to which medical staff and patients were
exposed, the vulnerabilities existing in several levels of the system, the lack of adequate
equipment, and trained human resources. In the background, there were shortages of
high-performance medical devices, such as Intensive Care Unit beds, mechanical fans,
but also protective equipment: surgical masks, visors, goggles, disinfectants, etc.
To counteract these dysfunctions, the destination of certain funds was changed, and they
were reallocated to the medical sector, which has seen an increase in efficiency.
However, the most significant development has been the pharmaceutical industry.
Profound changes in the dynamics of healthcare are also expected, consisting mainly of
disease prevention infrastructure, the elaboration of a vaccine, the development of
medicines, and the operationalization of healthcare services in digital format. Several
states have reported an increasing trend in pharmacy speculation regarding the sale of
medical equipment and devices needed in the fight against COVID-19. To stop the
phenomenon, governments needed to intervene in capping the prices of medicines,
disinfectants, and protective gear.
676 Strategica 2020
Results
From this early review of the effects of the COVID-19 outbreak on the global economy,
we drew the main results of the two pillars treated in the research paper – public health
and economic activities.
In the medical field, the interpretation of the collected data revealed the following
outcomes:
 Underfunding of the health system;

 Defective spending allocation strategy; The orientation of the way public funds
are spent was not only inefficient but also affected by corruption and lack of
transparency;
 Neglect of the prevention policy – the related expenses were underestimated;
Deaths in underdeveloped countries have been attributed to behavioral risk
factors;
 Underfunding was a catalyst for other systemic deficiencies, such as the exodus
of staff, poor health infrastructure, lack of materials and facilities, access to
medical services to disadvantaged groups;
 Overly politicized leadership positions and lack of professionalism;
 Deficiencies of stocks of protective materials and disinfectants in medical units;
 Lack of capacity to convert production units in case of emergency;
 Deficiencies in the supply chain and supply of medicines, equipment, tests,
mechanical fans;
 Inconsistent practices: patients with chronic diseases were affected by the
administration and monitoring of treatment and very often discontinuities in
drug stocks.
In the economic field, we considered optimal the interpretation of the collected data
interdependent by the time variable. Thus, after analyzing the quantifiable indicators,
related to the first half of 2020, we also drew recommendations to improve the pace of
economic recovery. To resist the major shock in the world economy, the programs were
analyzed and adopted to stimulate financial regeneration. Affected states have taken
budgetary, political, and liquidity measures to increase the capacity of health systems
and to provide assistance in particular to affected citizens and sectors (EC, 2020b).
Risks of rising debt or inflation could be controlled by making timely and specific
financial policy decisions. In some corners of the financial markets, theories have been
developed about the long-term consequences of government and central bank support
packages - in particular, two are attracting more attention (Shearing, 2020). The first
possible consequence is that a huge injection of stimulus will eventually lead to an
inflation rate.
Concepts such as ‘helicopter money’ and ‘deficit monetization’ have begun to be seen as
side effects of the COVID-19 pandemic. The second consequence is that the costs of tax
support will lead to an unsustainable increase in debt.
Though, the Chinese state marked progress, showing signs of a slow but steady recovery.
This suggests that effective crisis management can safeguard a state's economy and the
health of its population. Given the fact that the isolation measures have proved to control
the epidemic spread, chances are that they may also pave the way for the resumption of
economic activity. The level of uncertainty regarding the recurrence of the pandemic
determines the decision-makers to keep some of the restriction, thus causing a delay in
the full recovery of the economy.
Conclusions
To mitigate the negative impact on the living standards of the population and the
economy, a wide range of economic measures have been adopted at the multilevel. For
example, the European Commission (EC) was aimed at making European budgetary
laws more flexible by transposing the revision of state aid rules and the Coronavirus
Investment Initiative to provide liquidity to small businesses and the healthcare sector.
Within the European Union, the health of citizens has become a priority, which is why it
was decided immediate support for the most urgent needs and maximum flexibility in
the use of EU funds (European Commission, 2020). The Commission proposes to
allocate 37 billion euros in cohesion policy to fight the crisis caused by the novel
coronavirus SARS-CoV-2. Through the Coronavirus Response Investment Initiative, the
European Commission is providing European citizens with quick and easy help during
this difficult time.
In an attempt to find the proper global recovery solutions, the following observations
were made:
 Given their particularities, states of the world will need to take distinctive
measures to face the global economic challenge.
 To overcome this pandemic, we need a coordinated global effort in health and
economic policy. The strategy of the International Monetary Fund can be seen
as an example of good practice and, in collaboration with other partners, covers
all the aspects of rapid support for affected countries through emergency
financing, policy advice, and technical assistance.
 The International Monetary Fund claims that fiscal policies are at the forefront
of the reaction to the COVID-19 pandemic (International Monetary Fund, 2020).
Fiscal measures can save lives, protect the people and companies from the
economic impact of the pandemic, and prevent the deepening health crisis. Yet
a key priority is to adapt the full cost of health and emergency services. Thus,
global coordination will focus on creating a low-cost vaccine and supporting
countries with limited health care capacity.
 There is an urgent need for support for affected workers and companies until
the emergency is reduced. Consideration will be given to providing a wide range
of fiscally coordinated incentives - where funding conditions allow - to
encourage recovery.
 Fiscal policies are at the forefront of facilitating an economic recovery from the
COVID-19 pandemic. Crisis decision-makers can achieve this goal through long-
term investments - in health systems, infrastructure, low-carbon technologies,
education, and research. Improving unemployment and social security benefit
systems that can protect household incomes from such shocks and strengthen
resilience to future epidemics is also a priority.
By interpreting the analyzed data, the research paper emphasizes the importance of
treating the subject from a long-term financial perspective and applied on a global scale.
678 Strategica 2020
As the main conclusion, we highlight the need to adopt economic recovery policies
designed on the existing needs in the field, depending on the stringency of the
application area. Mainly the underdeveloped/developing states were the most affected
by the crisis as the COVID-19 pandemic accentuated the existing economic cleavage
between social categories.
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680 Strategica 2020
MUSEUMS IN TIMES OF THE COVID-19 PANDEMIC.

FOCUS ON ROMANIA AND ITALY
Alexandra ZBUCHEA
30A Expozitiei Blvd., Sector 1, 012104 Bucharest, RO
Mauro ROMANELLI
Via G. Parisi 13, 80132 Napoli, IT
mromanelli@uniparthenope.it
Monica BIRA
monica.bira@comunicare.ro
Abstract
Museums depend on two factors to achieve their educational and cultural missions:
heritage/collections and audience. In the past decades the role of museums in society, as well as the
way they relate with their audiences changed significantly. As in many other domains, the internet
and technological development influenced museums’ public offers and how they interact with their
audiences, either visitors or the online public. Nevertheless, museums’ strategies have concentrated
on effective visitors to the museums’ premises. One of the effects of COVID-19 pandemic was the
complete closure of museums around the world. Therefore, museums had to adapt to remain
significant to their audience and to continue to achieve their missions. The present investigation tries
to map innovative approaches of museums, especially the ones in Romania and Italy. A special focus
is put on the strategies adopted by museums aiming to help their communities better cope with the
pandemic.
Keywords
COVID-19 pandemic; museums; museums online; museums and communities; museum mission.
Introduction
Recent transformations concerning the role of museums in people’s lives are maybe best
reflected by the failure of ICOM to vote for a new definition in 2019. The mere fact that
an international organization that confers prestige and legitimacy to museums all over
the world came together in an attempt at building international consensus around a new
definition of a museum is, in itself, enough to point out that a major shift has happened.
What is missing now is both acknowledging that change and incorporating it into future
projects. Such a definition like the one proposed by ICOM (or, indeed, any other
international organization of that weight) usually fulfills two roles: it describes the
reality (best case scenario) as well as prescribes the future. Is projecting an ideal state
for the museum to reach.
The recent debates around the concept of “museum” identify it as a cultural and
educational organization that contributes to engendering social value creation within
communities where it operates to enhance the wealth of people and groups within
society. Increasingly, museums tend to become inclusive and democratizing
organizations that follow a participatory and engaging approach in developing
interaction and communication with visitors and their public serving the community by
engendering social value creation within society (Brown & Mairesse, 2018). In
contemporary society, museums play actively within communities they exercise a
critical role in terms of social involvement and inclusion of communities (Sandhal,
2019). Museums are educational and cultural malls and places that contribute to
sustaining social interaction and meetings (Zbuchea, 2015) that help cultural knowledge
creation and awareness involving museum staff and audiences to be involved in debate
and reflection about cultural contents (Lord, 2006). Increasingly, museums are
embracing a participatory and engaging approach to better communicate with the
public and restore the relationships within communities by rediscovering an activist
role for supporting social inclusion and justice (Simon, 2010; Watson, 2007; Janes &
Sandell, 2019).
Museums are learning to get a new opportunity to engage with the public and restore a
social and cultural role within society moving from the threats coming from the global
health emergency due to the COVID-19 pandemic in virtue of a new coronavirus Sars-
Cov2 able to infect rapidly many humans and lead to an acute respiratory syndrome in
serious cases posing difficult challenges to healthcare infrastructures sustainability.
COVID-19 pandemic forced public and cultural organizations as museums to close on-
site visits and rethink services and facilities embracing an online and digital strategy to
respond to the unexpected health emergency rethinking the use of social media from a
channel of communication to a means for spreading cultural material and posing a
challenge in the way that enables museums to disseminate materials about cultural
knowledge and foster participation and engagement with cultural contents (Agostino,
Arnaboldi & Lampis, 2020). Moreover, the closing of onsite visits has driven museums
to improve online services and cultural contents delivery through digital and interactive
technology to stress the social role of museums as organizations embedded within the
milieu of communities to contribute to social value opening a new model of engaging
with culture by enhancing the use of digital sources and social network platforms to
support digital experiences of online visits as a means to motivate people to experience
to revisit the museum as physical place and space of dialogue, debate and meeting taking
for granted that future museum will integrate and blend onsite and online sources and
competence to meet and satisfy the needs of visitors and attract new audiences
(Agostino, Arnaboldi & Lampis, 2020). The increasing demand of online services for
cultural contents and knowledge fruition helped museums to actively play a social role
within society stressing networking, meeting the needs of their actual and future
visitors, working to provide emotional and creative support in online visits, and
fostering creativity and learning opportunities, enhancing digital platforms as a means
to relaunch the social role of museums as institutions embedded within life of
communities that contribute to driving sustainable and inclusive societal growth (Tully,
2020).
Museum reactions all over the world during the first stages of lockdown generated by
the Covid19 pandemic is proof enough that museums have transformed. The spike of
interest in activities proposed by museums (at the beginning of lockdown) also ensured
682 Strategica 2020
that at least some part of their audience was there to witness the change and to form
new expectations. The current article explores how exactly these changes took shape in
the case of museums in Romania and Italy, with insights from around the world.
The paper is structured in the following way. After the introduction, the task and role of
museums within contemporary society are presented. In the third paragraph, the impact
of the COVID-19 pandemic on museums around the world is analyzed. In the fourth
section, coping strategies of museums in times of COVID-19 pandemic with regards to
developing audiences and helping communities cope with the COVID-19 pandemic.
Some case studies in Romania and Italy are presented and discussed. Finally,
conclusions and discussions are outlined.
Museums within contemporary society
Everybody knows what a museum is. It is that place where people go to see old and
valuable artifacts. But is it a museum? Probably this is the predominant perception – a
positive one, but maybe not so appealing for most, certainly not so exciting. Despite this
simple and quite dusty view of museums, when we look at how museums are and what
they do, we see a different picture. Museums today thrive to be dynamic educational,
cultural, and social-engagement places. They offer modern facilities and many additional
services. They have become cultural malls, at least the big and famous museums
(Zbuchea, 2015, pp.107-122).
Nevertheless, both visitors and museum professionals keep asking what is a museum?
A relatively large variety of answers has been given.
Lord (2006), starting from Foucault's definition of museums as heterotopias, defines the
museum as a space of representation and difference. She stresses that interpretation is
at the core of a museum. Museums bring the past in the present for discussion and
contestation. She observes that "the definition of the museum as heterotopia explains
how the museum can be progressive without subscribing to politically problematic
notions of universality or 'total history'. Indeed, museums are best placed to critique,
contest, and transgress those problematic notions" (Lord, 2006).
Walhimer (2015) considers a more practical definition: "an organization in service to

society, open to the public, acquires, researches, exhibits, and interprets objects and
ideas for the purpose of education, study, and entertainment". This functional approach
could be useful to museum managers to set the overall strategy of their organization,
providing that a specific mission is also set.
Other functional definitions are useful for strategic managerial approaches. Lord and
Lord (2009), in an influential museum management manual, define museums as
"complex cultural institutions uniquely concerned both with collecting and preserving
the material cultural heritage and at the same time communicating its meaning –
whether that meaning arises from works of art, archaeological and historical artefacts
or scientific specimens" (Lord & Lord, 2009, p.3).
International Council of Museums (ICOM), the most prestigious international

professional organization, has for long defined a museum as "a non-profit, permanent
institution in the service of society and of its development, and open to the public, which
acquires, conserves, researches, communicates and exhibits, for purposes of education,
study and enjoyment" (ICOM Definition of a museum 2007). Later, the definition was a
bit modified to acknowledge the social and environmental concerns of contemporary
society specifying the purpose of a museum is "study, education, and enjoyment,
material evidence of people and their environment."
Other professional or governmental organizations in the US, the UK, Romania, or in

other countries offer the same kind of definitions, stressing up to now the management
of collections and their presentation to the public (Dillenburg, 2011, p.8). As Dillenburg
(2011) observes, all these definitions have in common the following aspects: nonprofit,
open to the public, collections, exhibits, and public service. Analyzing all these elements,
he observes that they are either imprecise or not specific to museums, but stresses that
at the core of a museum is the exhibition. Dillenburg defines a museum as "an institution
whose core function includes the presentation of public exhibits for the public good"
(Dillenburg, 2011, p.11), and the exhibit is "a physical environment designed for the
experience of embedded knowledge" (Dillenburg, 2011, p.13).
But nowadays, these approaches are too narrow considering the evolution of museums
and their relationship with society. After the second world-war museums slowly
changed their role within communities. In the beginning, local museums were
concerned more with serving and interacting with their(local) communities (Brown &
Mairesse, 2018, p.528). Slowly museums became forums aiming to disseminate
knowledge (Cameron, 1971). Slowly, museums start to consider themselves and to be
considered (at least by central and local administration) agents of local development,
they (could) contribute to general well-being.
A critical question in understanding museums and designing proper management and

marketing strategies for them is "what is the role of museums?". Many responses have
been given, mostly revolving around the ideas of education and research. Lubar and
Lubar (2017) show that "at each stage of their history, museums and museum artifacts
have found new utility" (p.245). Maybe the most recent and relevant role of museums
for contemporary society is community building, no matter the profile of their
collections. This new focus does not mean that the educational or cultural relevance of
museums has vanished, quite the contrary. They are still at the core of museum activity,
but they are considered in an interactive and experiential framework and have a
social/societal focus.
Considering this evolution, in 2019, ICOM radically changed the way it defines museums.
At the annual conference of ICOM, a new definition failed to be accepted by the museum
community. The proposed definition states: "Museums are democratizing, inclusive and
polyphonic spaces for critical dialogue about the pasts and the futures. Acknowledging
and addressing the conflicts and challenges of the present, they hold artifacts and
specimens in trust for society, safeguard diverse memories for future generations and
guarantee equal rights and equal access to heritage for all people. Museums are not for
profit. They are participatory and transparent, and work in active partnership with and
for diverse communities to collect, preserve, research, interpret, exhibit, and enhance
understandings of the world, aiming to contribute to human dignity and social justice,
global equality and planetary wellbeing." This extensive description of museums shows
a dramatic shift from "academic", "classic" museums to organizations tightly connected
684 Strategica 2020
to their communities, with a significant social role. As Sandhal (2019) observes,

museums are an important and active part of the society, and cannot be understood
outside their communities.
All the above shows that museums can be vital actors within society, with a complex role
for the benefit of various communities. But, considering that museums closed and all
their activities have been disrupted by the COVID-19 pandemic, in this context and post-
pandemic societies can museums still be relevant?
The impact of the COVID-19 pandemic on museums around the world
Starting with March 2020, for at least two months, many museums in Europe, the US, as
well as in other parts of the word closed for visitation due to the COVID-19 pandemic.
Still, museums did not stop operating due to two main considerations. On one hand,
heritage/ museums’ collections have to be properly and permanently managed, even if
the museums are not open for visitation. On the other hand, museums’ missions are
oriented towards the public good, towards museum communities, and they should be
reached no matter the difficulties. Therefore, most museums either adapted their
previous projects or took new challenges (Dobrzynski, 2020), trying to cope at their best
with the new situation.
Blocking the direct contact between visitors and museum collections and staff, the
pandemic gravely affected all public programs as well as the attaining of museums’
missions. Another significant negative impact is the sudden decrease in funding, both
directly – cutting the visitor-related revenues – and indirectly – affecting sponsorships
and other financing mechanisms. Also, additional costs have been registered, such as
disinfecting protocols or acquiring of digital technology. In many countries, both public
and private organizations set up a mechanism to help museums, as well as other cultural
organizations and artists, survive the multiple challenges they face due to the COVID-19
pandemic (Carrigan, 2020a; de Silva, 2020; Hickley, 2020; McGivern, 2020).
Nevertheless, these efforts are not enough (see, for instance, Bailey, 2020), and
museums have to apply effective crisis management strategies.
There is no reliable, comprehensive, and complex global evaluation of the impact of the
COVID-19 pandemic on museums’ management, and it is too early to observe the lasting
impact, but the data we possess shows the following situation:
- all museums have been severely affected from a financial perspective (ICOM, 2020b;
Kotarba-Morley, 2020; NEMO, 2020); private museums and those in the capital cities
being the most impacted (NEMO, 2020); somewhat paradoxically, museums that were
the most successful in business operations, therefore previously more independent
from sponsorships and funding schemes, have been the hardest hit (Knott, 2020; Stokes,
2020).
- a significant part of museum staff, especially of independent and national museums (in
the UK) worry about their roles in the new context (Knott, 2020);
- in most cases museum employees worked from home in April (ICOM, 2020b; NEMO,
2020), their activity and responsibilities being changed to better cope with the new
context (NEMO, 2020);
- Museums have generally given up working with volunteers and external experts
(NEMO, 2020); In the US, 23% of the art organizations reduced staff and 24% reduced
salaries (Americans for the Arts, 2020); around the world, 30% of the museums intend
to downsize, with the highest figures in North America (ICOM, 2020b);
- in April, around 13% of the museums considered they will close permanently, the most
affected regions being those with newer and fewer museums (Arab countries being the
worst impacted) (ICOM, 2020b);
- 10% of museums around the world have taken additional security measures to protect
their collections (ICOM, 2020b).
- in terms of marketing strategies, a study (Richardson, 2020) shows that museum
marketing managers turned to digital, although the associated costs are increasing. A
new boost was given to e-mail marketing strategies. Another change is targeting more
local audiences. Generally, budgets are declining.
Some museums transformed the re-opening for visitation is an event, some others
opened the doors cautiously. A strategic approach was mean to overcome fears related
to the pandemic, to (re)focus the attention of the public towards culture – a difficult task
considering the new everyday challenges. A beautiful campaign was initiated by the
Museo Archeologico Nazionale di Napoli, entitled “Il MANN ricomincia da te”. 1
1 http://www.museoarcheologiconapoli.it/it/2020/05/il-museo-archeologico-nazionale-di-
napoli-riapre-il-2-giugno-novita-per-la-ripartenza-al-via-la-campagna-il-mann-ricomincia-da-
te/.
686 Strategica 2020
Reopening museums for visitation is a challenge both for museums and their visitors. A
first concern is related to the safety both of visitors and museum staff. Having this in
mind strict visitation procedures have been developed. In some countries, such as in
Romania, the government imposed specific rules. Various professional organizations
also issued various guidelines. For instance, see the case of the National Museum
Directors’ Council in the UK (NMDC, 2020), the International Committee for Museums
and Collections of Modern Art (CINAM, 2020), or ICOM (which organized also webinars
for interested museums). The Romanian National Network of Museums 2 also issued a
set of recommendations, but most of them seem to be eluded by museums, which comply
with the minimum required by the regulations issued by the Minister of Culture.
In the case of Italy, discussions among professionals have been developed during the
lock-down and various public bodies, as well as universities, have been concerned to
support museum operations during and after the lock-down. For instance, as early as
March 2020, the School of Specialization in Historical-Artistic Heritage from the Padova
University organized a webinar "Musei in tempo di Covid 19: nuovi scenari e modelli di
gestione", inviting managers of important museums in Italy. The Ministry of Culture
supported the campaign “La cultura non si ferma” 3, or the webinar of the delle Marche
University4 on how to develop museums in the new context. Also, before the re-opening
for the public, a series of personalized recommendations and regulations have been
presented for cultural organizations 5. The Mus.e Association, in partnership with the
Municipality of Florence, initiated in April a weekly forum on Instagram, dedicated to
museum professionals, presenting approaches and insights from best practice,
discussing the role of museums in the future, etc. (FirenzeToday, 2020) Also, ICOM Italia
was active in supporting museums with workshops and discussion platforms, weekly
online discussions on digital culture approaches, online conference, or stimulating
museum visitation (ICOM Italia, 2020a, b, c, d).
Even in these situations museums still have a lot to say to ensure health security (for
instance visitation paths, distance markers, or providing masks). Having strict visitation
procedures does not ensure their awareness and compliance. Therefore, museums
should inform visitors on them and monitor the implementation. Most museums would
probably use posters to inform their visitors, but more creative means might be used to
ensure their effectiveness. For instance, museums could use all sorts of videos – which
also present the opportunity to raise awareness for the museum’s programs and
exhibits, and even attract visitors (Atkinson, 2020). At least temporarily, alternative
access procedures are designed (Dickson, 2020).
Sometimes re-opening museums had to be postponed because ensuring proper

infrastructure for safe visitation and another necessary arrangement was not possible
due to lack of funding. This was even the case of large museums, such as Palazzo Vecchio
in Firenze (Bozza, 2020).
2 https://www.facebook.com/Reteaua.Muzeelor/posts/3125633257513619.
3 https://www.beniculturali.it/laculturanonsiferma.
4https://www.youtube.com/watch?v=l83iZNoQMLM&feature=youtu.be&fbclid=IwAR006hib
ArMvXsL4LWq40nQ183tu1Cran-CsEXaShoidbatQFftA6HyI8mI.
5 http://musei.beniculturali.it/musei-covid19
A difficult aspect to handle is the interactivity inside the museum. For the past decades
there is a trend to ensure interactivity, hand-on exhibits, touch screens, and such, and
now all these present risks for users. Some museums just stopped the access of the
public to these installations, as it happened to several museums in Bucharest with
installations, games, and self-managed tours for families. Some others adapted to the
situation, for instance offering disposable supplies, or single-use pens for touchscreens.
One of the challenges museums are facing is ensuring interactivity and delivering a
unique visiting experience without touching. Creativity and innovation are key to this
process. At least temporarily, museum interaction which up to now is touch-based will
become virtual (Vanek, 2020). Some museum-based tools might be used, such as
movement and light sensors, as well as visitors’ smart devices that would use museum-
designed applications. Museums turn toward movement- and voice-activated
technologies, but not all museums could afford the investment (Jacobs, 2020).
The post-COVID-19 world means different practices in terms of exhibitions. For

instance, the expectation is that museums would use more their collections and
blockbuster exhibitions will hardly be considered (Debono, 2020; Dickson, 2020). It is
possible that more cooperation for joint exhibitions and public projects between
neighbor museums to emerge (Hawkins, 2020). Also, traveling exhibitions will change,
their present picture consisting of lighter, smaller but denser in terms of knowledge
(Debono, 2020). Online exhibitions might increase – and they would probably be more
collaborative. Storytelling and increased cultural value might become the main traits of
future exhibitions. Creativity and innovation could be two pathways to the effectiveness
or at least image development. During the lock-down many museums took the
opportunity to experiment with various formats of online exhibitions and services,
therefore, they could have a base for development in a post-pandemic world (Keats,
2020). Not only online but also unique offline formats, such as a drive-in exhibition
(Ritchie, 2020), have been proposed. An analysis of these new models would generate
better approaches.
The regained physical access to museums' collections will not eliminate increased
attention to the online platforms of the museums. The quality of the experience of the
public due to the pandemic increased, leading to raised expectations. The museum
cannot go back to previous approaches. The digital approach is, for sure, one of the
permanent consequences for museums connected to the pandemic. The COVID-19
pandemic forced many museums around the world to undergo an abrupt digital
transformation, especially when considering their audience and public offer. Although
this path was taken by museums many years ago, the pandemic accelerated the
movement.
The managerial and marketing strategies of museums have to give more attention to
three relevant dilemmas: user engagement, planning & control, as well as costs
(Agostino, Arnaboldi, & Lema, 2020). The first one refers to finding the balance between
what uses want and what the museum think is better to provide. Fine-tuning between
the two is not only a matter of content but also of form, tone of voice, and attitude. The
second dilemma is related to the degree of flexibility in designing and implementing
online projects. The latter concerns if museums should charge users for (some of) their
online services. The free offer that was the norm when the internet was perceived as a
688 Strategica 2020
secondary communication channel is questionable when the place of social media as a

tool for delivery of cultural services and mission attainment shifted.
Museums around the world adapt to the new context, but they need to change their
strategies and approaches. Nevertheless, this is not easy to do (Ambroso, 2020).
Museums have to change their operational model, but also how they communicate with
their public. Many dimensions have to be considered, such as staff, infrastructure and
accessibility, design, technology, and others (see some suggestions offered by Studio
Tectonic, 2020). Marketing strategies face new challenges to bring visitors back in these
troubled times. It seems that the return of visitors to museums is not a smooth process.
For instance, in Bucharest, between May and August, the number of visits decreased
with more than 60% in most cases (Agerpres, 2020). In Italy also the visitation figures
are much lower after lock-down. On one hand, foreign tourists are low in numbers. On
the other hand, new regulations are limiting the number of simultaneous visitors, and
locals/Italians might not be so eager to flock into museums. In these situations,
museums tried to adapt, such as the Vatican Museums which changed the visitation
hours to allow Romans to visit after work (Williams, 2020).
Museum managers consider the high probability of a medium and long term drop in
attendance numbers, and one of the measures taken to reduce risks and costs is to fire
staff (Charr, 2020; Shaw, 2020b). In reaction, museum professionals become actively
involved in unions. The staff of the Museum of Fine Arts in Boston organized a successful
mutual-aid campaign to raise funds for their laid-off colleagues (Kinsella, 2020).
Coping strategies of museums in times of COVID-19 pandemic
Developing audiences
Of course, museums turned online to connect with their public. The digital technologies
have offered new opportunities for museums. The internet is a simple communication
channel. It can provide a framework for significant personal and educational
experiences. It allows development of new cultural and educational offers (Fedele,
2020). It has been exploited in various ways by museums around the world in the past
few years, but the lock-down associated to the COVID-19 pandemic pushed the
strategies forward.
In the beginning, they used and adapted existing online products, later developing new
products and online campaigns. The online items that recorded the highest growth were,
according to a NEMO study (NEMO, 2020), the use of hashtags in social media, the
presentation of online collections, online exhibitions, virtual tours, and
competitions/quizzes. As expected, services that require more resources, time, and
knowledge, such as podcasts, have grown less. The European countries with the highest
increases in the use of online services during this period are Ireland, Russia, Bulgaria,
Hungary, Slovakia, and Slovenia. The countries that reported the lowest increase in
online activity are Switzerland, Belgium, Sweden, France, Germany. Romania reported
an average increase in the number of online services, as well as Italy, Spain, and the
United Kingdom. (NEMO, 2020) It should be noted that this reporting refers to the
growth of the online activity, not to its magnitude or quality. Countries/museum s that
already were active online and had a consistent offer probably did not report a
significant increase or even intensified this activity. A global study of ICOM (2020b)
shows similar situations, with social media increases for almost half of the museums and
podcasts presented the smallest development.
Some museums relied on past exhibitions/ public programs, but developed them in an
original way. This allowed them to prove their creativity, to develop consistently their
offer and connect in new ways to their audience. For instance, in the beginning of May,
starting from a past exhibition which has a dedicated online platform, the Archeological
National Museum in Napoli developed a “Giorni della Forza” week 6. Under the pretext of
the Star Wars day, the museum presented artworks and histories related to ancient
heroes. Sone public and educational programs were offered in an online format, as
online debates on Facebook/ YouTube.
Social media proved to become the most important channel to connect museums to its
audiences. Museums use social media in many ways to inform of cultural opportunities
even in times of social distancing, to raise awareness, to educate, to engage. The use of
hashtags increases the international visibility and impact (Dawson, 2020).
Research on the social media activity of the main Italian museums shows a doubling of
social media activity (Agostino, Arnaboldi, & Lampis, 2020). Nevertheless, the number
of followers did not increase to a similar extent, with the highest value registered on
Instagram. This data suggests a high potential for Instagram as a channel for relating
and even engaging with the audience. Not only that museums communicate more on
social media, but they also changed the content – social media is not anymore used
during the pandemic only as a communication channel, but a knowledge-transfer tool
(Agostino, Arnaboldi, & Lampis, 2020)
A study on the museums in Bucharest shows that all the museums turned to Facebook
to keep contact with their audience (Zbuchea & Bira, 2020). In most cases, the FB
account changed its status from a notice board to a cultural and educational tool. In
several cases, Instagram also became an active cultural environment. We register for
some museums a deep and relevant transformation during the pandemic - educational
and cultural projects have been developed online, allowing museums to pursue their
cultural-educational missions. We consider it a beneficial strategy if museums do not
abandon this approach in the medium and long term. One positive effect of the pandemic
could be a pressure on museums to burn stages in the development of a relevant digital
offer through online channels.
Helping communities cope with the COVID-19 pandemic
The International Council of Museums (ICOM, 2020a) issued recommendations to

museums around the world to better cope with the pandemic. Maybe surprisingly to
those who see museums only as guardians and exhibitors of heritage, ICOM placed at
the center of museum management concerns their communities and the support of
community resilience.
6 http://www.museoarcheologiconapoli.it/it/2020/05/mannhero-online/
690 Strategica 2020
An online survey conducted during the second half of March 2020 in Romania and Italy
(Zbuchea, Romanelli, & Bira, 2020) revealed a disparity between museum visitors from
the two countries concerning their perception of how museums reacted to the COVID-
19 pandemic. When asked about their overall view on how museums were involved in
efforts to build community resilience (e.g. proposing educational online activities for
children, online visits) respondents from Romania considered that museums abroad are
doing a much better job than museums at home. Respondents from Italy on the other
hand, are appreciating the efforts made by museums at home as being more consistent
than those made by museums abroad. On the other hand, the public view concerning
museums involvement in general conversations around relevant topics for society other
than the pandemic (e.g. global warming, migration, etc.) tends to privilege museums
abroad: both the Italian respondents and the Romanian ones consider that museums
abroad are more involved than museums at home in current concerns of societies.
However, the perceived difference is higher in Romania than in Italy. Another study that
allowed us to explore differences between museum professionals and the lay public in
Romania regarding museums supporting the society to cope with the current pandemic
shows that overall perception is more favorable for museums abroad (Zbuchea & Bira,
2020). Summing up, the public observed some implications of museums, but rather at
modest levels which suggests that they would have higher expectations.
”Stay at home” campaigns developed on social media with related/translated hashtags

were very popular with museums especially during the lock-down. These campaigns
had two folded messages. On one hand, they raised awareness about the importance to
stay home to protect oneself and others. On the other hand, they proposed to people
blocked at-home access to culture and spread the message that culture could help in
many ways help people pass through these difficult times. Various approaches have
been adopted by museums around the world, but in most cases, the visuals presented
museums’ collections. Some original campaigns were mainly based on humor and
virtual reality (see examples in Ciecko, 2020). In Italy, a very popular such campaign,
#iorestoacasa, was initiated by the Ministry of Culture and Tourism. Many museums
participated, as well as artists and various celebrities (Scaramuzzino, 2020). In the case
of the Romanian Museums, we would mention a campaign of the National Museum of
History of Romania which aimed to educate the audience giving reasons to stay home
and offering suggestions for fulfilling spending of the tine at home (see more details in
Zbuchea & Bira, 2020).
Helping the society to better understanding pandemics is one-way museums can

contribute to the fight against the COVID-19 pandemic (Sholts, 2020). Fighting
misinformation was one approach, adopted by the Smithsonian Institutions. Presenting
historical and artistic perspectives on pandemics make visitors reflect the present
pandemic, understand, and adopt proper behaviors to ensure health security.
Museums around the world have started collecting artifacts and documents related to
COVID-19 pandemics (Coates, 2020). In this way, museums become guardians of our
history and contribute to better understanding these times. There is probably a long list
of such museums but many initiatives are proposed to the local communities, therefore,
are not so visible to the outside world (see, for instance, the following cases: Bird, 2020;
BBC, 2020b; Coates, 2020; Kotarba-Morley, 2020; Smith, 2020). UNESCO (2020) also
offers support to started collecting artifacts and visual documents related to these times
this process.
A more consistent approach is the “participatory platform where everyone can

contribute to the historiography of the COVID-19 pandemic” developed in the
Netherlands - coronacollectie.nl. A special initiative is a new museum on Instagram – the
Covid Museum7.
Planning and documenting exhibitions about the COVID-19 pandemic is a form of

helping society to cope in these times. The perspectives could be diverse – psychological,
artistic, historical, etc. Museums can, therefore, choose from a wide variety of
interdisciplinary approaches. Not only museums are active in understanding the impact
of a pandemic on society, but also artists (Dobrzynski, 2020), especially that many of
them have been greatly affected by the changes associated with the pandemic (Carrigan,
2020b; Michalska & Brady, 2020).
Another significant way museums can help their communities is by offering educational
support for professors and parents. Large museums for decades have a consistent offer
in this vein. The changes brought by the COVID-19 pandemic were to determine some
museums to offer for free educational packages for which they previously charged, to
adapt offline materials to the digital environment, and to develop new online
educational services, kits, and products to be used at home. Offering educational support
does not only contribute to reaching a museum’s mission but also to build sustainable
relationships with schools, teachers, and families (Downey, 2020). Close cooperation
during teachers and museums during these times leads to a series of sustainable benefits
both for those involved, as well as for the community. Some local museums might even
depend on this cooperation (Hargraves, 2020).
Raising funding for hospitals or communities affected is a way of involvement that is not
culture/education-related. Museums could be active citizens in fighting directly the
pandemic. Of course, considering the multiple and significant cuts in museums’ budgets
due to the pandemic, fundraising for third parties is very difficult might seem
paradoxical. Also, at the beginning of the pandemic, a few large museums donated from
their equipment (masks for instance) to hospitals (Selvin, 2020; Zbuchea, Romanelli &
Bira, 2020).
Some museums also showed solidarity with the artists. They have been negatively
impacted by the pandemic and even remain without financial resources. In this
framework, for instance, the Museum of Contemporary Art Detroit developed an online
marketplace for local artists to sell their work, as well as an Emergency Rapid Response
Fundraiser for local artists (Selvin, 2020). The European museums part of the
L’Internationale museum confederation had commissioned artists to create “balcony
art”, which might be considered one of the symbols of this pandemic (Rea, 2020).
During the COVID-19 pandemic some museums provided their support towards other
concerns of the society, especially that “Black lives matter” movement or the
International day of museums dedicated to Diversity and Inclusion I n 2020 offered good
contexts. For instance, the Museo Archeologico Nazzionale di Napoli Developed an
Facebook video series entitled “Un lupo al museo” dedicated to raising the awareness
7 https://www.instagram.com/covidartmuseum/?hl=en
692 Strategica 2020
on and discussing various social and ethical issues, such as racism, bullying and
censorship8.
Case studies – focus on Romania and Italy
In the following section, we will present a series of campaigns of museums worldwide

that could be considered models. They could inspire museum managers worldwide, not
just in case of crises, but be considered in “normal” times as innovative and effective. We
will start with the Getty Museum Challenge, which is probably the best-known initiative
of museums during the pandemic.
Getty Museum Challenge – in Romanian style
Getty Museum is a model for other museums in terms of risk management, planning to
cope with the pandemic very early, in a strategic way (Potts, 2020). The Getty Challenge,
consisting of recreating a work of art and posting it on social media, was inspired by a
previous campaign of Rijksmuseum (Goldstein, 2020). This initiative contributed to
increased visibility of the museum, in social media as well as in mass media.
Many museums, cultural organizations, or individuals took the challenge (see Barnes,
2020, some of the proposed visual, from around the world). Some of them did it
systematically and strategically, in an innovative and significant way. For instance, in the
case of Romania, we present two such approaches – at the Romanian National Museum
of Arts, at the National Museum of Contemporary.
The Romanian National Museum of Arts (MNAR) was among the first museums in
Romania to adapt its communication and offer in times of pandemic, immediately
changing the style and aims of its newsletter, to remain significant for its audience
(Zbuchea & Bira, 2020). Starting with April 15 – the International Day of Art – the
museums proposed a series of recreations of works of art, done by museum
professionals (see Figure 1), as part of the Provocarea ARTfel campaign9. At the same
time, the museum challenged the audience to post recreations of works of art. Several
persons responded. The campaign was simple, the museum missing the opportunity to
post information about its works of art or to transmit a specific message. We would say
that the campaign was a game, as well as an invitation to play with the art.
8 http://www.museoarcheologiconapoli.it/it/2020/05/un-lupo-al-museo-esperimento-sociale-
sociale-su-pagina-facebook-del-mann/
9 https://www.facebook.com/MuzeulNationalDeArtaAlRomaniei/posts/3012798595447764?
__tn__=-R
Figure 1. Provocarea ARTfel - a series of paintings "recreated" by the National

Museum of Art of Romania
The second campaign, entitled Actors to be framed, developed between May and August,
was more complex, with clear cultural and educational aims 10. Each work of art was
accompanied by three posts: the recreation featuring one of the actors of the Nottara
Theater, a partner in this project, a 3-minutes video in which the actor presented the
artwork and the artist11, a short “making of” video. 15 artworks have been “reproduced”.
10https://www.facebook.com/MuzeulNationalDeArtaAlRomaniei/photos/a.130679580326361
/3073239309403692/?type=3&__tn__=-R
11See the YouTube channel of the museum -
https://www.youtube.com/playlist?list=PL_vUVJgnopXTljN40vCagZYjbxsqttDZy
694 Strategica 2020
Figure 2. Actors to be framed – a series of recreations made by MNAR in

partnership with the Nottara Theater
The National Museum of Contemporary Arts (MNAC) developed a smaller campaign 12,
but innovative. Starting in April until mid-June, MNAC answered the challenge launched
by the Getty Museum by recreating some works from its collections with what is in the
house. The specific hashtag used for the campaign was #HomeMadeArtÎnColecțiaMNAC
(#HomeMadeArtInTheMNACCollection). The campaign has been appreciated by the
public, but no person answered the challenge of recreating artworks with “whatever
would be available in a home”. The campaign was meant to be fun and educational,
providing information on the artwork, the artist, and or the significance and role of arts
in these difficult times.
12 https://www.facebook.com/mnacbucharest/posts/2998849290174084?__tn__=-R
Figure 3. Visuals proposed by MNAC, recreating artworks using handy objects in

the house
The Getty Museum Challenge is the most popular museum initiative in times of the
COVID-19 pandemic, but it is not the only one positively answered. #CuratorBattle is an
initiative on Twitter, launched by the UK's Yorkshire Museum encouraging museums to
share the most unusual items in their collections (Clugston, 2020; Laurinavičius &
Balčiauskas, 2020). From mid-April until mid-July, the museums launched on social
media weekly challenges: creepiest object, biggest object, dullest object, Easter egg, etc.
They were largely appreciated, while the last one - #BestMuseumBum, was covered by
the Guardian (Sullivan, 2020), while previously the initiative was presented by CNN
(O’Hare, 2020) and BBC (2020), as well as other, smaller, media. Some of these articles
also encouraged readers to donate to the museum. This campaign is a funny and
engaging way in which museums can raise awareness concerning their collections. Also,
museums benefit from image development and additional followers on social media.
Museums supporting artists – the case of MNAC
Very rarely the Romanian museums develop their collections through acquisitions. Most
of the museums are public institutions, and their financing is not generous enough to
cover the costs associated with significant heritage works, while various administrative
regulations make it difficult for the planning of acquisitions. In most cases, collections
grow through donations and/or archaeological finds. Nevertheless, in August, the
National Museum of Contemporary Art (MNAC) achieved the unthinkable: during the
pandemic, when budgets for culture are generally cut and funding from tickets and
commercial activities decreased to a very large degree, MNAC obtained additional
696 Strategica 2020
funding from the Ministry of Culture to acquire works from Romanian artists, active
either in Romania or abroad13.
ArT you ready?
The support of public administration and central governing bodies is essential in helping
museums cope with the pandemic, and even to survive. This is why in some countries,
such as the US, the UK, or Germany, the state proposed various supporting financial
schemes, as previously presented. In some other countries, the central administration
proposed cultural programs to help cultural organizations reach their missions even in
these difficult times. Such an initiative is ArtYouReady, a weekly digital flashmob
initiated in March by the Italian Ministry of Culture and Tourism (Agostino, Arnaboldi,
& Lampis, 2020). The aim is not only to bring together citizens who have to stay at home,
but also to prove that heritage “is alive and it represents the soul of our identity”.14
The launch of this challenge was an appropriate occasion to discuss the free access to
museums’ heritage, relevant for allowing it to have the meant educational and cultural,
even economic impact (Volpe, 2020). “The liberalization of images and openness to data
is not limited to the emergency phase but becomes a cornerstone of a new way of giving
value to our heritage… That's why "ArT you ready?" of Sunday 29 assumes an even
stronger and higher meaning than a simple marathon of images. It is an invitation to
participation, to creativity, to experimenting with new forms of cultural heritage
management” (Volpe, 2020).
The campaign, especially its launch, attracted a lot of mass media coverage. This could
be related to two aspects. First, being backed by the Ministry, it benefited from large
visibility and probably PR support. Secondly, such initiatives have the potential of
attracting positive support from media and representatives of the cultural sector,
creating a positive state of mind and level of expectation.
Evaluating the public’s reaction to the campaign is difficult. The investigation of the
associated hashtags shows that although the response was positive, the drive of the
campaign was not very strong, especially in the long term. Around 8.000 Facebook posts
used the hashtag #artyouready and almost 4.500 posts used #emptymuseum. On
Instagram la hashtags were much more popular, still, many of the posts marked with
these hashtags are not related to the campaign. We remark that on Instagram the
hashtag #emptymuseum seems to be more popular than the other one, in connection
with heritage. We also observed that the interest in the campaign faded in time, probably
related to less communication and awareness campaigns of the Ministry and the
organizing of other digital flashmobs, tourism-oriented.
13https://mnac.ro/article/199/Apel%20achizi%C8%9Bii%20de%20opere%20de%20art%
C4%83%202020/87;
https://mnac.ro/article/200/%C3%8Entreb%C4%83ri%20frecvente?fbclid=IwAR1u_mkbe91l
cC7bbjsAtz2w3eResng85dZwhYrq0HzeTVByw6UmdeUdZfs
14https://m.facebook.com/MiBACT/photos/a.190659273710/10158061732843711/?type=
3&source=57&__tn__=EH-R.
#ARTWORKS 2.0 per Brescia
This campaign was developed by the Brescia Musei Foundation. It is a solidarity

movement, meant to support the promotion of the local heritage as well as local
development. It is an innovative digital project aiming to generate funding for the city
by presenting a 3D animation of Brescian heritage. 15 The project consisted of 3D
recreations of some works in the collection of the Pinacoteca Tosio Martinengo. The
theatrical recreations allow us to make a journey within them, discovering new points
of view. The images are accompanied by readings about the artworks.
This project is linked to a fundraising campaign in charge of the municipality of Brescia

“SOStieni Brescia. Dona per la tua città”. Building a solidarity-oriented and creativity-
driven collaborative partnership between Foundation Brescia Musei and the creative
professional studio camerAnebbia helps generate new meaning and values by bringing
together originally both creativity and solidarity enabling people to appreciate these
joint value in a whole and in a very difficult moment for the life of who belongs to
Brescian community. Moreover, the professional studio has ceded the own amount of
compensation and gains to realize digital animation and fundraising campaign launched
by Brescia municipality “SOStieni Brescia. Dona per la tua città”. In particular, the idea
about the creation of new 3D digital contents helps both enhance the Brescian cultural
heritage asset and strengthen the participation of urban communities in the cultural
content sharing project by strengthening a dynamic and interactive way of fruition for
users and to effectively contribute to supporting the motivation and helping the quality
of life within the urban community.
This initiative stresses the need to support cultural dialogue and diversity among
private and public institutions as a source to enable collaborative spaces as a framework
to contribute to improving the quality of life of citizens within urban communities and
environments.
The reopening of the museums in Brescia was supported by various campaign

developed by the municipality, under various slogans, such as “L’avventura continua”,
“Dove eravamo rimasti?”, “La bellezza continua” or “Nuovo stile, emozioni antiche”.
15 https://www.bresciamusei.com/;
https://www.facebook.com/TurismoBrescia/posts/artworks-20-per-bresciasabato-11-aprile-
alle-1600-primo-appuntamento-della-nuova/2861313047292231/ ;
https://www.facebook.com/watch/?v=1133168133689097.
698 Strategica 2020
Conclusions and discussions
In the context of the COVID-19 lockdown, museums seemed to have been better placed
as compared to other cultural institutions for accelerating the digital transition and
expanding the range of meaningful online activities. In addition, a spike of interest in
museum activities was noticed, on behalf of the public, everywhere around the world
during the first stages of lockdown. Other priorities soon arrived and after returning to
the so-called ‘’new normal” museums seemed to have regained their usual place within
the public preferences for leisure activities.
The attitudes and decisions of the public bodies were also relevant in helping the
museum community successfully face the challenges associated with the pandemic. In
the case of Romania, the support of the public bodies was low and even some measures
supported health or other domain affected had a negative effect on museums and other
cultural organizations. The responsibility to cope with the COVID-19 pandemic relied
almost exclusively on museum managers and professionals. In other counties, such as
Italy, central organizations, both public and private, supported in a significant way
museums helping them to cope with the new challenges and also raising the public
awareness on museums and culture.
Museums' effort to adapt to online audiences has considerably increased especially in

countries were previous online activities were scarce. On the other hand, people's
expectations changed. Another study might be needed to explore what exactly changed:
expectations related to the quality of online experiences? Expectations as to museum
role within society or community?
Museums as organizations need to continuously rethink how to perform the educational

and cultural tasks within society to contribute to engendering social and cultural value
and knowledge within communities they are embedded in. The rise of a global health
emergency due to the advent of a new coronavirus leading to COVID-19 has forced
museums to close onsite visits and strengthen the opportunities provided by the use of
information and digital technologies as a strategic source to develop new services and
reinforce the relationship with visitors, users and the public in general. The rise of a new
opportunity for getting online services and materials has led museums to redevelop a
digital strategy for promoting increased communication and interaction with the public.
The opportunities emerging from an online and digital explosion and presences open up
to rediscovering museums as project-driven organizations that reposition themselves
acting to play a new role and meaning restoring communication and relationship with
their audience within social and cultural ecosystems. Thereby, it is reasonable to think
that the museum’s initiatives oriented to, at this stage and under uncertainty conditions,
rearrange the organizational and technological infrastructures and sources to
reposition the museum within the community and society were moving coherently with
emergency contingencies as shown from the advent of a global health threat constituted
by the COVID-19 pandemic. In particular, museums are rethinking the future role and
positioning of the museum in post-pandemic society and reality by developing and
enhancing online capabilities in times of pandemic emergency that had driven museums
to reinvent a digital approach to cultural contents production and delivery.
The case studies seem to show how museums are actively using information technology
to learn how to shape the museum as a cultural and technological space that enable
audiences and communities to interact and contribute to knowledge about cultural
contents and support social values and identities rediscovering an activist role as an
organization that does not merely offer cultural materials but develops the potential of
cultural artifacts as enhanced by increased and strategic use of digital sources and online
platforms that drive museums to rethink the museum as a community-oriented
organization that restores the relationship with audiences by using capabilities and
sources to support social, sustainable and inclusive growth of communities.
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702 Strategica 2020
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706 Strategica 2020
BOOKS REACHING READERS IN TIMES OF COVID-19

Alexandra ZBUCHEA
30A Expozitiei Blvd., Sector 1, 012104, Bucharest, RO
Adina SANIUTA
adina.saniuta@facultateademanagement.ro
Bogdan HRIB
bogdan.hrib@facultateademanagement.ro
Abstract
The book market was one of the worst impacted during the COVID-19 pandemic, especially in
Romania, where it already was a small one and concentrated in urban areas. Although e-books,
online bookstores, and digital business models have been part of the book market landscape for some
time, the COVID-19 pandemic strongly disrupted it. For a while, in many countries, the book market
existed only in its digital form. Therefore, the business, marketing, and communicational processes
moved online. The present paper analyzes the email marketing strategies adopted in the Romanian
book market and is a starting point for future researches of the communication instruments in the
book market. The findings suggest that companies are strongly oriented toward sales and branding
is a secondary concern.
Keywords
COVID-19economic crises; email marketing; newsletters; publishing industry; book market; book
marketing; promotional strategies; Romania.
Introduction
The book market in Romania has been perhaps the clearest mirror of society and its
evolution in the past century. After a difficult journey towards the status of a stable
industry in the Interwar period, the communist era and state-owned publishing houses
destroyed this sector of activity. There was no competition, no free market, all titles
published were subject to censorship. Books were mainly used as propaganda tools and
meant to support the cultural and political approaches of the communist system. After
1990, the Romanian book market experienced the same stages as Romania's economy,
with periods of crisis and periods of development. Still, a slow increase and
diversification of the market are to be observed. The online book market, as well as the
e-book market also slowly increases. Overall, the development of the Romanian book
market follows global trends, but at a slower pace (Fruntes, 2015).
After the fall of communism, there was a high interest in publishing the works forbidden
previously by censorship or the ones which have not even been submitted for scrutiny,
being considered critical to the communist system (Fătu-Tutoveanu, 2010). The next
trend of interest was in foreign authors, especially contemporary ones, who were not
valued, translated, and published by the communist regime. Slowly, the number of
Romanian authors also increased in time.
The book market developed constantly in terms of the number of titles every year. The
strongest growth was registered in the field of arts & entertainment, but still, this is the
domain the least developed. Literature, social sciences, and applied sciences are the
best-represented domains (Ioncica, Marin-Pantelescu, & Popescu, 2010). The number of
copies printed for every title, to picture is quite different from the previous one – the
figures fluctuate, showing a changing demand and a sensitive consumer. There are no
reliable figures on the sales structure, but data suggests that fiction and children's books
lead the market (Ioncica, Marin-Pantelescu, & Popescu, 2010).
The consumption of culture and especially of books, placed at the top of the needs
pyramid, has always been subject to the first gusts of economic crisis, the last of which
in the period 2008-2012 most severely affecting this industrial sector. The present
crises, connected mainly with the lock-down associated with the pandemic, greatly
affected the Romanian market, at least in the short-term. And yet it is still difficult to
estimate where it will lead and how long the crisis generated by the pandemic will last,
as Marin Vidrașcu, the director of the Litera publishing house, states, considering that
the two crises are difficult to compare and the decrease in sales at this time is only 30%.
(Saiu, 2020).
The present paper investigates the email marketing strategies adopted by the main
Romanian publishing houses and book shops in the context of the COVID-19 pandemic.
The paper is structured as follows. The introduction presents a bird’s eye view of the
Romanian book market evolution. The next section briefly investigates the impact of the
pandemic on the Romanian SMEs and their main adapting approaches. The following
part focuses on the evolution of the book market during the pandemic. Next, the role of
newsletters is presented to offer some additional points of reference in understanding
the specific approaches in the Romanian book market. This succinct section is followed
by an explorative investigation of the email marketing strategies of the main actors in
the market. The final section presents conclusions and associated discussions.
Business response in times of crises – the case of SMEs
Each crisis comes with both challenges and opportunities. It is a good time to accelerate,
to embrace change, and to reconsider the way the business is structured. In the
following, we shall present an overview of the impact of the COVID-19crisis in Romania
and how SMEs responded to it. COVID-19 pandemic has led to a decrease in overall
business activity, with a negative influence on the operating income, profitability, and
liquidity position of SMEs operating in Romania.
The research agency MKOR conducted a study on 243 Romanian companies (67% small
enterprises, 22% microenterprises, 8% medium companies, and 3% large ones), which
revealed that:
708 Strategica 2020
- 91% of the Romanian companies are affected by the COVID-19 pandemic, with a
negative medium impact of 10.2% for 2020. At the European level the expected decrease
is -7.5%;
- 95% of the companies took survival measures and 90% of them reacted immediately
after the start of the emergency rule, at the beginning of March;
- the companies that had already registered decreased incomes by the 1st of March 2020
in comparison to the 1st of March 2019 estimate a decrease for this year too;
- the level of trust in the state institutions is low: 2.7 points from 7;
- 12% of the interviewed companies have decreased the salaries with an average of 37%;
- 47% of the companies are pessimistic with regard to the evolution of their business;
these are operating in the most impacted industries: real estate, tourism, transport,
services, education, culture, and HoReCa and they expect a negative evolution of 43%
for 2020;
- 13% of the companies are reserved, with an expected decrease of 15%; these
companies operate in FMCG and financial services;
- contrary to the expectations, 40% of the companies are optimistic and they expect an
increase of incomes with 30%; these companies are acting on the pharmaceuticals
market, energy industry, agriculture, and healthcare. (MKOR,2020)
The major impact of COVID-19on the local market is expected to be in short term due to
low demand, interruptions in the supply chain, and the low ability of the SMEs to access
financial resources. Based on the markets dynamic, the experts of the big four
consultancy companies expect a stagnation during the summer and after an evaluation
of the impact the crisis had on their businesses, the leaders and their teams will identify
new strategies and 2021 will be characterized by a return of the positive evolution of
the economy (EY, 2020).
During the lockdown, there appeared an interesting phenomenon that is barely met
when we talk about businesses: solidarity between companies, especially for those most
affected by the lockdown. Platforms like Marketing for Good, IMMpreună, lots of
independent consultants, and also consultancy and lawyer companies have offered
knowledge and consultancy for those companies in need. Also, communities of
consumers shown solidarity for the small businesses and they promoted their products
and services on their social profiles and encouraged their followers to support local
entrepreneurs.
Although many companies are affected, the crisis accelerated the digital transformation
of lots of SMEs. They moved online not only to promote their goods but also to sell them.
Also, due to the interdiction to open the restaurants, the businesses in this sector chose
the home delivery, through their platforms and network of couriers or choosing a third-
party food delivery platform. For example, a large local restaurant chain launched at the
beginning of July 2020 its order and delivery of food platform. The owner stated that the
crisis was the most important driver in deciding to add a new function to their business.
In addition, another important outcome of the crisis that is beneficial for the business
ecosystem is the start of the digitalizing part of the local and central administration.
Nevertheless, some entrepreneurs are rather optimistic than worried about the future.
They are ready to embrace change and to adapt to the new digital economy more than
ever. Companies that managed to prepare for the crisis and efficiently organize company
operations at the initial stage of the crisis will primarily consider not cutting the costs,
but sustaining and even increasing their revenues. Such companies will be among the
first to overcome the current crisis and they will become the main drivers of the
economic recovery as well (Prohorovs, 2020).
The Romanian book market in times of the COVID-19 pandemic
The book market was significantly influenced by the COVID-19 pandemic all over the
world. Not just the closure of book shops was a factor. Some other factors were related
to the economic evolution, while others to the personal evolution of readers. From the
beginning of the pandemic, McKinsey (2020) has developed a world-wide survey on
consumer sentiment and behavior investigating, among other aspects, the expected
spending for books/magazines/newspapers in the next two weeks compared to usual.
Data shows great variations between the 45 counties in the survey (Romania is not one
of them), from a net decrease of 61% in Central America and Carraibe to a 13% increase
in Turkey. Besides this country, only Korea registered a net increase, of 3%. These
figures are not optimistic for publishers.
The Romanian book market is one of the smallest in Europe and Romanians are not
frequent readers (Zbuchea & Hrib, 2019). Nevertheless, data show a slow constant
increase of the market (Negrescu, 2018). Most of the books were sold, until 2020,
through traditional bookshops, even if an increase of online booksellers has registered.
Therefore, the closure of book shops due to the pandemic impacted strongly the book
market.
The book market suddenly declined by up to 75%, and the only sell increase only partly
covered his gap (Macoviciuc, 2020). Some figures even show a decline of 85% (Federația
Editorilor Europeni, 2020). In June 2020, online book sales counted for 40% of the
market in Romania.
Therefore, the publishing houses have had to adapt very fast and turn completely online
in the first stages of the pandemic. Not only sales and promotion moved online but also
most processes. In this new context, the publishing houses’ newsletters have become
the main drivers of customer experience and sales. Reading increased during the
pandemic, but this was not exclusively reflected in book sales. More downloads from
online libraries are also registered. Overall in Europe, the increase in online sales did
not compensate in full the decrease of sales in book shops (Federația Editorilor
Europeni, 2020).
In qualitative research developed during the first stage of the COVID-19 pandemic in
Romania consisted of interviews with popular Bookstagrammers and three actors’
representative for the book market and the online environment (Hrib, 2020). This study
investigates changes in readers' behavior as well as the perception of publishing
promotion campaigns. An interesting perspective on the strategies during the pandemic
was offered by @jurnaluluneicititoare: “It seems to me that there are three big strategies
that I have seen these days. The first is the example that I consider a great "not like this"
- Cărturești bookstore, which announced an apocalypse and began to mourn its
imminent disappearance. Given that we were still assaulted by bad news (…), such a
negative message seemed terribly inappropriate. I don't dispute their reality; yes, they
710 Strategica 2020
may have to close many bookstores, maybe even all of them. But they could not convey
such a fatalistic message in a gloomy period anyway. The second would be "we adapt
and continue" - here I would include almost all the rest of the authors, publishers, and
bookstores, who continued their communication as before, with the difference that they
also announced some protection measures taken in the warehouse. (…) The third and
last would be the communication style of the Nemira publishing house, which has
become extremely proactive & ready to support the #student initiative. They launched
podcasts and a series of free materials to support people: children's toys, coloring pages
for adults. They moved their reading club online and did so more often. They started
sending a super nice newsletter every month, where they don't focus on news and offers.
They have invested time & energy to tell us that they are with us and want to make this
period as pleasant as possible, even if it means that they will not always talk about their
books. They have become even nicer to me after these communication campaigns and it
seems to me that they are the ones who have adapted the best. Especially since they had
a campaign ready for this period anyway (they had already announced Books are magic
before the pandemic), which they managed to adapt perfectly”. (Hrib, 2020)
The conclusions of the cited study do not show a significant fluctuation in book
purchases as a whole, but rather a forced migration to online bookstores. Also, the
amount spent on buying a book remained somewhat constant, as did readers' favorite
genres. These results are not representative of the book market overall, but for the
segment of influencers in the book industry. They might be extrapolated to book lovers,
but cautiously.
The role of newsletters
Newsletters bring various types of benefits both for companies and customers (Zbuchea
& Mocanu, 2013). The added value of email marketing consists mainly of brand
development, interactivity, and engagement with customers, information, and, of
course, stimulates sales. All these depend both on the content and design of the
newsletter, as well as on the marketing strategy associated. The success of email
campaigns is determined through various metrics (Zbuchea & Mocanu, 2013, pp.308-
309). Data analytics, such as website traffic, newsletter generated flows, or even e-book
reading behavior could help publishers take more efficient business decisions (Cox,
2019).
One of the main objectives of email marketing is increased sales. Nevertheless, there is
no straight connection between the interest of consumers in newsletters and their
buying behavior (Zhang, Kumar, & Cosguner, 2017). Also, marketers have to take into
consideration that long-term profitability is connected to an optimum number of emails,
a higher or lower number determining a negative reaction (Zhang, Kumar, & Cosguner,
2017). Nevertheless, newsletters contribute to increased sales (Sahni, Zou, &
Chintagunta, 2016), some studies showing that email marketing has the highest impact
on sales among the digital marketing tools (online advertising, SEO, social media, etc.)
(Yasmin, Tasneem, & Fatema, 2015, pp.75-76). Also, email marketing has a positive
impact on customer loyalty (Merisavo & Raulas, 2004) and customer flows (Negoiță,
Purcărea, & Popescu, 2019), which are drivers of sales.
A previous investigation (Zbuchea & Mocanu, 2013) revealed that newsletters were
mainly seen as a secondary channel of sales. This was in relation to a loose marketing
strategy, both in terms of content and frequency. Newsletters of the most important
publishing houses were rather informative and formal. Having this in mind, the next
section investigates the email marketing approaches of the main publishing houses and
book shops in Romania to understand the evolution of the strategy.
How to keep customers engaged? Focus on the Romanian publishing industry
Methodology
Between April and May 2020, we developed an explorative investigation of the

newsletters of the most important and dynamic Romanian publishing houses and book
shops to map the way the book market addressed the customers through newsletters
during the COVID-19 pandemic. This analysis allows us to understand their strategies
and how to deal during times of crises when relationships with customers and restricted
to the online environment.
The initial sample consisted of 24 publishing houses and groups (without sub-brands)
and 15 book shops. In the case of sub-brands (divisions specialized in children's books
or specific genres, for instance), the publishers issue a common newsletter strategy.
Both publishing houses and book shops have been selected considering the following
criteria: dimensions (Barbu, 2019; Vasiliu, 2018) and dynamics. The latter item was
defined by the advertising campaigns run at the end of March and beginning of April on
Google (9 publishing houses and 10 book shops) and Facebook (11 publishing houses
and 5 book shops). An additional condition was to offer the possibility to subscribe to a
newsletter on their websites.
From the 24 publishing houses, 12 confirmed the subscription to the newsletter. In the
case of the 15 book shops, 8 confirmed while it was not possible to subscribe online to
one of them. Three publishing houses and one book shop asked for additional
information on the subscriber (not only name and email address). One publishing house
and two book shops presented the confidentiality rules. Five publishing houses and two
book shops offered discounts or other benefits for subscription to the newsletters. These
figures suggest a certain lack of professionalism in handling newsletter subscriptions
and/or some technical deficiencies.
The final sample consisted of 13 publishing houses and six book shops (presented in
Table 1). Considering the dimensions (Barbu, 2020) in terms of annual turnover (more
than 1 mil. EUR for large, between 1 mil. and 500.000 EUR for medium and less than
500.000 EUR for small), the sample comprises mostly large companies.
Table 1. Structure of the sample

Publishing house Dimension Book shop Dimension
ACT &Politon Small Bookidz.ro small
ART Large cartepedia.ro medium
CarteaCopiilor Small Carturesti large
CH Becks Medium Compania de Librarii Bucuresti Large
Herald Medium Libris.ro Large
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Humanitas Fiction Large okian.ro Small

Litera Large
Nemira Large
Polirom Large
Publica Large
Rao Large
Trei Large
Univers Enciclopedic Medium
To chart emailing marketing strategies on the Romanian book market, we analyzed the
following items: number, frequency, and content. The number of emails is an important
factor to shape the attitude, the image, and the behavior of customers. Too rare contacts,
as well as too frequent ones, might not lead to positive outcomes for the company. A
stable frequency is a sign of a content management strategy, therefore, it is a
precondition of successful communication.
Content is a complex item. It mainly refers to the type of messages and how many of
them are included. Messages could be informative (announces on new releases or to the
company, for instance), commercial (meant to directly stimulate sales), branding
(aiming to develop the brand), or customer-oriented (providing added-value for
customers, having cultural or educational value, for instance). The content of a
newsletter might range from simple (containing one type of messages) to complex
(containing several types of messages). The content might be also characterized by short
(one message) to long (including a large number of messages, requiring from the readers
to scroll down). The tone of voice is another descriptor of the content. It could be defined
in several ways, but for less subjective evaluation and considering that the market
investigated is not a complex one, we chose only two dimensions: formal and personal
approach. Another monitored aspect is the ratio between text and image.
Special attention is given to messages and actions related to the COVID-19 pandemics.
The undergone content analysis has some specific limitations. Besides having a
relatively small sample of companies, some of the most dynamic publishing houses are
not present. We subscribe to their newsletter, but we have not received it. A second
aspect to consider is that maybe some of the newsletters issued by companies went in
the spam folder or some specific bulk email, therefore, maybe not all messages entered
our corpus. Another limitation is related to the great difficulty to grasp the type of
message transmitted, some of them being difficult to be included in the considered
categories.
Quantitative aspects of the email marketing strategies in the Romanian book

market
The analysis took into consideration two months, April and May. In March the physical
book shops were closed. In the second half of March, the companies had the necessary
time to adapt and start to implement new email marketing strategies, and maybe also
new business strategies. In the middle of May, book shops have been reopened, signaling
the start of the return to “normal” business practices.
Figure 1. The monthly number of newsletters issued by each company
As Figure 1 shows, only a few companies distribute a more consistent number of emails.
The publishing house that stands out in quantitative terms is Litera Publishing House.
Systematically, it issues two or even three emails per day to underline important
campaigns and stimulate customers to answer. Usually, the second newsletter reminds
the readers of the approaching end of a sale campaign.
We can document a small increase in email marketing efforts, observing that in most
cases there is a slight increase in the number of messages emailed in May compared to
April. The small number of newsletters emailed by most companies suggest that they do
not perceive email marketing as a strategic approach, neither to increase sales nor to
develop the brand.
Figure 2. The May weekly frequency
Figure 2 shows that the most “communicative” companies are Litera Publishing House,
Libris bookshop, and Carturesti book shop chain. Litera stands out by emailing almost
daily newsletters, with many double newsletters per day. Only three companies (Art,
UniversEnciclopedic, and Compania de Librarii Bucuresti) issue their newsletters
regularly, on the same days of the week. This suggests that newsletters are seen as
opportunity tools, they are emailed when needed, in a flexible approach.
It is interesting to compare these findings with an analysis of the email marketing

approach undergone by the publishing houses seven years ago (Zbuchea & Mocanu,
2013). Overall data seems similar – only a small number of companies use intensively
714 Strategica 2020
newsletters to reach their audience. The greatest change in the approach along the years
has been registered by Litera Publishing House.
Content of the email marketing strategies in the Romanian book market
The content analysis determines a clearer image of how newsletters have been used by
publishers and booksellers to survive and even strive during the COVID-19 pandemic.
By far, the most frequent message of the newsletters has been “sales” (almost 85% of
the newsletters presented some forms of promotional offers).
Analyzing the content of newsletters is a difficult task in terms of placing the message to
a category: informative, customer-centric, etc. Obviously, the ultimate aim of companies
is to increase sales, therefore, commercial. For instance, many newsletters simply
present new releases or book covers, but simultaneously offer a discount. Reading
recommendations are meant to increase sales for those books/authors. Some publishers
would ”present” books, while others would ”recommend” them. In the first case, the
approach is more distant, impersonal, while in the second situation the customer seems
to be put in the center of the communication process, added-value for the customer
being sought. Having this in mind, the results in Table 3 should be considered in
somewhat relative terms.
Table 2. Type of content

customer-
Informative commercial branding
oriented
Publishing houses
ACT &Politon 10 2 1
ART 4 6 7 17
CarteaCopiilor 4 2
CH Becks 1 4
Herald 4 7 3 2
Humanitas Fiction 15 3 2 4
Litera 2 68 15 6
Nemira 4 22 6 4
Polirom 2 8 2
Publica 1 6 2 1
Rao 4 10 5
Trei 3 3 2 1
UniversEnciclopedic 1 6 1
Book shops
Bookidz.ro 1 3
cartepedia.ro 2 23 2 1
Carturesti 3 33 8 4
Compania de Librarii
Bucuresti 6 6 3
Libris.ro 31 7 3
okian.ro 8
The study reveals that in the past 7 years the email marketing strategies of the Romanian
publishing houses have become more complex, but the basic approaches did not evolve
significantly (Zbuchea & Mocanu, 2013). Nevertheless, more attention is given to
offering additional value to the customers. The main aim of newsletters is primarily
commercial. It seems that companies operating in the Romanian book market do not
understand the branding opportunities of the newsletter.
As expected, companies with more intense communication also have the most complex
one, combining various types of messages, having a more personal approach to the tone
of voice. In most cases, companies include several messages (book presentation, news,
discounts, or promotional campaigns, etc.), therefore, the emails tend to be long and
include both images and texts. Among the longest emails are those of the ART publishing
group which includes recommendations and news associated with all the publishing
houses included, as well as updates on various campaigns and projects, such as activities
for children, ”Pauza de citit / The reading break”, etc. The Litera newsletters are also
long, containing in many cases several promotions. At the opposite approach is the
Okian book shop – its newsletter contains only one visual with a general promotion,
leading to the website of the company.
Another aspect we investigated is the presence of the COVID-19 pandemic inside the
newsletter. We had expected frequent mentions and reactions to the pandemic, of great
concern both for the book market and for the society. Nevertheless, in most cases, the
mentions are in low number and superficial. There is a general presence of #stayhome
hashtag, but in most cases, it is under a suggested general umbrella: ”since you stay
home, read more”. Figure 3 presents some of the campaign proposed in this context.
Figure 3. Promotions contextualized to COVID-19 pandemic
A more complex campaign was developed by Cărturești. The Book shop encouraged
parents to browse (and buy) the offer of books, games, and other items that would help
readers go through the pandemic (Figure 4).
716 Strategica 2020
Figure 4. Campaign to stimulate sales
Some publishing houses presented the changes in their activity, some related to the
office processes, some others related to the distribution system meant to ensure the
safety of the readers. But these have been rare messages. For instance, Nemira included
at the end of its newsletter such a visual (Figure 5).
Figure 5. Nemira Publishing House - health security measures
Among the more original and consistent approaches, we mention the following:
- Humanitas Fiction presented all new releases in the time of pandemic under the
hashtag #Continuăm (we continue);
- Trei Publishing House, which has a consistent series of psychology books and
psychological thrillers and, organized in partnership with Cărturești book shop and the
Institute for the Study and Treatment of Trauma several online psychological
workshops (Figure 6);
- Herald Publishing House proposed a series of parenting workshops to help parents and
teachers cope with the changes related to the pandemic (Figure 6);
Figure 6. Online workshops to help cope with the COVID-19 pandemic
- ACT &Politon offered a free audio-book entitled ”Jurnal de vremuri încercate„;

- Polirom published the book of the Italian writer Paolo Giordano: În vremea
contaminării”;
- Nemira published an e-book entitled ”Izolare”, including the experiences of some
Romanian authors during the pandemic;
- Arthur Publishing House (part of the ART Publishing Group) started #RefugiulPerfect
- a series of imaginary dialogue meant to show the importance of reading and leading to
book recommendations;
- Libris developed a cause-related marketing campaign to support hospitals.
- Nemira launched ”Books are magic – Terapia prin povești” campaign, probably the
most complex initiative of the Romanian publishing houses in times of Covid-19, meant
to help readers cope with the pandemic.
Even after the reopening of physical book shops, online events continued to be offered
in the book market. The number of online book fairs, as well as anniversary days,
increased.
Conclusions and discussions
The study shows an increase in the professionalism of the Romanian publishing houses,
but still, there is a gap between a few dynamic and strategic editors/ book shops and
most companies in the market. Still, the main approach is focused on financial incentive
and brand development is not a concern. Differentiation strategies are also scarce.
This approach is connected with the perspective of the book industry of the readers. The
projected reader profile is a price-driven customer. Almost no other incentive is offered,
loyalty approaches not related to financial benefits are also lacking.
Interestingly, the perception of the public of the marketing campaigns of the publishers
fit their messages – it is focused on discounts. The same word was highlighted as the
main trait of the Romanian publishers in qualitative research focused on the
Bookstagrammers and other representative actors for the book market and the online
environment analyzing the reading behavior (Hrib, 2020). The perception of publishing
promotion campaigns was synthesized in the following words: discounts, sales, offers.
One answer that expresses more precisely the perception of the promotion campaigns
is that of @cristianchinabirta: “The only change seemed to me to be the development of
campaigns with big promotions, one after the other, which shows some despair. That
would be the word."
718 Strategica 2020
Considering this framework, it would be difficult for Romanian publishers and book
shops to develop a credible and appealing brand. We recommend significant changes in
marketing approaches, towards a consistent brand design and development.
The promotion campaign during the COVID-19 pandemic succeeded in maintaining a

core public, the loyal buyers of some publishing houses / online bookstores. This
explains that the presence on the market of the main players remained stable to some
degree even if the closure of physical book shops determined radical decreases in sales.
The lack of systematic communication of smaller players and their inertia to adapt, along
with the lack of physical exposure through large book fairs and book launches, will
probably determine in the next few years the concentration of the book market around
medium and large players, but also the development of the self-publishing or vanity
publishing system.
The COVID-19 pandemic has been also a trigger to consider new ways to market and to
develop programs that promote reading and the importance of it. If during the last year
we have seen inertia in many sectors as the sales and the positive evolution were
organic, now each company should have a plan B to be prepared to face a crisis, and not
only economic or financial. The book market can find in this crisis a hook to promote the
reading of books as an essential source of knowledge for both individuals and
companies.
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https://doi.org/10.1509/jmr.16.0210
THE IMPACT OF THE COVID-19 PANDEMIC ON BUSINESS.

A PRELIMINARY OVERVIEW
Florina PINZARU
Alexandra ZBUCHEA
Lucian ANGHEL
lucian.anghel@facultateademanagement.ro
Abstract
The impact of the COVID-19 pandemic on business is significant and must be assessed on various
levels, as it has determined fast-moving variables, many of them totally unexpected and for which
managers all over the world were not prepared to handle. On the bright side, the COVID-19 crisis
revealed the ability of mature businesses to adapt in an agile manner - both in strategy and in
operations -, catalyzing the large-scale adoption of digitalization and remote working and thus,
determining important changes in organizational cultures and management models. We present in
this opinion paper a practice-oriented summary of the most important aspects that redesign business
in the COVID-19 context, based on a semi-structured literature review approach of sources published
between March and August 2020, both in academic journals and consultancy companies’ reports.
Aspects such as agile resilience and recovery through rebuilding operations, rethinking the
organization, acceleration of the adoption of digitalization, and adapted marketing responses are
discussed with a managerial lens.
Keywords
Agile resilience; rebuilding operations; digitalization; consumer behavior; marketing strategies
COVID-19 pandemic
Introduction
2020 will remain in history as the year of the COVID-19 pandemic, the first time when
almost all countries from all over the planet had to temporarily confine people, to close
enterprises, and to regulate human behavior towards decreasing physical interactions.
A global and sudden event, the COVID-19 pandemic proved to be a major re-shifting
force of social and economic life as we know it: the so-called „the new normal” is
characterized by the altered workforce, metamorphosis of demand, supply chain
disruptions, and subsequent changes of business models.
As never before in history, starting February 2020, enterprises all over the world saw
themselves with employees in lockdown, with major supply chain issues at a global scale
and, in some cases, with interdictions to operate, especially when their business
722 Strategica 2020
supposed physical interactions of customers such as in the case of the hospitality, travel,
service providers, culture and entertainment industries. The demand was affected, the
workforce was no more physically available, and revenues dropped in many situations.
If the first part of 2020 was about survival almost for everybody in the business, with
few exceptions, the second half of the year was marked by the evidence of reinventing
enterprises and, in some cases, of market successes. Uncertainty seems to be the only
certainty for some sectors deeply affected by the pandemic, such as the ones of travel,
tourism, hospitality, or arts, while enterprises from other industries try to reorient
towards measures intended to increase resilience, from rationalizing manufacturing
and SKUs to redeploying talents, resetting management roles in the context of remote
working, shifting operations, and launching new business models.
The new leitmotiv of managers of companies that resisted the first shocks of the
pandemic’s effects on the economy seems to be not the one of survival, but resilience.
The key to being resilient in such a challenging context relies on five qualities - resolve,
resilience, return, reimagination, and reform (Sneader & Singhal, 2020) -, to be applied
to four strategic areas - recovering revenue, rebuilding operations, rethinking the
organization, and accelerating the adoption of digital solutions (Sneader & Sternfels,
2020), while adapting marketing strategies and actions.
Recovering revenue and rebuilding operations
Only 15% of CEOs worldwide declared after the first months of the pandemic to feel
confident about their companies’ revenues and strength of processes and operations
(PwC, 2020a), which is consistent with the declining corporate performance in the first
quarter of 2020 and the severe negative impact on the global economy (Shen, Fu, Pan, Yu
& Chen, 2020). One of the ways to address these challenges remains the one of agile
response to the changes in consumers’ behavior: companies switch to new operating
models focused on the customers (Verma & Gustafsson, 2020). However, the first
measure to adopt to recover revenues in and after the pandemic remains to adopt more
efficient and cost-effective manufacturing processes (Shen et al., 2020), as well as more
efficient and cost-effective supply chains (Verma & Gustafsson, 2020), sometimes with a
direct impact on operations that must be reconsidered.
A part of companies’ agile resilience in such a challenging context as one of the COVID-19
pandemic must be based on rebuilding operations as a driver for recovering revenues. It
is also a mandatory step in considering new supply chains, more efficient and cost-
effective SKUs, and manufacturing processes. For Obrenovic, Du, Godinic, Tsoy, Khan &
Jakhongirov (2020, p. 9), “enterprises with a shorter and more diversified supply chain
sustain their business operations in times of a pandemic”, not depending so much on
long-distance foreign suppliers affected in their home countries by various restrictions
or being dependent on a very challenging international transportation industry. The
COVID-19 pandemic affected dramatically supply chains’ performance depending “on the
timing and scale of disruption propagation (i.e., the ripple effect) as well as the sequence
of facility closing and opening at different supply chains echelons” (Ivanov, 2020).
Therefore, companies tend to modify the supply chain through factors like localization,
complexity reduction, and dual sourcing (Verma & Gustafsson, 2020).
Recovering revenues through more efficient and cost-effective production strategies is

possible for managers who can act on “an increase in production shifts, use of spare
capacity, buying new machinery, and hiring human resources to increase production
capacity and emergency sourcing from available suppliers and collaborations with
supply chain partners to increase the raw material supply” (Paul & Chowdhury, 2020).
Kumar, Luthra, Mangla &, Kazançoğlu (2020) consider possible solutions to recovery
plans “minimizing costs, inventories, and increased asset utilization”, as well as
transforming supply chain networks into Digital Supply Networks (DSNs).
For Li, Wang, Liu, Freiheit & Epureanu (2020), the COVID-19 pandemic could be a
catalyzer for adopting intelligent manufacturing (IM), as it is “built on enabling complex
and real-time decision-making within automated manufacturing assets, utilizing data
from networked machines and sensors” while adapting current processes to the IM
development per se: shared inventory systems using Internet of Things among actors of
the same supply chain; “new job scheduling model to minimize production risk due to the
supply chain disruption and plant closures”; adoption of big data analysis addressing the
specific impact of the pandemic on various variables of the production processes; “mixing
automated manufacturing assets and human operators” to both make manufacturing
more efficient and to assure the workers’ health through social distancing.
Necessary new approaches are required for the efficient rebuilding of operations during
and after the COVID-19 pandemic (KPMG, 2020): usage of artificial intelligence (AI) and
big data for more robust supply chain platforms; incorporation of tax optimization into
the current financial analysis; usage of the cost-to-serve indicator as to the foundational
performance metric; modeling scenarios. More than ever, managers need to focus on data
and metrics when making decisions, while being able to separate what is urgent and
needs immediate attention from measures that can be delayed. Redefining operations
while reorganizing the workforce and adapting the responses to the new consumers’
habits is a challenge that can be addressed if a value lens is used by management, paying
attention to balancing managerial actions to obtain the desired results.
Rethinking the organization
Lessons learned by enterprises acting in a COVID-19 affected economy from March

through August 2020 reveal differences determined firstly by the possibility of their
employees to work remotely or not – the companies where remote work was not
possible at a large scale experienced significantly greater declines in employment and
more reductions in expected revenues (Papanikolaou & Schmidt, 2020). In the case of
organizations being able to pivot towards working digitally, remote collaborations are
considered as most probably the new norm for the future, as declared by 78% of
managers responding to the PwC’s CEO Panel Survey from June-July 2020 (PwC, 2020a).
Half of the American workforce switched to remote working during the first three
months of the pandemic (Brynjolfsson, Horton, Ozimek, Rock, Sharma & TuYe 2020),
while 41% of Canadian jobs are suitable for remote working (Gallacher & Hossain,
2020). This evolution has led to new work and organizational approaches that
sometimes proved to be effective and therefore can be kept in the future.
However, managers of remote teams found a variety of challenges in coordinating

employees working from home, such as communication issues, fear of 24/7 reporting
724 Strategica 2020
and burnout, lack of human interaction, loneliness, and bad health habits (Prasad, Rao,
Vaidya & Muralidhar, 2020). It is maybe the main reason why CEOs from all over the
world state that they intend to develop in the future a more flexible and employee-
oriented workforce through digitization, increase in the share of remote workers, and
investments in employee health and wellness programs (PwC, 2020a).
The impact of the COVID-19 pandemic on organizational cultures is still to be analyzed.

However, there already studies proving that “corporate culture do better in the midst of
a pandemic than their peers without a strong culture” (Li, Liu, Mai, & Zhang, 2020), which
is consistent with previous findings on the organizational culture understood as an asset
to give firms force in difficult times (Kreps, 1990). For Bartsch, Weber, Büttgen & Huber
(2020), task- and relation-oriented leadership behavior is the key-element to favor
efficient work climate at distance, therefore organizational cultures already benefiting
from this type of managers were advantaged in during the COVID-19 pandemic. Their
study, based on data from service firms' employees in Germany collected in April-May
2020 provided evidence that in turbulent times as the current one, both enabling and
managing leadership behavior “contribute in distinct ways to favorable outcomes
regarding employees' work performance, thereby becoming complementary” through
specific managerial approaches such as engaging in task-oriented behavior and granting
employees autonomy and support. More than ever, the COVID-19 pandemic revealed the
necessity to prepare firms for passage from strict planning towards simultaneous
improvisation at all organizational levels (Bailey & Braslin, 2020).
Therefore it is not enough to have a strong organizational culture to resist in pandemic

time, but it must be an adaptive one, too (Chatman & Gino, 2020), which is consistent
with previous findings on the necessity to have, for the long term resilience,
organizational cultures both aligned and adaptive in real-time (Chatman & O’Reilly,
2016). Three elements could enhance the adaptability of organizational cultures in real-
time (Chatman & Gino, 2020): hiring and promoting resilient and adaptable people who
are capable of remaining calm in difficult and turbulent times; continuous
communication through examples on how the organization is adhering to its cultural
values through new practices; leveraging the organizational culture by adopting new
transcendental values, often oriented towards helping others. The last aspect is
consistent with findings from a Deloitte study conducted on executives of 39
organizations in India, local enterprises, and MNC subsidiaries (Deloitte, 2020a), which
provided evidence on an unprecedented shift of organizational cultures towards a
common purpose (either the customer or the employee), making easier for managers to
collaborate and take quick decisions. During the maximum impact of the crisis, both
teams and third parties from the business ecosystem (vendors, partners, etc.) were
united by the common purpose, while “most organizations witnessed an immediate
acceleration in collaboration to solve problems” (Deloitte, 2020a, p. 10). At an ideal level,
such an approach could be the direct consequence of a form of social value creation
triggered by the context of the pandemic (Ratten, 2020), visible at governmental,
organizational, and individual levels.
Accelerating digitalization
The concept of resilience is not new, but its form impacted by the COVID-19 pandemic
has some interesting facets. One of these is the sudden acceleration of digitalization,
even for firms that were not technology savvy before the pandemic. The rapid adoption
of digital solutions proved to be the main answer of many firms to the pandemic – and
it paid off, as firms were able to rapidly switch from physical to remote working, still
remaining as efficient as possible in the given circumstances. Therefore, most
enterprises are on an accelerated pace of digital transformation according to
international digital decision-makers surveyed by Statista (2020a). As a result,
companies are interested in optimizing employee digital experience, as declared by 52%
of CIOs surveyed by Statista worldwide (2020b), which is expected to be reflected in an
increase in investments in digital products and solutions with around 10.4% for 2020
(Statista, 2020c) despite the challenges presented by the COVID-19 pandemic.
Digitalization, understood as the innovation of business models and processes that

exploit digital opportunities (Unruh & Kiron, 2017), is more than a simple adoption of
digital solutions. During the pandemic, some companies were only pushed towards the
adoption of digital solutions, depending on their previous experience and orientation
towards innovation and technology. The COVID-19 pandemic tested many businesses
that have been reluctant to embrace digital previously and found themselves
unprepared in the new context. At the same time, other firms, being already advanced
on the pace of digitalization, proved to be ready for dealing with the new way of doing
business specific to the COVID-19 context. Companies that performed better in the
pandemic in terms of digital adoption or adapting proved some important common
characteristics (Deloitte, 2020b): technology preparedness (virtualization, cloud
technology) and improved cybersecurity, including identity and access management.
These are the areas that need to be developed by companies that are not digitally
advanced in the future and probably, one of the specific investments’ future directions.
The impact of the digitalization adoption due to the COVID-19 pandemic is expected to
trigger a revival of old e-commerce models, simultaneously with a significant upsurge of
digital collaboration platforms (Ruokonen, 2020). Some digital trends raised by the
COVID-19 pandemic are considered as future realities (BDO, 2020): remote work
arrangements; digitization of customer service; shift to e-commerce; greater use of self-
service; digital platforms enabling contactless delivery options; use of online and on-
demand platforms; outsourced IT.
Therefore, “businesses should develop appropriate capabilities and skills, to

conceptualize, test, analyze how digital technologies will impact current and future
business processes and modes in dealing with the repercussions of pandemic like crisis”
(Kamal, 2020). For SMEs, for instance, the path towards digitalization in the COVID-19
context can be costly and the firms’ survival can be at risk if investment in technology is
not agile (Priyono, Moin, & Putri, 2020).
Agile marketing responses
The COVID-19 pandemics changed radically the way consumers behave around the
world. The lockdown period imposed in many counties, as well as the need for safety,
determined them to prefer online shops. The young adults were the first ones who
moved the most towards online shopping in the lockdown period (MKOR, 2020a, p.12).
This shift would lead in the short term to the new competition online, to more complex
strategies for online marketing, and more points of difference between online sellers.
726 Strategica 2020
The online experience might become even more relevant to create preference and
loyalty. Businesses had to adapt very fast to the shifts in the consumers’ moods and
needs; they have to be agile in terms of understanding their consumers and the changing
signals they are transmitting (Diebner, Silliman, Ungerman, & Vancauwenberghe, 2020).
There is no time for lengthy customer surveys and new offer planning, care, and
connection (both online but also touch-free where offline relationships are operating).
Building relationships while addressing their special needs and showing empathy is
probably more important than ever (Dore, Ehrlich, Malfara, & Ungerman, 2020).
Buying decision processes have been also modified, at least in the short-term, by the
pandemic. He and Harris (2020) observe that “the pandemic has given opportunity and
time to the consumers to reflect on the basic meaning of consumption and the impact of
their consumption not just on themselves but on others and the general society and the
environment. Before the pandemic, consumers in the developed world have taken for
granted how their basic needs, such as food and shelter, can be easily met through the
wide availability of various products and services that can help meet those needs.
Consumers were “spoilt” with “choice overload” (He & Harris, 2020, p. 178). This shift
would lead toward more rational and ethical purchases. In this framework, companies
might consider more social-value co-creation (Ratten, 2020).
Consumers' attitudes have tended to be more conservative during the COVID-19

pandemic, orienting towards buying more essentials (Kantar, 2020; PwC, 2020b). Not
surprisingly considering declining incomes and increased uncertainties, customers
prefer to reduce unnecessary expenses in challenging times such as a pandemic. Another
aspect to be considered by marketers is that all in-home media consumption increased
in time during the pandemic. Not only communication channels should change having
these shifts in mind, but also the content. Advertising should resonate with the new
challenges that consumers face; it should be helpful and empathic. Clichés should be
avoided (Fuciu, 2020).
At least during the lockdown, the activities with the highest increase have been
entertainment, news consumption, and hobbies (PwC, 2020c). 50% of the consumers
trued new brands. Some consumer trends have accelerated: online buying, conscious
consumption, health awareness, and local buying. Many of the newly gained buying
habits are expected to continue after the pandemic: contactless payment, in-app
ordering, home delivery, shopping via social media, chatbot, virtual consultation, etc.
(Accenture, 2020). A PwC (2020b) survey about consumer behavior post-COVID-19
shows that online shopping is growing continuously, care for physical and mental health
has become as high as care for the job, while spending intentions are deeply affected.
The shifts registered during the pandemic, at least partially, will be permanent and
companies must adapt to the “new” consumer.
All marketing dimensions are impacted by the COVID-19 pandemic, but probably
marketing communication is the one most influenced. At the same time, it is also the one
that can be easier adapted. In this vein, the McKinsey analysts recommend that
“companies need to increase communication, balancing the needs of the business with
expectation setting and morale-building” (Craven, Mysore, Singhal, Smit, & Wilson,
2020). Such an approach would impact not only the outbound approached but also the
inbound business practice – such as internal marketing and human resources
management approaches.
Another dimension to consider is the corporate social responsibility strategy. He and

Harris (2020) consider that “ COVID-19 pandemic offers a great opportunity for
businesses to shift towards more genuine and authentic CSR and contribute to
addressing urgent global social and environmental challenges”. Therefore, in times of
COVID-19 pandemic, CSR might prove a competitive advantage. Some companies
approached unethical behavior to financially profit from the crises and human concerns
and fears, but some others quite the contrary tried to help. Nevertheless, there are
worries about the decline of long-term CSR investments. On the other hand, more
rigorous scrutiny of business practices and higher ethical expectations of the consumers
might emerge from the pandemic, therefore long-term consistent and open CSR might
be a profitable business practice (He & Harris, 2020, p.177). A Kantar study (2020)
shows that consumers expect to a wide degree that brands talk about how they are
helpful in everyday life, in the new environment, how they help the current challenges
and that they have a reassuring tone.
Conclusions and future discussions
We presented in this paper evidence from the literature on the impact of the COVID-19
pandemic on business in the first seven months of the 2020 global pandemic. Inherent
limitations due to the semi-structured documentation approach are to be considered,
but the identified aspects draw a framework of the most important elements defining
enterprises’ responses during and after the pandemic crisis. Under the imperative of
agile resilience, businesses must act today in five major areas: recovering revenue,
redefining operations, rethinking organizations, accelerating digitalization, and
adapting marketing strategies.
The “new normal” is a mixture of forced advances on the path of improvisation,

collaboration, and adoption of technology to enhance productivity and efficiency. Some
of the highlighted elements are here to stay, while others will be abandoned in favor of
returning to old habits or of shifting towards new innovative practices. For instance,
some of the tested digital solutions (re)-discovered in the pandemic, such as the
platforms enabling virtual teams’ work or supply chain collaboration will probably be
kept by many enterprises in the future. However, in other cases, the adoption of digital
technologies enabling profound strategic changes of the business models will take time
and will depend on leadership, organizational culture, and budget. Ideally, organizations
will keep the pandemic’s digital gains and integrate even more in an efficient manner,
using big data and AI to improve business processes, while selectively modernize
technology capabilities and investing in the digital skills of their employees.
Future discussions should focus more on measuring the impact of COVID-19 on

innovation, efficiency, teamwork (even if at distance), and on collaboration. Current
researches suggest an orientation towards common good as a purpose of brands and
organizations as a result of the collective sense determined by the pandemic, but it is to
be surveyed on the medium and long term – in difficult and prolonged times marked by
economic slowdowns and increased competition, refocus on the self and organizational
objectives could be expected to rebecome the norm.
728 Strategica 2020
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DECISIONS UNDER UNCERTAINTY IN THE COVID-19 ERA

Sergiu Octavian STAN
National School of Political and Administrative Studies
6 Povernei St., District 1, Bucharest, RO
sergiu.stan@facultateademanagement.ro
Mihai Laurențiu TREAPĂT

National School of Political and Administrative Studies
6 Povernei St., District 1, Bucharest, RO
laurentiu.treapat@facultateademanagement.ro
Corina Elena DRĂGĂNESCU

Arab Republic of Egypt Embassy in Romania
67 Dacia Blvd., District 1, Bucharest, RO
corina_vaceanu@yahoo.com
Abstract
To be able to estimate an efficient and effective development over time, companies need
predictability. Usually, the highest form of predictability occurs when the information media are
clear, complete, and stable. In these conditions, the top decision-makers within the organizations
have a very good image of the context in which the business is located, as well as on the conditions
on it. In this context, managers can relatively easily define the multitude of decision options and
implicitly the action scenarios on which they can decide. In reality, things are in the market in a
completely different way. The information available to managers is rarely sufficient, or clear, and in
most cases is unstable (in sense of time-changing). In other words, the decision taken no longer has
sufficient premises to be taken in conditions of predictability, but on the contrary in volatile and
unstable environments. Under these conditions, the decision under the condition of certainty turns
into a real condition of uncertainty, based decisively on the appearance of probabilities in the
decision-making process. The appearance of probable scenarios, instead of certain ones, makes the
decision-making process move towards the decision in conditions of uncertainty. In parallel with the
increase of information inaccuracy or volatility, increase also the degree of uncertainty in the
decision-making options. The economic crisis accentuates the effect of information volatility and as
a result, increases the level of unpredictability for decision-makers within organizations. This article
addresses theoretical elements regarding the decision in conditions of certainty and conditions of
uncertainty, specifying the similarities and significant differences between the two concepts. At the
level of the case study, in the present paper are highlighted through a quantitative study the
particularities of the managerial decision in conditions of uncertainty economic crisis from 2008-
2020. This analysis is compared with data taken from a set of three studies conducted between March
and April 2020 by the National Institute of Statistics, on the significant impact of the pandemic
generated by COVID-19 on the Romanian economy. The conclusions highlight for each of these two
analyzed crises, the perspective of the particularities of the managerial decision in conditions of
uncertainty. The conclusions also highlight how managers perceive the action ways in which they
can manage this uncertainty.
Keywords
Uncertainty; decision-making; crisis management; COVID-19.
732 Strategica 2020
Introduction
There has necessarily been, throughout history, a very important concern of decision-
makers of any kind to find intelligent and effective solutions to various types of
problems. The leaders of any type of organization, whether in the state or private sector,
understood quite quickly that the quality of the decisions taken depends on the future
of their organizations and implicitly their staff in the leadership positions of such
organizations.
One of the most important issues related to the substantiation of decisions has been
related to the identification of intelligent and reliable methods for substantiating these
decisions. Thus, emerged branches of science in the field of logic, philosophy,
mathematics, psychology, and economics that have consistently studied the decision-
making phenomenon. But first of all, it is useful to specify from the beginning that the
very term "decision" supports several meanings.
Theoretical approach
A first perspective would be that “the decision can be defined as the solution chosen
from a multitude of alternative variants” (Hâncu, 2002, p. 10). This perspective is about
choosing a direction from several possible variants. There is also a borderline case, in
which the decision-maker can choose not to make any decision, leaving the free will to
decide. A second perspective that appears in another author, highlights the decision as
" involvement in action, which intends to meet the requirements of a business of certain
parties, defined as beneficiaries of the action" (Yates, 2003, p.24).
Regarding the classification of decision methods and techniques, used by decision-

makers in general and by managers in particular, there are clearly defined typologies of
mathematical and logical models that can be used in such situations (Hâncu, 2002, p.31):
The first decisional type highlighted is the “decisional situation in conditions of
certainty” which is characterized by the maximum probability of achieving the objective
or objectives pursued, based on the decisional modalities previously estimated by the
decision-maker. The elements involved in the decision-making process are given by
controllable variables, with known characteristics, their evolution being able to be
accurately anticipated. In this type of situation, the alternative decision-making
solutions and the estimated results of these types of solutions are known.
The second type of decision highlighted “the decision situation in conditions of

uncertainty”, which is characterized by the fact that, although the possibility of achieving
the objectives pursued by the decision-maker is very high, there are still reservations
about how action must be taken. In such a decision-making model, the number of
variables is high, some of these variables being practically uncontrollable. Regarding the
situation of controllable variables, they are difficult to fully understand, so the
anticipation of their evolution is approximate, probabilistic. Under conditions of
uncertainty, there is little information on the relevant factors that can define the
decision-making context, as well as on how to identify these categories of factors.
An important step in substantiating probabilistic decisions was made by researchers

John von Neumann and Oskar Morgenstern, who in their thesis on game theory (1944)
abolished the idea of rich as a game of chance and imposed it as a game of strategy. with
a probabilistic basis. From now on, in the managerial decision in conditions of
uncertainty, only the interpretation of probabilistic evolutionary scenarios was
discussed (Knight, 1981).
Starting from here, important steps were taken in decision-making theories, using
logical, mathematic, psychological, sociological, or economic arguments. For example,
we have differentiated between decision and rational choice, a distinctive note that is
successfully used in the choice algorithms used by artificial intelligence. Thus, it can be
mentioned here that unlike decision (which is often non-algorithmic), a rational choice
can be introduced in an algorithmic process (especially useful for the use of artificial
intelligence). Rational choice can thus be reduced to a deterministic or probabilistic
process, in which the best solution is algorithmically sought.
The decision can be made when a variant acceptable to be identified is found, while the
rational choice stops only when it has algorithmically found the optimal variant. In such
a perspective, the decision-making process can be seen as an engagement in a certain
sense of action, in the wake of solving a priori identified problems. The problems arise
when there are important differences between the final state obtained and the initial
one expected.
One of the most important challenges of decision-makers in modern society is related to

the efficiency of managerial decisions, to obtain organizational added value. "Without
effectiveness, there is no performance, no matter how much intelligence and knowledge
is invested in work, no matter how many hours are dedicated to it" (Druker, 2007, p.8).
The main problem related to the decision and, more correctly, to the attribution of the
decision in a given situation is represented, in part, by the level of information existing
at a certain moment and, especially, the completeness of this information, meant to
constitute the discrimination threshold. available. Under well-determined conditions
and in a limited spectrum of action, one can accept the idea that we can conceive a
decision model based on the presupposition of certainty. Decision-makers always lack
some of the knowledge relevant for decision making” (Zamfir, 2005, p.13). The main
problem is related to the establishment of the discrimination threshold between the
available options, to finalize the decisions (in conducting the elections). The
impossibility of the existence of a complete, rational system of thinking and decision,
proper to the human decision-maker, makes decision models, in conditions of certainty,
to have a largely limited spectrum of action.
Due to the importance, but also to the degree of applicability in various fields, the issue
of the limits of monotonic reasoning, involved in the decision-making process, has been
a topic of debate and deep reflection for many specialists. Thus, in a sufficiently avant-
garde thesis through its ideational content, entitled the theory of limited rationality, HA
Simon advanced, among other things, the hypothesis that man is, in fact, "a being who
tends to rationality" and not "a rational being" (Zamfir, 2005).
Uncertainty is the fact of life and business. Probability is the guide for a “good” life and
successful business. Most decisions are made in the face of uncertainty. Probability
enters into the process by playing the role of a substitute for certainty — a substitute for
complete knowledge (Golub, 1997). Regardless of the type of uncertainty, “a list of all
734 Strategica 2020
uncertain events that may affect the choice of a decision” will be constructed (Maliţa &
Zidăroiu, 1980, p.12).
From a logical point of view, any act of social decision necessarily involves at least two
elements: an individual or a group of individuals, which represents the deciding agent,
and certain variants, which form the object of the decision (Bieltz, 1981, p. 219).
In the following, we will try to highlight the definition of a decision problem in a

condition of uncertainty, starting from the available options, on which a decision agent
chooses his choice.
Let X1, X2, ...., Xn be the uncertain events on the list of all uncertain events and X {X1, X2,
...., Xn} the set of these uncertain events. We will assume that the set M of the variants to
be decided on is finite (although there may be situations in which M is infinite).
Let also be p variants, on which the choice is manifested (to complete the decision-
making process): V1, V2, ...., Vp, which form an exhaustive and exclusive set.
A problem of the decision in conditions of uncertainty represents the selection of a

variant on which we can manifest our choice from the set V {V1, V2, ...., Vp}, without
knowing which of the events from the set X {X1, X2, ..., Xn} has had or will take place.
In conclusion, it can be stated that, within the decision models of cognitive uncertainty,
the decision-maker can choose the best solutions (and, implicitly, can make the best
decisions), based on the level of knowledge and information available to a certain
moment given. Such an approach leads to a very interesting conclusion, namely that, by
increasing the baggage of skills and / or information, the decision-maker can change his
discrimination threshold regarding the choice of a better decision-making option (in the
sense of efficiency), possibly different from the one initially assumed.
Basically, it is possible to change the conclusions of reasoning based on the addition of

new premises, additional to those initially assumed, which is, in fact, an important step
in moving from monotonic reasoning to non-monotonic reasoning. Keynesian theory of
economic development shows that, after a certain level of economic development,
markets can no longer be left alone to function and regulate based on the free
articulation of supply and demand, because a high and persistent unemployment rate is
reached. In this case, the imports of some states become the exports of other states, the
saving solution to the impasse is the initiation of collective and concerted action on a
global scale (Stiglitz, 2003, p.302).
The need for managerial change, induced by accelerated economic development,

implicitly requires the following types of changes (Rousseau, 2006, p. 256): the
transition from deductive knowledge to inductive knowledge, the evolution from
quantitative to a qualitative paradigm, displacement emphasis from a positivist to a
constructivist epistemological basis. This shift of emphasis, at the level of conceptual
approach, towards a new management system, is not singular. The paradigmatic change
mentioned by Rousseau (the transition from the quantitative to the qualitative
paradigm) is, in fact, the transition to a new form of approach to management systems,
defined as the “new management paradigm” (Gareis, 2005, p.32). According to Gareis'
approach, the "new management paradigm" is an essential condition for achieving
excellence and performance in project-oriented companies and organizations.
Case study
This article proposes as a case study, an analysis of the influence of uncertainty and
factors of uncertainty on the managerial decision, in conditions of economic crisis.
Studies were taken as a reference that highlight the features of the managerial decision,
as they were registered during the great economic-financial crisis (from 2008-2012), as
well as the economic crisis induced by the appearance and development of virus COVID-
19 (during the period beginning of 2020 and until now).
To highlight the feature of the managerial decision in conditions of uncertainty, during

the great financial crisis from 2008 to 2012, the data resulting from quantitative
research based on the questionnaire (personally conducted in 2012) were used. To
identify the effects of uncertainty on the managerial decision in the economic crisis
generated as a result of the effects induced by COVID-19, a research was conducted
focusing on the secondary data analysis of three surveys conducted in March - April
2020 by the National Institute of Statistics.
The role of conducting a comparative analysis regarding the influence of uncertainty on

the decision of managers in the two types of crises (2008 - 2012 and 2020) is to highlight
similarities and possible differences in managers' action patterns.
I.Analysis of the particularities of the managerial decision in conditions of uncertainty in

the Romanian economic environment, as a result of the economic-financial crisis from
2008 -2012
The quantitative research proposed for the analysis was carried out through personal
efforts between September 2011 and January 2012. As a working methodology,
sampling was used on a simple random probabilistic sampling basis. The data were
collected by the CSAQ method (Computer-assisted self-administered questionnaire).
Thus, potential respondents from the target group received an e-mail presenting the
research, along with a link to a web platform dedicated to completing the questionnaire.
A total of 797 decision-makers took part in the survey, coming from 797 organizations,
whose distribution according to the type of company was: 691 private companies, 59
public institutions, 47 non-decision-making organizations. governmental. Out of the
total number of private companies, almost 52% belong to the Bucharest-Ilfov
Development Region, 22% to the North-West Development Region, and 23% to the
North-East Development Region.
Given the purpose of the study, the research universe is represented by people within
the organizations involved in the decision-making process. Given the difficult access and
low availability of top management to participate in such surveys, we included, in the
category of potential respondents, people from organizations that hold lower positions
in the hierarchical structure, but which are frequently in the situation to make decisions
within the organization of which they are part (department director, program
coordinator, deputy director, etc.). Despite the flexibility of this criterion, it should be
noted that the representatives of the upper management area of the companies (top-
management) represent the largest segment of respondents (respectively 69.5% of the
total), followed by representatives of the segment with average decision-making power
in the surveyed companies. (middle-management, with a percentage of 22.2% of the
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total), respectively the representatives of the segment with low decision-making power
(lower-management, with a percentage of 7.0% of the total).
As mentioned above, the research focused in particular on the people involved in the
decision-making process in private companies, the answers received from people
working in public institutions and NGOs only to allow comparisons, statistically
relevant, between the three types of organizations. From this study, a short section was
selected, which was not previously published and which is relevant for the study of the
issues developed in this article. Thus, regarding the major sources of inspiration of the
managers, used in the decision-making process, the respondents generated a series of
answers that are mapped in the following table.
Research Question 1: How often do you consult the position of the following sources,
when you have to make an important decision within the organization?
Table 1. Important sources of inspiration consulted by managers in important decisions x

Level of consultation
Sources consulted in important decisions
(cumulated “often” and “very often” options)
Previous similar cases 91,72%
Legislation 79,30%
Reliable partners and collaborations 64,12%
Colleagues on the same hierarchical level 63,61%
Subordinates 57,34%
Specialized works 56,84%
Superiors 49,56%
The international environment 42,79%
Close people (family, friends) 35,88%
Mass - media 26,47%
Source: Own research
As can be seen from the analysis of the data presented in the table above, managers
decide to the greatest extent, based on the existence of similar cases in the past (91.72%
of options). This would mean that they can decide most easily when faced with a type of
Cossack they already know a priori. This idea brings us closer to the level of decision in
a state of certainty and places us far from the conditions of uncertainty (in which it is
usual not to have a type of previous case study, which can help you in the decision-
making process). Then follows the verification of the legality of the decision (a fact
confirmed by the verification of the 79.30% legislation) as well as the consolidation of
one's own opinion, by consulting with other trusted persons (64.12%). The opinion of
subordinates (57.33%) is also consulted, which suggests the existence of a participatory
leadership level, as well as the opinion of superiors (49.56%), which suggests the
existence of organizational culture with respect for hierarchy. At the diametrically
opposite pole (with the fewest options formulated) it is noteworthy that managers use
very little information from the media to substantiate their important decisions
(26.47%). This approach could also translate into a lack of trust in this component in the
information process. Another relevant aspect of the study shows that organizations
perceive the impact of the crisis differently on their organization, as well as the fact that
this impact has multiple action components.
Research Question 2: To what extent have the following negative effects of the crisis
been felt within your organization?
Table 2. Negative effects of the crisis felt within the organization

Level of occurrence
Category affected by the negative impact
(cumulated “often” and “very often” options)
Postponement or cancellation of development 61,73%
projects
Difficulties in financing current projects 49,44%
(obtaining loans/grants)
Restriction of activity 43,91%
Staff reductions 34,25%
Decreasing the value of the organization's fixed 33,38%
assets
The most important negative aspect felt by managers is the postponement or even
cancellation of development projects (61.73%) followed by the difficulty of financing
their projects in implementation (49.44%). In other words, the component most
strongly affected by the crisis is the development of the company (whether we are
talking here about future development or current development, which is in various
stages of progress).
Another very important component induced in the managerial decision by the economic
crisis is the “reduction” of the company's activity (43.91%), respectively staff reduction
(34.25%). Most of the time the reduction measure is used by the managers in practice
in parallel with the measure of stopping the development through the projects.
The third important effect felt by managers in times of crisis within their own companies
is "decrease". The most important type of decrease felt by the managers participating in
the survey is decreasing the value of the organization's fixed assets (33.38%).
In the “lessons learned” chapter by the managers participating in the survey, they were
divided into three distinct categories: essential changes in decision support, secondary
factors that can essentially support the managerial decision, and personal lessons
learned by managers. those organizations, following the experience, gained in the
economic crisis.
For the first aspect analyzed, which is what became the most important in substantiating
the decision in crisis conditions, the opinions below were recorded.
Research Question 3: Due to the economic crisis, to what extent have become more
important to you in deciding?
Table 3. Category of items becomes more important in managerial decision due the economic
crisis
Category becomes more important in Level of occurrence
managerial decision after crisis (cumulated “often” and “very often” options)
Analysis of the internal resources of the 87,33%
organization
Information about collaborators 67,25%
Recommendations from others in the business 61,10%
External funding opportunity 58,34%
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The four most important categories of responses recorded in the post-crisis

management decision are related to the analysis of their organizational resources at a
much more significant level of detail than before the crisis (87.33%). Next in the top of
preferences is better information on employees and especially on their potential
support in the crisis (67.25%). An important role is also played by the recommendations
offered by other partners in the business on ways to take future action (61.10%), as well
as by the search for new funding opportunities (58.34%). Regarding the categories of
secondary factors, but with great influence in the process of substantiating the decisions
in the post-crisis period, the following aspects can be highlighted.
Research Question 4: What other categories of secondary factors have the economic
crisis made you pay attention to in terms of managerial decisions?
Table 4. Category of secondary factors important in the managerial decision after the
economic crisis
Category of secondary factors important in managerial
Percent of valid answers
decision
Internal and external economic situation and market trends 20,96%
(exchange rate, growth forecasts, change in consumer behavior)
Management of company resources and cost control (financial 19,24%
resources, cost reduction, price, need for liquidity)
Stability of the financial situation of business partners (solvency 15,46%
of customers, their goodness, the fairness of suppliers,
seriousness)
Competition and competition information 11,68%
Evolution of the domestic and international political 11,34%
environment (context, legislation, policies, forecasts)
Risks and opportunities (potential, adaptation, caution) 9,62%
Strategy (reorganization, reorientation, long-term plans, 8,59%
sustainability, finding market niches)
The company's human resource and its flexibility (labor 3,09%
productivity, human factor)
In order of preferences registered by managers, the secondary factors of particular

importance in the managerial decision in the post-crisis era are those presented in table
number 4. The dominant elements highlighted by respondents are related to a better
knowledge of business context elements (both internal and external), as well as better
control of resources (both material, financial, or human). Then follows the need for the
financial stability of business partners (without which the risks of collaboration in the
business increase) as well as elements related to the political and economic context.
A special role in the respondents' options in the survey is related to better risk
management and the opportunities associated with these risks in business development
(9.62%). Basically, managers recognize that they need better management of the state
of decision-making uncertainty, which is inevitably inherent in conducting business in
crisis conditions. Another very interesting aspect of the study undertaken on the 797
Romanian organizations, in the period of economic and financial crisis related to the
years 2008 - 2012 is represented by the lessons learned by managers. The research
question as well as the results of this study are highlighted below.
Research Question 5: What lessons have you learned personally as a result of the
economic crisis?
Table 5. Lessons learned personally as a result of economic crisis

Lessons learned for managers Percent of valid answers
Checking resources and streamlining expenses 18,78%
Prudence, caution, responsibility (assuming them as new values 17,51%
by the organization)
Adaptability and flexibility as development imperatives 11,42%
Lack of security and predictability in the business or political 9,39%
environment
The need for savings and reserves 8,63%
The importance of efficiency, changing the pace of work and the 7,61%
quality of work
Selecting business partners and customers are crucial to 6,85%
business success
Planning and looking to the future 6,35%
Using development examples and experiences from other 1,78%
countries
Other 11,68%
Analyzing the data presented in Table 4 and those in Table 5, we can conclude that they
are in a close relationship. For example, the secondary factor “management of company
resources and cost control (financial resources, cost reduction, price, need for liquidity)”
with a percentage (19.24%), has a correspondent in Table 5, in the lessons learned in
the chapter “checking resources and streamlining expenses” (18.78%). Also, the
secondary factor “risks and opportunities (potential, adaptation, caution)” in table 4,
with a level of options (9.62%), has an equivalent in table no.5 (of lessons learned),
namely “lack of security and predictability in the business or political environment”
(9.39%). These findings lead to the idea that managers, once they have identified the
problem they had on their agenda during the crisis, can assume it in the chapter "lessons
learned" for the future.
II. Analysis of the particularities of the managerial decision in conditions of uncertainty in

the Romanian economic environment, as a result of the economic- crisis of COVID-19 at the
beginning of 2020
The second part of the case study highlights, in secondary data analysis, the perception
of the managers of organizations on the decisions they have to take in conditions of
uncertainty in the economic crisis induced by the virus COVID-19. The three studies
analyzed, were conducted between March and May 2020 by the National Institute of
Statistics, on samples of respondents with national representation. The first research
entitled “Assessment of the impact of COVID-19 on the economic environment, in March
and April 2020”, was conducted between 17 and 19 March 2020, on a sample of 8831
nationally representative economic agents. The industries analyzed in the study were:
manufacturing, construction, retail, and services, their questioning being related to the
perception that respondents have on the evolution of the economic activity of their
organization in the next period.
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From this study, only the predictability component of the decisions that managers have
to make in crisis conditions generated by COVID-19 was extracted. Thus, the study
highlights the fact that in the early period of 2020, the level of decision-making inertia
among the Romanian managers surveyed was very high. For example, at the level of
March 2020, 21.2% of economic agents could not assess how their business will evolve
in the next period. According to the same study, this percentage increased to 31.4% of
the number of respondents, at the level of April (Report 1 COVID-19, 2020, p.2).
Practically analyzing the above data, it results that the level of unpredictability on the
future evolution of the business increased by about 50% in a single month (March - April
2020).
The causes that were the basis for the increase of such dramatic decision uncertainty in
just one month were related to: "restriction of economic activity" from 12.9% in March
2020 to 6.4%” in April 2020, respectively "restriction of the volume of activity from 7%
in March 2020 to over 25% in April 2020”, for the organizations included in the study
(Report 1 COVID-19, 2020, p.1). Against the background of this high level of decision-
making uncertainty, the consequences of the lack of concrete decisions were very
important for the analyzed organizations.
The first observation would be related to the fact that these changes manifested
themselves in an extremely short period (incomparably shorter in terms of time, than in
the case of the financial crisis of 2008-2012). A second observation is related to the
magnitude of the decreases registered within the organizations analyzed in this study.
The share of organizations that fell by more than 25% (in terms of shrinking economic
activity) increased very rapidly from 33% in March 2020 to 45% in April 2020.
According to the study, one of the most severely affected industries by the economic
crisis generated by COVID-19 was the manufacturing industry. In this industry
"uncertainty is the main feature of the estimates of the volume of activity, as the share
of those who cannot estimate the future direction of activity increases from 24.5% in
March 2020 to 40.1% in April 2020" (Report 1 COVID-19, 2020, p.2). A similar evolution
is registered in the field of transport services, where the percentage of managers who
cannot estimate the future direction of the company's activity, increased from 25.9% in
March 2020 to 40.1% in April 2020 (ibidem, p.3).
In the second research entitled "Trends in the evolution of economic activity in March-
April 2020", conducted by the National Institute of Statistics between 17 and 19 March
2020, were conclusions compatible with those presented in the previous study.
Practically, the conclusions of the second study complement the ones presented in
extenso in the previous study highlighted above. It is stated that “the most affected will
be small and medium enterprises whose managers have estimated that the main risk is
a reduction of over 50% or even the closure of economic activity” (Report 2 Tendencies,
2020, p.1). Like the previous ones, this study indicates that “48% of managers cannot
estimate how the economic activity will evolve in April 2020” (ibidem, p.3). This
statement once again confirms the very low level of predictability that managers had in
the first period of 2020.
In the third study analyzed, entitled "Ad-hoc research on assessing the opinion of
managers on the volume of exports and imports of goods in March 2020", conducted by
the National Institute of Statistics in March 2020, was selected 1551 Romanian
companies (covering as the volume of transactions over 50% of the total export-import
balance of Romania). And in this study, we were strictly interested in highlighting the
perspective of uncertainty, which influences the managerial decision. Thus, according to
the study, 15% of the companies surveyed could not estimate in any way how exports
will evolve in the next period for their companies, while 2.4% did not answer this
question at all (Report 3 Ex -Im, 2020, p.2). Also, according to the same study, 19.7% of
respondents could not estimate how imports for their companies will evolve, given that
4.6% of respondents did not provide an answer to this question.
Conclusions
Following the writing of this academic paper, we wanted to highlight how uncertainty
influences the managerial decision, in general, but especially in times of economic crisis.
To exemplify these types of interactions, at the level of the case study, comparisons were
made between the way managers reacted to uncertainty factors during the economic
and financial crisis from 2008 to 2012 (based on the analysis of data from a personal
study conducted in that period) and that during the current economic crisis generated
as a result of the presence of COVID-19 globally (based on the analysis of data from
official reports provided by the National Institute of Statistics, during March - April
2020).
The conclusions we can advance indicate the following aspects:

- In both the economic crises (the one from 2008 to 2012) and the current one generated
by COVID 19, the level of information uncertainty was very high.
- In both crises analyzed, the economic uncertainty directly affected the functioning of
the analyzed businesses.
- Managers were aware in both crises of the presence of information uncertainty (which
also had an impact on decision-making and action uncertainty) and were not prepared
to adequately manage these crises.
As peculiarities, during the first crisis analyzed, the managers had time to reflect on the
mistakes made and to be able to propose some ways to manage the decisional
uncertainty for the future. They also feared less that they would go bankrupt, as in the
second crisis analyzed (the one generated by COVID-19).
The specificities of the crisis generated by COVID-19 on the Romanian economic

environment are related to a very high level of unpredictability on the future evolution
of its company, a very high magnitude registered in the reduction of economic activity
and workload (with very large oscillations recorded from one month the high). The
percentage of “I don't know/don't answer” type response registered in the studies that
highlight the economic evolution during the period of COVID-19 in Romania is over
double the percentage of the same category of response in the first study analyzed. This
aspect also shows that in the COVID-19 crisis, not only the number of those who cannot
predict the future evolution of their company is very high but also the number of those
who cannot provide any answer is also very high.
Also, the COVID 19 crisis had the particularity of the fact that it affected much more
deeply in Romania a lot of economic activities than in the first crisis analyzed. Under
these conditions, a better knowledge by managers of the elements of economic
742 Strategica 2020
forecasting and implicitly of risk management becomes for managers who want
efficiency and managerial efficiency, a real challenge but also an opportunity in the fight
against the unpredictability of the future society.
References
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economic environment, in March and April 2020], National Institute of
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martie -aprilie 2020, [Trends in the evolution of economic activity during
March-April 2020], National Institute of Statistics. Retrieved from
https://insse.ro/cms/sites/default/files/tea_impact_sars_cov2_r20.pdf
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managerilor cu privire la volumul exporturilor și importurilor de bunuri în luna
martie 2020, National Institute of Statistics, [Ad-hoc research on assessing
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0_1.pdf.
8
Knowledge Economy
Chairs
Constantin BRĂTIANU & Alexandra ZBUCHEA
744 Strategica 2020
MAPPING KEY COMPONENTS OF ENTREPRENEURIAL UNIVERSITY

MODELS
Daniela Mihaela NEAMTU
’’Stefan cel Mare’’ University of Suceava
13 Universității St., Suceava, RO
dana.neamtu@usm.ro
Ruxandra BEJINARU
13 Universității St., Suceava, RO
ruxandrab@usm.ro
Abstract
The evolution of the vision and interpretation of entrepreneurship has occurred in parallel with the
entrepreneurial change in practical terms, i.e. regarding the process that defines the creation of a
business. Thus, the need to constantly update studies, analyses, and strategies must be aware of those
involved. The entrepreneurial models in the paper present various phases that are declined
according to the theoretical and practical approaches, found especially in the literature. Throughout
the sections of the paper, we argue that the models, components, or strategies of the entrepreneurial
university are extremely dynamic, flexible, and adjustable to offer fair chances for any university
framework to transform itself and adopt the entrepreneurial model. We are discussing with priority
two entrepreneurial university models namely the European and the American. For the European
model of the entrepreneurial university, we present the framework focused on the 7 key pillars and
the European level strategies for increasing entrepreneurship in universities. Related to the
American model we provide a couple of good practices and policies applied by renowned institutions.
For comparative analysis, we present the case study of "Stefan cel Mare" University like an open
entrepreneurial system. To frame the entrepreneurial approach of this university we examine a series
of coordinates like research laboratories, business incubators and technology parks, partnerships,
and consultancy with private companies, cooperation based on joint projects, participation in
international research networks, and students’ involvement in research.
Keywords
Entrepreneurship; entrepreneurial university; sustainable development; sustainability;
partnerships; innovation; start-ups.
Introduction
During the last decade, the role of entrepreneurship as a factor of economic growth at
the organizational and national level has received scientific and empirical assertion and
thus has begun to arouse increasing interest, both academically and pragmatically. It has
been widely acknowledged that economies word-wide cannot support their long-term
economies without implementing pro-active strategies. To grow, consistently additional
efforts are needed. Today, almost everything takes place under the emblem of
sustainable development (or sustainability): society develops by applying sustainable
principles, education must become sustainable; industry or agriculture develops
sustainably; and thus research must support sustainability (Hapenciuc et al., 2018).
Knowledge Economy 745
The strategy aimed at developing an entrepreneurial university starts with focusing on

basic processes such as teaching, research, and entrepreneurial initiatives (Guerrero et
al., 2016). Efforts in this direction begin with the search for a solid anchor such as an
entrepreneurial university model appropriate to the requirements of the 21st century.
According to Etzkowitz (2004), universities have been assigned new missions that focus
on social development and economic growth. Starting from this premise we can
consider that universities are moving towards the necessary transformation to become
entrepreneurial organizations and their employees - will become potential
entrepreneurs. In this context, the role of the educational process becomes to develop
students' personalities to manage complex issues and make the right decisions, to act
responsibly, and maintain high ethical standards according to the requirements of the
principles of sustainable development (Neamtu & Bejinaru, 2018).
There is obviously a need to adjust the rules of the game to ensure a better allocation of
entrepreneurial resources to those activities that society needs to encourage to achieve
a level of sustainable growth. Although all EU Member States have recognized the
importance of implementing these instructions, approaches and results can vary greatly
from one country to another (European Commission, 2017). Complying with the agenda
of the European Policy, increasingly higher education institutions in Romania support
entrepreneurship and innovation by introducing new educational activities for students
and staff, special support services and programs for start-ups, and through dedicated
partnerships with key development partners (European Commission, 2019; Neamtu et
al., 2020).
The "Entrepreneurship Action Plan 2020" on relaunching entrepreneurship in Europe

states that entrepreneurship is considered an essential vector of sustainable growth and
generator of new jobs, opens new markets, and stimulates new skills and capabilities.
Therefore, the initial idea that the term ’sustainability’ sought to express is the idea that
living generations do not have the moral right to compromise or diminish, through their
pursuit of limitless well-being and comfort, the chances of future generations to have
more resources necessary to ensure a decent and prosperous life. This complex and
noble mission can be achieved by promoting social, economic, and political change,
which can be supported by professional leaders and specialists (Bejinaru & Hapenciuc,
2016). The foundation of society, in which human resources become the key sources of
solid development, is based on education and implicitly on economic and social
prosperity. Formal education is understood as curricular education and non-formal
education consists of extracurricular activities offered by universities (outside the
official learning program) (European Commission, 2017; Zbuchea & Leon, 2015).
For a long time, the debates regarding the role of students in the development of the
university and society were finally dominated by the strategic importance of actors with
superior authority, but the time has come when these roles need to be re-evaluated. The
actions of the actors from the academic environment (teachers, administrative staff, and
students) must be trained simultaneously in the same direction so that their effect is one
of impact in the local community (Hapenciuc et al., 2016). Although the student has long
been considered only a "client" of the university, the reality shows that the student is
the main resource for sustainable development in this ecosystem (Bejinaru, 2018). The
involvement of the university in sustainable development has been influenced by the
746 Strategica 2020
confrontations of its members and its partners with the adverse conditions of the global
economic environment (Bratianu, Hadad, & Bejinaru, 2020).
International business forums approach entrepreneurship as a driving force, aiming for

globalization, ensuring the flow of goods and services, as well as assisting emerging
markets in enriching their potential. Developing firms are very important in this
process. In the United States, for instance, it is estimated that although medium-sized
enterprises make up only 1% of total firms, they generate a quarter of total sales and
involve one-fifth of the total private sector workforce (Harrison & Turok, 2017). In the
case of the United Kingdom, out of every 100 small firms, the first four companies in the
growth ranking create half of the jobs in this group over a decade. In other countries,
however, it may be difficult to find a small group of companies to dominate employment
growth at the national level (Davidsson & Delmar, 2001). Thus we may appreciate that
to generate growth in an economy, newly established companies, and entrepreneurship
must first generate internal growth and sustainability.
Components of the entrepreneurial university model
Integrating the discussions about characteristics of the entrepreneurial university by

various authors (particularly Clark, 1998 and Gibb, 2005) with the knowledge on the
functioning of entrepreneurially oriented organizations proposed is the model of the
entrepreneurial university (Suncica & Salihov, 2015), as the answer to the research
question: What kind of university we need today to best meet the needs of the turbulent
environment in which we live (Figure 1). Within an academic context and environment,
entrepreneurship can be perceived as the development of a set of individual behaviors,
skills, and attitudes as characterized by the entrepreneur (Hannon, 2013). The same
characteristics can be applied to the intrapreneur, the social entrepreneur, the
technopreneur, and across many other contexts. But why is this important? Why is
entrepreneurship important in higher education? Why are these concepts of relevance
to higher education institutions? What role should an HEI play in stimulating
entrepreneurship across its campus? Why does a university need to be entrepreneurial?
To advance some possible answers to the above mention questions we bring arguments
for the basic components of the entrepreneurial university model:
1. Entrepreneurial university core consists of university components, which
perform the basic research and education functions (faculties, departments), and supra-
organizational structure of an integrated university.
2. Developed university periphery represents university’s interdisciplinary,
project-oriented research centers, which work on the transfer of university’s knowledge
and technology to the business community (applied research), develop and take care of
university’s intellectual property, organize and implement (in cooperation with other
university departments) continuous education programs (lifelong learning), help with
university fundraising activities, develop contacts with the alumni, help with the
development of their students’ careers, and organize and participate in all the activities
through which university establishes contacts with its environment.
Figure 1. Model of the entrepreneurial university

Source: adapted after Suncica and Salihov, 2015
3. Strong (collegiate) leadership; university leadership capacity is very important

in the creation of an entrepreneurial university. Strong leadership is essential in the
process of university transformation. If university leadership doesn’t accept the concept
of the entrepreneurial university, it is unlikely that transformation to an entrepreneurial
university will take place. Collegial leadership relates to the creation of governance
structure, which motivates and encourages all parts of the university to proactive and
enterprising behavior, and achievement of team goals is ahead of the realization of
personal goals ("we" vs. "I").
4. Diversified financing; creation of financially independent (on state sources of
financing) university is an important prerequisite for the creation of the entrepreneurial
university. Financial independence (of university) creates a sense of controlling one’s
destiny because it allows the university to launch and implement projects according to
its own wishes and priorities, and prevents unwanted commercialization of university
services because it provides the freedom to choose projects.
748 Strategica 2020
For these components to adequately function, there must be applied a set of academic
context principles, like autonomy and accountability of the university and a series of
entrepreneurial culture issues like innovativeness, proactivity, or readiness to assume
the risk.
Similar components were specified by Spigel & Harrison (2017) who have defined in a
more integrated way that an entrepreneurial agenda is a combination of social, political,
economic, and cultural characteristics that support the creation and development of
innovative start-ups and promotes new entrepreneurs and other stakeholders for them
to take the risks involved by supporting high-risk business initiatives. It groups the
above characteristics into three categories: -material characteristics (universities that
educate young entrepreneurs and at the same time produce new knowledge, support
policies, infrastructures, open markets, and support services); -cultural characteristics
(support culture, business exceptional success) and -social characteristics (talented
human resources, successful local entrepreneurs who provide advice to young
entrepreneurs, available investment capital, social networks between consultant
entrepreneurs and individuals who allow the dissemination of knowledge). The three
presented dimensions are very important when discussing initiating successful start-
ups (Di Gregorio & Shane, 2003).
Figure 2. The Innovative & Entrepreneurial Higher Education Institution

Source: adaptation after Gibb, 2017
Each entrepreneurial agenda must have the following six separate sectors: political,
financial, cultural, support, human resources, and markets (Isenberg, 2010). In
particular, according to the World Economic Forum, the main pillars of an
entrepreneurial system are the human resources, the study programs of the big
universities that promote entrepreneurship, and the predominant business culture (risk
tolerance and failure, presentation of the most successful businesses and innovation in
society, etc.), systems for the support of entrepreneurs - mentors and consultants, access
to national and international markets, funding means, state (legislative and regulatory
framework and infrastructures), education and training (provision of qualified human
resources) (World Economic Forum, 2014). International literature recognizes the role
of universities as particularly vital to the development of human capital, knowledge, and
entrepreneurship (Audretsch, 2014; Carlsson et al., 2002; Elena-Pérez et al., 2017;
Guerrero, Cunningham, & Urbano, 2015; Isenberg 2010; Mason & Brown 2014; Amorós
& Bosma, 2013). Universities are knowledge-intensive organizations with a high
potential of intellectual capital, and a high level of knowledge entropy (Bratianu, 2011,
2014, 2019).
The entrepreneurial mission of the university stems from the fact that it is, in fact, an
incubator in terms of teaching, research, and entrepreneurship and moreover provides
a favorable context for collaboration within the academic community to identify, explore
and exploit innovative ideas that can be turned into development projects (Kirby,
Guerrero, & Urbano, 2011). Over time, the successful exercise of the core function, that
of educating and training graduates who were capable and competent to contribute to
the development of society, has led to the prospecting of more ambitious horizons. Thus
arose the second function of the university, namely that of research. The research
mission of the university serves the desire of academic staff to advance and deepen their
field of activity as well as to disseminate the results of their activity with the general
public (society in general) but also with the specialized public (companies or
laboratories) (Prelipcean & Bejinaru, 2018). The entrepreneurial mission intervened in
several forms in this context. Some experts argued that the entrepreneurial mission has
the role of connecting the results of academic research with their practical implications
for society (Nastase, Butnariu, & Lucaci, 2019). The dissemination of research results
can lead to multiple effects such as the progress of existing economic activity but also
stimulating start-ups (Mahdi, 2016).
The European model for the entrepreneurial university
The European Commission working with OECD has built an online self-assessment tool,
HEInnovate (access at www.heinnovate.eu), as a guiding framework for the
entrepreneurial university. This framework focuses on 7 key pillars identified through
a thorough review of existing research and strategically analyzing with a group of
experts from across Europe. The tool aims to provide higher education institutions with
the opportunity to reflect on their perceptions of strengths and weaknesses in each key
area, thereby helping to identify institutional development needs. The 7 pillars are:
• Leadership and governance
• Organizational capacity, people and incentives
• Entrepreneurship development in teaching and learning
• University-business/external relationships for knowledge exchange
• The entrepreneurial HEI as an internationalized institution
• Pathways for entrepreneurs
• Measuring the impact
Creating an environment for the enhancement of entrepreneurial thinking and

behaviors across all subject areas also creates challenges. The UK has been investigating
this and the Quality Assurance Agency published a guidance note (QAA, 2012,
https://www.qaa.ac.uk/) for embedding enterprise and entrepreneurship in higher
education. This document aims to provide examples of how entrepreneurial learning
opportunities can be provided within formalized curricula and through extra-curricular
750 Strategica 2020
provision. The framework also proposes the idea that a learner’s journey begins with
raising awareness, progressing to the development of an entrepreneurial mindset,
enhancing entrepreneurial capacities, and finally to enhancing entrepreneurial
effectiveness. The challenge is for universities to review what they do and how and the
effects on the enhancement or inhibition of the development of entrepreneurial
capacities that will underpin innovation capacity. How often are the institution’s
structures and policies, all curricula, business, and industry collaborations,
internationalization activities reviewed? There is much that can be changed in an
institution: conceptualizations of entrepreneurship; strategies for embedding
entrepreneurship across the campus; opportunities for entrepreneurial learning; new
combinations of multidisciplinary knowledge (Gibb, 2005; Zbuchea & Vidu, 2018).
A comprehensive and dynamic perspective is given throughout the following definition:

"Travelling the journey towards an entrepreneurial university is not a lone activity.
There needs to be a number of actors stimulating change, for example: -visionary and
transformative leaders at all levels in the organization; -entrepreneurial staff acting as
inspiring role models; -students empowered to act and take risks; -mentors and coaches
who can inspire and support entrepreneurial development opportunities; -education
activists and critical friends who will lead innovation in the curricula and learning; -
learning technologists; dynamic and effective entrepreneurial ecosystems; -a diversity
of stakeholders from all key communities of practice; -celebrators of learning from
failure" (Hannon, 2013, p.15).
The American model for the entrepreneurial university
Entrepreneurs in the USA are well-known to be great cultivators of entrepreneurial

spirit and have greatly contributed to the American economy by creating countless well-
known ventures (Lee, Chang & Lim, 2005). Streeter, Kher, and Jaquette (2011) observed
more than 2000 entrepreneurship programs in American universities, many of which
are at top-ranked universities. These programs are offered by more than 1500 colleges
and universities and more than 100 active university-based entrepreneurship centers
(Charney & Libecap, 2000).
For example, Babson College is well-known for its international stature in

entrepreneurship education including being a founding member of the well-known
Global Entrepreneurship Monitor Report and has strong links with several international
universities. USA university students are free to select their electives that accompany
their majors and are, therefore, not limited by fixed modules within their chosen
programs. It is less onerous to introduce alternative modules within such universities.
Entrepreneurship-focused programs are offered through centers for professional
development or executive education. These are focused on stand-alone, workshop-
based programs to train entrepreneurs in creating new ventures and growing these
ventures. The targeted audience for such workshops is formed by both international and
local entrepreneurs, as well as educators and academics. Interestingly programs,
especially grounded on effectuation theory, were found to develop educators and
academics to teach in entrepreneurship. The existence of these programs could explain
the stature and reputation in entrepreneurial initiatives of the universities that were
analyzed (Nieuwenhuizen, 2016).
"Stefan cel Mare" University like an open entrepreneurial system
The practical contribution of this paper is rather analytical and deductive referring to
the case of the “Stefan cel Mare” University of Suceava. From the analysis of the relations
that the University of Suceava establishes with the insertion environment through the
exercise of the five functions - development of creative human capital, regional
innovation, community development, participation in regional leadership, and
economic influence, it is found that the higher education institution behaves as an open
system that contributes to the development of its area of influence. The inputs generated
by the local and regional insertion environment of the University of the type of human,
financial, and material resources (Figure 3) are capitalized by the higher education
institution and transformed by specific mechanisms into outputs useful to the insertion
environment.
By exercising the functions aimed at the development of creative human capital, regional
innovation, community development, and participation in regional leadership, the
University generates several specific outputs (Figure 3). These outputs are directly
monitored by the higher education institution, being the result of human capital
formation, scientific research and innovation, and involvement in community
development. In a subsidiary way, these university "results" have an economic impact
on the insertion environment of the University, determining an increasing capacity to
influence the business and social environment.
The effects of the entrepreneurial actions implemented by the university are easy to
notice in the outside landscape. The financial university inputs "return" in another form
in the insertion environment that generated them. Certain percentage returns to the
local or regional economy in the form of salaries, scholarships, or other forms of financial
support offered to employees or students. Also, another significant part of these
financial resources is transferred to the business environment in the form of
remuneration for the different services that contribute to the development of the
material base and the infrastructure of the university campus.
752 Strategica 2020
Figure 3. The university as an optimal open system

Source: adaptation after Goldstein and Renault, 2004
Scientific research projects with non-reimbursable funding, in addition to the direct

impact determined by the financial resources attracted to the insertion environment of
the University, also determine a strong indirect impact. It is generated by the
technological transfer and knowledge of the results of these projects, the impact they
have on regional innovation, or the influence of human capital with a higher level of
training and specialization determined by the participation in programs that took into
account the development of human resources. Also, the development of human
resources through initial education or continuous training has an important economic
impact on the labor insertion environment, generating besides the high-skilled
workforce also side effects of the type of business location decisions in the area of
influence of the higher education institution or the transfer of knowledge, skills and
abilities towards employers (Pinzaru et al., 2016).
In the following, we will provide several examples of such, programs, projects, and
initiatives of institutional innovation, which we found being developed by the "Stefan
cel Mare" University of Suceava.
Research laboratories. The laboratories offer the possibility of achieving
innovation following the activity of scientific research and experimentation, in spaces
equipped with specialized equipment, principally by the teachers and students from the
University of Suceava.
Business incubators and technology parks. Another factor favoring
technological transfer and innovation is the activity within the technology parks and
business incubators. "Stefan cel Mare" University of Suceava is also involved in this
process, by providing scientific assistance of profile to the economic agents. This also
implies the cooperation of the university with research institutes, companies, the
business environment in the North-East Region of Romania. In the 2003-2007 Strategic
Plan of the "Stefan cel Mare" University of Suceava, it was recalled that "the foundations
for the creation of the Technological Park Suceava, a commercial company, were set up
within the perimeter of which investment activities will be carried out, involving also
advanced technology of industrial production and related services”. The activity in this
park contributes to the development of scientific research through qualified scientific
assistance, by involving the teaching staff in the process of technological transfer, by
providing consultancy in the economic, technological, environmental field, etc.
Partnerships and consultancy with private companies. The partnerships of
universities (with certain private companies, public institutions, research institutes,
other universities, etc.) offer the possibility of collaborations between the university and
these institutions/units specialized and used primarily for scientific experimentation
activities. During the pandemic period generated by the SARS-COV-19 virus, the
University through the Business Incubation Laboratory has opened up a voluntary
initiative, called Grow with USV, to collaborate with the companies affected by the
political, economic, and social changes and provide consultancy in the business field on
several areas, like management, finance, law, human resources, marketing, and
accounting.
Cooperation based on joint projects. Most of the university's partnerships are
made within cooperation networks and consortia, based on joint projects and programs.
The activity within such structures implies the aggregation of the different
competencies of the members, which facilitates the research-development-innovation,
the universities returning the role of predominant involvement in the fundamental
research.
Participation in international research networks. Among the cooperation
and partnerships in the form of cooperation networks and consortia, based on joint
projects and programs, the international ones offer the opportunity to collaborate with
partners from outside the borders of the country, who are leaders in that sector of
activity, all partners benefiting from the shared knowledge. In the network, the final
product storing top-level development-research-innovation processes.
Involving students in research. The formation of the human resource highly
prepared for the development of activities in research-development-innovation
supposes the involvement of the students in the research realized in the university, by
attracting them in the different research laboratories and by including them in research
teams to finalize grants or other contracts, for the purpose of their co-interest. In all the
universities which we have analyzed and also in the "Stefan cel Mare" University of
Suceava, the emphasis is placed not only on the research undertaken by teachers and
researchers but also on encouraging the research carried out by students, "by their
material and spiritual co-interest" - for example by granting research scholarships -
within the research laboratories of the university or in the research laboratories of the
partners from research or industry.
754 Strategica 2020
Conclusions
During this research, we have learned that the previously presented models,
components, or strategies of the entrepreneurial university are extremely dynamic,
flexible, and adjustable in order to offer fair chances for any university framework to
transform itself and adopt the entrepreneurial model. As we could notice from the
information presented across the paper sections, there is a multitude of models for the
entrepreneurial university but which largely encompass the same components. In the
end, we are cautious about expressing our definition of the entrepreneurial university
or about crediting a certain model. Thus synthesizing the ideas argued above we shall
only propose that the entrepreneurial university is characterized by the policy of
supporting staff and students in entrepreneurship, through innovation and creativity,
by the capacity of generating value for society by collaborating with local, regional,
national, and international partners and by the ability to operate efficiently in dynamic
environmental conditions.
Finally, we state that the university plays a fundamental role in creating and sustaining
an entrepreneurial culture capable of stimulating the local ecosystem. As much as we
have tried to understand how to learn entrepreneurship the major obstacle is the
absence of a clear and precise guide. This lack is due firstly to the complexity of
entrepreneurship, which includes knowledge and different competencies, and secondly
that it is not easy to fully measure what impact have the entrepreneurial strategies,
policies, or courses. It is a fact that the impact of the entrepreneurial university is visible
and furthermore its future potential is all the more exciting for state administrations. In
an attempt to cultivate entrepreneurship, support programs and business incubators
have emerged worldwide for increasing the number of start-ups and achieve the
maximum return on investment in research and development. Support programs aim to
increase the number and quality of start-ups, while business incubators strive to reduce
the gap between innovation and marketing.
In conclusion, we consider it justified to complete the arguments discussed above, both

about international models of the entrepreneurial university and about the realities
facing the University of Stefan cel Mare in Suceava - with the statement made by the
experts of the OECD Report (2019, p.46), namely that the ”Ștefan cel Mare” University of
Suceava is an "anchor institution for a region, playing a key role in the community and
the surrounding ecosystem, being clearly committed to developing an entrepreneurial
agenda."
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758 Strategica 2020
ASSESSING THE DRIVING FACTORS OF BUSINESS PROFITABILITY

IN EUROPEAN HIGH-TECH VERSUS LOW-TECH INDUSTRIES
Alexandra HOROBET
6 Piata Romana, Bucharest, RO
alexandra.horobet@rei.ase.ro
Consuela POPESCU
consuela.popescu@rei.ase.ro
Georgiana VRINCEANU
vrinceanugeorgiana16@stud.ase.ro
Lucian BELASCU
“Lucian Blaga” University of Sibiu
10 Victoriei Blvd., Sibiu, R)
lucian.belascu@ulbsibiu.ro
Abstract
Our paper proposes a new approach for the study of high-tech versus low-tech industries to
investigate the most important industry and country-based determinants that explain their
performance. We cover the 2010-2017 period based on data availability and the deliberate exclusion
of the turbulent years of the Global financial crisis. We include in our research twelve EU member
states that, collectively, hold shares between 65 and 85% in the turnover recorded in the selected EU
industries. Profitability is described in our study by business profitability, measured through the
Gross operating rate (the ratio between gross operating profit and turnover). Also, we use a set of
independent variables split into nine industry variables and eight country variables. The
methodology we use is a machine-learning-based Random forests regression, which generates
several trees, followed by an aggregation of their results, and combines random sample selection and
feature selection. Labor productivity, the share of value in total turnover, and the number of persons
employed are the highest influencers of business profitability for all industries, but our results
indicate significant differences in terms of both industry and country-related variables for what
concerns business profitability across the selected industries, but they are, in general, in line with our
expectations of profitability drivers. For industries with higher technological intensity industry
characteristics are more important than country characteristics, while for low technology industries
the reverse applies. FDI intensity is more important for profitability in higher technologically
intensive industries than in lower technologically intensive industries. These differences point
towards a better view on the specificities of business performance so that improved policies aiming
at enterprise support may be designed. This is even more needed given the current health and
economic crisis.
Keywords
High-tech industries; competitiveness; performance; European Union; industry versus country
factors.
Introduction
The Lisbon Strategy launched in 2000 has announced the European Union's
commitment to becoming, by 2010, the most dynamic and competitive knowledge-
based economy in the world. The concept of the knowledge economy that encompasses
aspects of the economy where knowledge in the core of the value-added chain, has been
further carried on through the Europe 2020 Strategy. The latter strategy targets an
increase in R&D (Research and development) investments to a share of 3% of GDP by
2020. In this general framework, the European Union has focused on programs and
policies that directly enhance the importance of high-tech industries in the EU GDP, such
as the digitalization of the economy or research and development programs. R&D
investments are seen as a major economic growth and competitiveness driver and able
to foster high levels of productivity, that have the potential to turn into high value-added
outputs and increased wages.
The European Union uses a taxonomy of industries depending on their degree of

technological intensity – based on their R&D expenditure per unit of value-added - and
distributes them into four main categories, i.e. high-technology, medium high-
technology, medium low-technology, and low-technology industries. Figure 1 displays
an overview of the size of the four technology levels in the value added at factor costs of
total manufacturing for the EU-27 in 2010.
Figure 1. Share of different technology levels in total manufacturing, value added at factor
costs, EU27, 2010
Data source: Statistics Explained - Eurostat
In 2016, the EU had almost 48,000 enterprises in the high-tech manufacturing sector
(0.2 % of the total number of enterprises), which generated a turnover of EUR 724
billion (2.6 % of total turnover in the EU) and a value-added of EUR 200 billion (2.8 %
of total value added in the EU), according to Eurostat data.
In this light, our paper proposes a new approach for the study of high-tech industries to
investigate the most important industry and country-based determinants that explain
their performance.
760 Strategica 2020
Our paper is structured as follows. The following section offers insights into the research
directions and results in the existing literature. The next section describes the data and
methodology used. Then, the following section outlines the most relevant results and
the last section concludes and indicates directions for future research.
Literature review
Competitiveness and performance
The empirical literature on companies’ performance and competitiveness is

concentrated at the microeconomic level, in a firm-specific characteristics framework
that explains performance. Nevertheless, the ever-expanding digital economy
necessitates an integration of business idiosyncrasies in terms of industry and location
in the interpretation of differences in competitiveness across companies and industries.
Moreover, competitiveness has been intensively used in the last decades in conjunction
with the economic performance of industries or countries. Thus, an increasingly
interdependent, globalizing economic environment has heightened the interest of
analysts and policymakers in the international competitiveness of companies,
industries, or countries.
Many studies examine the influence of competition on industries’ and companies’

performance, but the results are rather mixed. Some authors found negative
relationships between company performance and industry competition (Ghosal, 2002;
Slade, 2004; Peress, 2010; Beiner et al., 2009). Other authors discovered a positive
impact of industry competition on companies’ performance (Mitton, 2004; Bozec, 2005;
Karuna, 2007; Irvine & Pontiff, 2009; Giroud & Mueller, 2010; Wang et al., 2014). Wang
et al. (2014) examined how firm performance is modified in accordance to industry’s
intensity of competition under agency problems in the US, UK, Germany, and France and
found that higher competition level is positively correlated with better operating
performance.
The traditional framework of business performance was supplemented with some

contributions that suggest ownership type, i.e. foreign or domestic, as an explanatory
factor explaining business performance. For example, Bobenič, Hintošová, and Kubíková
(2016) found that a higher involvement of foreign ownership tends to improve
companies’ performance in Slovakia. From another point of view, Barbosa and Louri
(2005) show that foreign ownership does not produce a significant difference in
performance for companies in Portugal and Greece. Moreover, Horobet (2018)
examines the competitiveness of foreign- and locally-owned companies in eleven
Central and Eastern European countries and discovers that depending on the country
and indicators used, the dissimilarities are not always in favor of foreign-owned
companies.
High-tech versus low-tech industries
Most studies that investigate the differences between companies from high- and low-
tech industries analyze them in relation to the number and type of innovations
generated or how companies manage the process of commercialization. For instance,
Covin and Prescott (1990) discovered that low-tech product innovators differed from
their high-tech counterparts in the matter of structure, market orientation, or need for
external financing. Later on, Raymond and St-Pierre (2010) indicate that high-tech
companies’ higher investment propensity into product R&D, and low-tech companies’
higher investments in the R&D process, may not be a good approach to innovation for
SMEs. More recently, Reboud et al. (2014) concentrated on companies that have both
high and low levels of innovation intensity to investigate the nature of innovation within
SMEs from Australia and France. Their results indicate that SMEs which may not be
officially considered high-tech companies can be vigorously interested in innovation
commercialization practices.
Concerning driving factors of performance in companies from high- and low-tech

industries, there are only a few studies on this subject, to the best of our knowledge. For
example, Hamilton et al. (2002) examined whether the growth of Canadian high-tech
companies is constant across size or related to business demographic factors (size, age,
and legal or ownership status). They proved there is no evidence in favor of higher
growth induced by foreign ownership. Another example belongs to Cozza et al. (2012)
who investigated the impact of product innovation on the economic performance of
Italian companies from medium- and high-tech industries. They discovered significant
differences between innovative and non-innovative companies in the matter of
profitability and growth rates. More specifically, they found that the differences in the
matter of profitability are notable when taking into consideration micro- and small-
sized companies, while these differences seem to fade in the case of medium and large
firms. Later on, Reichert and Zawislak (2014) examined the relationship between
technological capability and firm performance using data of 133 Brazilian companies.
They found that industries of lower technology intensity do not require investments in
technological capability to achieve superior economic performance. Moreover, Hirsch-
Kreinsen (2008) suggested that the productivity of the LMT sector is in reliance on high-
tech innovations, but at the same time, the innovative competence of the high-tech
sector relies on their narrow relationship with LMT industries. In other words, the
performance of these two sectors is inextricably linked.
Data and research methodology
Our paper’s objective refers to the driving factors of business profitability in the EU
depending on the industries’ level of technological intensity by highlighting the
similarities and differences between lower versus higher technologically intensive
industries. Four industries from the manufacturing sector have been selected, according
to the EU High-tech classification of manufacturing industries based on NACE Rev.2 2-
digit codes1: High-tech - C21 (Manufacture of basic pharmaceutical products and
pharmaceutical preparations); Medium-high-technology manufacturing - C29
(Manufacture of motor vehicles, trailers, and semi-trailers); Medium-low-technology -
C25 (Manufacture of fabricated metal products, except machinery and equipment);
Low-technology - C10 (Manufacture of food products).
1Available online at https://ec.europa.eu/eurostat/statistics-

explained/index.php/Glossary:High-tech_classification_of_manufacturing_industries.
762 Strategica 2020
Business profitability is measured by Gross Operating Rate (GOR), computed as the ratio
between gross operating profit and turnover, which is our dependent variable. Figure 2
presents the frequency distribution of GOR values across years and countries, as well as
the corresponding boxplots and descriptive statistics. GOR varies widely across the four
industries – C21 has the highest mean and median (18.84% and 17.90%, respectively),
followed by C25 (11.44% and 11.15%). C29 and C10 have similar GORs, but significantly
lower than the other two industries. The mean GORs are statistically different between
industries, except for C10 against C29. GOR varies across years and countries for each
industry – C21 displays the highest standard deviation and C10 shows the lowest.
Skewness values indicate the positive asymmetry of GOR, except for C29.
The set of independent variables is split into nine industry variables and eight country
variables – see Table 1. We also mention in the table the significance of variables for our
research.
Note: The center of the boxplot whisker indicates the mean, the whisker shows the non-outlier minimum
and maximum values, the outside-whisker points are outliers.
Figure 2. Frequency distributions, boxplots, and descriptive statistics of GOR, 2011-2017
(Authors’ work)
The period covered is 2010-2017, excluding the years of the global financial crisis. Our
sample, based on data availability from Eurostat, includes 12 EU member countries (at
end of 2017): Austria, Czech Republic, France, Germany, Hungary, Italy, Netherlands,
Poland, Portugal, Romania, Spain, and the United Kingdom. The number of observations
for each variable varies between 61 and 108 (the lowest number is for EXPINT).
Collectively, these countries held between 65-85% in the selected industries’ turnover
at the EU level in 2017 – see Table 2. A quick look at Table 2 shows that C29 generates
the highest turnover, followed by C10, but the high-tech industry (C21) has the highest
share of value-added in turnover (36.04%), closely followed by C25 (35.67%).
Tables 3 and 4 present a brief statistical description of the industry dependent variables.
C29 is the industry with the highest turnover per enterprise, turnover growth rate,
number of persons employed per enterprise, and investment rate, but the lowest value-
added share in turnover. C21 enjoys the highest wage-adjusted labor productivity and
value-added share in turnover, but also the lowest investment rate. C25 has the highest
dependence on the labor force, as it records the highest value of personnel costs share
in turnover. C25 is also the industry with the smallest average company size, turnover
growth rate, and labor productivity. C10 has the lowest share of personnel costs in
turnover.
Table 1. Description of variables (Authors’ work)

Variable Significance Acronym Measurement
Industry variables1
Turnover per enterprise Size TURNENT Mil. EUR
Turnover growth rate year on Growth TURNGR %
year
Persons employed per Size and labor force PEENT number
enterprise dependence
Personnel costs share in Labor force PCOST_TURN %
turnover dependence
Wage-adjusted labor Labor productivity WALP %
productivity
Investment rate Investment intensity INVR %
Value-added share in Value-added creation VA_TURN %
turnover
Foreign direct investments International exposure FDI %
intensity2
Export intensity3 International exposure EXPINT %
Country variables
Gross domestic product per Development level GDPC EUR
capita
Growth of GDP per capita4 Economic growth GDPCGR %
Trade openness5 Economy’s TRADEOP %
international exposure
Population with tertiary Education level TERTED% %
education
Research and development R&D intensity RDBCAP EUR
costs paid by businesses per
inhabitant
Percentage of households Access to Internet INT_H %
with an Internet connection
Percentage of enterprises Access to Internet INT_BUS %
with an Internet connection
Real effective exchange rate Price competitiveness REER Index
Note: 1. Variables’ definitions are available at https://ec.europa.eu/eurostat/statistics-explained/index.php?

title=Category:Structural_business_statistics_glossary. 2. FDI intensity is the ratio between turnover
generated by foreign-controlled enterprises and turnover generated by locally-controlled enterprises in the
industry. 3. Share of exports in industry turnover. 4. Compound annual growth rate (CAGR) between 2010 and
2017. 5. Ratio of exports and imports value to GDP.
764 Strategica 2020
Table 2. Brief description of selected industries, 2017 (Eurostat)
Share in the Value-added Share in the
Industry Turnover manufacturing at factor manufacturing
(mil. EUR) sector. Turnover at cost (mil. sector. Value-added
the EU level (%) EUR) at the EU level (% )
C21 284,210.0 3.58 102,420.5 5.07
C29 1,144,502.4 14.43 217,821.0 10.78
C25 516,229.17 6.51 184,136.1 9.12
C10 1,030,000.0 12.99 199,000 9.85
Table 4 shows the descriptive statistics of the two variables that describe industries’
international exposure: FDI and export intensity. Foreign investors are more prevalent
in C29 (the mean ratio between the turnover generated by foreign-controlled companies
to the locally-controlled companies’ turnover is 8.72), and least prevalent in C25 and
C10 (locally-controlled companies generate on average and overall a significantly higher
turnover compared to foreign-controlled companies). C21 and C29 are the most export-
intensive industries (the mean ratios of exports to turnover are 0.62 and 0.57,
respectively), while C25 and C10 show export intensity ratios at almost a third of the
values for C21 and C29.
The macroeconomic or country variables used in our research are statistically presented
in Table 5. The average annual GDP per capita for the countries included in the sample
is 24,201.39 EUR, but varying between 6,150 EUR and 43,090 EUR, and has enjoyed an
annual average growth rate (as CAGR) of 2% (within the -15%-13% range). Our
countries have rather high trade openness ratios (mean of 92.83%), and an average of
22.91% of their populations has graduated tertiary education. Businesses from these
countries spend an average of 289.39 EUR per inhabitant per year for R&D, and
households and businesses have good access to broadband internet (on average, almost
71% of households and 90% of businesses enjoy access). REER shows a mean value of
below 100, which indicates that these countries’ currencies have increased their
exchange rate related to price-based competitiveness against their trading partners
during the investigated period.
The methodology used is a machine-learning-based random forest (RF) regression, an

algorithm introduced by Breiman (2001), which consists of an ensemble of decision
trees that form a forest. Put in a simpler way, RF builds decision trees and merge them
together to create a more accurate and stable estimation (or prediction) of the
dependent variable based on a set of independent variables. The algorithm starts at a
root node containing all observations and splits the data into child nodes whose
structure looks like an upside-down tree. This method combines random sample
selection (bagging) and random feature selection where the former involves the
repeated sampling of observations with replacement as a way to construct the trees. In
our case, 30% of the sample represents the out-of-bag sample (which tests for the
accuracy of the model) while the training sample represents the rest (70%). We have
estimated a number of 100 trees for each industry and used a 5% decrease in training
error as a stopping condition of the algorithm. All variables have been standardized
before introduced in the algorithm.
Table 3. Descriptive statistics of 7 industry variables, 2010-2017 (Authors’ work)

Variable Industry Mean Median Min Max SD
C10 4.52 2.74 0.85 14.14 4.00
C21 38.37 36.68 4.43 178.79 29.71
TURNENT
C25 1.45 1.02 0.24 4.12 1.09
C29 40.49 28.67 6.16 201.42 37.96
C10 0.02* 0.02 -0.16 0.19 0.06
C21 0.01* 0.015 -0.59 0.24 0.10
TURNGR
C25 0.01* 0.02 -0.32 0.22 0.11
C29 0.11* 0.07 -0.33 4.48 0.45
C10 21.19 20.10 0.00 59.67 12.52
C21 122.52 113.39 45.83 384.89 61.74
PEENT
C25 11.15 9.39 0.00 22.14 5.19
C29 129.78 108.88 24.22 394.64 94.07
C10 161.07 156.40 106.60 202.90 23.44
C21 219.88 211.65 130.60 412.30 47.04
WALP C25 143.66 139.90 119.20 211.00 18.78
C29 175.12 164.30 93.40 295.10 43.99
C10 0.11* 0.11 0.08 0.17 0.02
C21 0.16* 0.15 0.11 0.24 0.03
PCOST_TURN
C25 0.22* 0.22 0.14 0.29 0.04
C29 0.11* 0.11 0.06 0.17 0.02
C10 20.29 17.90 9.30 57.60 8.47
C21 13.78 12.60 0.00 29.40 5.53
INVRATE
C25 15.67 13.10 5.70 39.80 7.56
C29 24.35 20.90 6.40 102.50 13.61
C10 0.19* 0.18 0.11 0.28 0.03
C21 0.39 38.85 24.30 56.40 6.32
VA_TURN
C25 0.33* 0.33 0.23 0.45 0.04
C29 0.18* 0.18 0.12 0.29 0.03
Note: * - the mean is statistically significant at 95% confidence level.
Table 4. Descriptive statistics of international exposure industry variables, 2010-2017

(Authors’ work)
Variable Industry Mean Median Min Max SD
C10 0.41* 0.38 0.11 0.96 0.23

C21 2.45 1.50 0.42 7.70 2.15
FDI
C25 0.37* 0.29 0.08 0.94 0.24
C29 8.72 6.69 0.16 33.62 8.65
C10 0.21* 0.19 0.08 0.39 0.09
C21 0.62* 0.56 0.30 1.40 0.25
EXPINT
C25 0.35* 0.36 0.11 0.61 0.13
C29 0.57* 0.68 0.00 0.87 0.22
The advantage of using RF relies on its easy measurement of the relative importance of
each independent variable in the prediction/estimation of the dependent variable. Thus,
the features which do not add value to the prediction can be easily eliminated; this idea
is crucial in estimating random forest models as the more variables are introduced the
more prone is the model to be overfitted.
766 Strategica 2020
Table 5. Descriptive statistics of country variables, 2010-2017 (Authors’ work)
Variable Mean Median Min Max SD
GDPC 24201.39 25720.00 6150.00 43090.00 11392.62

GDPCGR 0.02* 0.02 -0.15 0.13 0.05
TRADEOP 92.83 82.70 45.40 168.50 37.21
TERTED% 22.91 22.00 11.20 38.70 7.06
RDBCAP 289.39 176.10 8.50 934.70 248.62
INT_H 70.86 73.50 23.00 98.00 14.77
INT_BUS 89.75 93.00 41.00 100.00 10.38
REER 98.73 98.95 90.52 116.15 3.80
RF models have been used in the prediction of credit risk (Khandani et al., 2010),
employee turnover (Gao et al., 2019), in the classification of neuroimaging data in
Alzheimer’s disease (Sarica et al, 2017), in the outcome prediction in antibody
incompatible kidney transplantation (Shaikhina et al., 2019), in the modeling of travel
mode choice behavior (Cheng et al., 2019), and many other works.
In our research, RF regression uses GOR as a dependent variable and the 17 industry
and country variables as independent variables. Initially, we have tested the regression
by including more variables, we have excluded the ones displaying high correlations.
The reported results show the most robust outcomes. Data processing and random
forest estimates were performed in Tibco Statistica 13.3.
Results
As in any prediction, there is an amount of uncertainty inherent in performing it. Table

6 shows the risk estimates for the four RF algorithms implemented, one for each
industry, calculated as a residual variance. These risk estimates are associated with the
prediction of the dependent variable by the set of independent variables, and also to the
train versus test samples used to perform the estimation. The values show that the
model was most accurate for C25 and C21, but is performed the best for C29 and C21.
Table 6. Risk estimates (Authors’ work)

C10 C21 C25 C29
Risk Risk Risk Risk
SE SE SE SE
estimate estimate estimate estimate
Train 0.501 0.120 0.402 0.135 0.533 0.091 0.221 0.069
Test 0.426 0.330 0.424 0.250 0.322 0.100 0.500 0.381
Note: SE – standard error.
The most important results delivered by the RF algorithm refer to the independent
variables’ importance for explaining the dependent variable. Figure 3 and Table 7
present these results. Table 7 reports the importance obtained by each independent
variable, as well as an average of variable importance for all four industries, to highlight
variables’ importance in terms of influencing GOR. Averages of importance are
calculated separately for industry and country variables, as well as for international
exposure variables. In interpreting them, we are interested in seizing differences
between the four industries that are related to their degree of technological intensity,
and in particular in differences between industry versus country variables importance.
WALP is, by far, the most important independent variable that explains industry
profitability for all four industries. In second place is VA_TURN (importance varying
from 0.850 for C29 to 0.593 for C25, and an overall average across industries of 0.779).
Other variables with high importance (above 0.50) are PEENT (C10 and C25), TERTED%
(C25), FDI (C25 and C29), TURNENT (C10), and EXPINT (C25). The highest influence on
profitability, regardless of industries’ technological intensity, is the wage-adjusted labor
productivity, followed by the share of value-added in total turnover. Still, the number of
persons employed is a highly ranked variable only for C10 and C25 (an LT industry and
an MLT industry). Turnover per enterprise is also highly influential for C25, as well as
export intensity, although the mean share of exports in industry turnover for C25 is only
0.346, lower than the value for C21 or C29. FDI intensity is ranked second as the
importance for C25 and third for C29, suggesting the high relevance of foreign-
controlled enterprises in these industries.
Figure 3. Plots of variable importance

(Authors’ work)
Among the last variables as importance are several industry variables – turnover growth
rate (C10, C25), investment rate (C25, C29), and export intensity (C21, C29) – and
country variables - households or businesses access to the internet (all industries), GDP
growth rate (C10), and REER (C21). Averaging variables’ importance for all four
industries, WALP, VA_TURN, and PEENT are ranked the highest, while INT_BUS,
TURNGR, and GDPGR are ranked the lowest.
768 Strategica 2020
Of the industry variables, the highest-ranked are WALP, VA_TURN, PEENT, and FDI, and
the lowest-ranked are TURNGR, INVRATE, and PCOST_TURN. The most important
country variables are TERTED%, TRADEOP and GDPC, and the least important are
INT_BUS, INT_H, and GDPGR. As an average importance, industry and country variables
have close values, but with differences among the four industries; industry variables
have higher average importance compared to country variables for C21, C25, and C29,
but not for C10. This indicates that industry characteristics are more important for
industry profitability than country variables for industries with higher technological
intensity (as suggested also by Cozza et al., 2012), while locational or country
characteristics seem to be more important for low technology industries (as suggested
also by Reichert and Zawislak, 2014). At the same time, international exposure variables
have higher average importance than all industry variables only for C10 and C25,
suggesting the more significant contribution that FDI presence and export activity have
for these industries’ profitability. FDI intensity is more important for profitability in
higher technologically intensive industries (C21 and C29), compared to industries with
lower technological intensity.
Table 7. Variables importance for the 4 industries (Authors’ work)

Average importance
Variable C10 C21 C25 C29
across industries
WALP 1.000 1.000 1.000 1.000 1.000
VA_TURN 0.815 0.859 0.593 0.850 0.779
PEENT 0.773 0.326 0.683 0.424 0.552
FDI 0.639 0.386 0.530 0.257 0.453
TERTED% 0.517 0.421 0.284 0.286 0.377
TURNENT 0.500 0.127 0.577 0.152 0.339
TRADEOP 0.496 0.278 0.259 0.141 0.293
EXPINT 0.467 0.252 0.695 0.570 0.496
PCOST_TURN 0.335 0.145 0.413 0.278 0.293
GDPC 0.293 0.371 0.337 0.406 0.352
INVRATE 0.248 0.200 0.456 0.159 0.266
REER 0.239 0.315 0.360 0.318 0.308
RDBCAP 0.214 0.311 0.292 0.288 0.276
INT_H 0.210 0.353 0.218 0.199 0.245
GDPCGR 0.187 0.424 0.314 0.360 0.321
TURNGR 0.167 0.288 0.384 0.174 0.253
INT_BUS 0.161 0.401 0.235 0.182 0.245
Average of industry
variables 0.426 0.444 0.457 0.417 0.436
Average of international
exposure variables 0.483 0.189 0.636 0.361 0.417
Average of country
variables 0.453 0.322 0.438 0.304 0.379
The higher importance of VA_TURN, TURNGR, and PCOST_TURN for the HT industry
(C21) suggests that the higher value-added incorporated in this industry’s products, the
turnover growth rate, and the share of personnel costs in turnover are important
influencers of profitability. The same is true for several country variables (TRADEOP,
GDPC, RDBCAP, GDPGR, and INT_BUS), indicating that for an HT industry the
development level of the host country and economic growth, coupled with internet
access, investments in R&D, and country’s openness towards international trade are
important driving factors behind profitability compared to an LT industry.
Figure 4 shows the average performance of our RF algorithm in terms of predicting the
dependent variable. As it can be easily observed, the model does not significantly
underestimate or overestimate the dependent variable, which suggests that our results
are robust.
Figure 4. Predicted versus observed values

(Authors’ work)
The same robustness of our results is indicated in Figure 5 that shows the normal
probability of residuals. The shapes of the plots suggest clearly that the model performs
well since the resulting residuals (differences between predicted and observed values
of GOR) are correctly arranged around the trend line.
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Figure 5. Normal probability plots of residuals

(Authors’ work)
Conclusions
We uncover the most important industry and country or locational factors that drive
profitability for EU companies in industries with different levels of technological 2010-
2017 intensity between 2010 and 2017, using an innovative machine-learning-based RF
regression. The variables with the highest influence on profitability for all industries is
the wage-adjusted labor productivity, followed by the share of value in total turnover
and the number of persons employed. For industries with higher technological intensity
industry characteristics are more important than country characteristics, while for low
technology industries the reverse applies. As expected, FDI intensity is more important
for profitability in higher technologically intensive industries than in lower
technologically intensive industries. Last but not least, our results suggest that that for
an HT industry the development level of the host country and the economic growth, the
internet access, the R&D investments, the country’s openness towards international
trade, the higher value-added incorporated in the industry’s products, the turnover
growth rate and the share of personnel costs in turnover are important driving factors
behind profitability as compared to an LT industry. Our results bring about a better
understanding of the characteristics of business performance depending on industries
within EU industries with different technological level so that improved and custom
policies aiming at enterprise support may be designed. Taking into account the current
coronavirus pandemic caused health and economic crisis this is highly valuable as an
instrument for counteracting the effects of the crisis.
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ARTIFICIAL INTELLIGENCE AND THE ETHICAL USE OF

KNOWLEDGE
Cristian VIDU
cristian.vidu@facultateademanagement.ro
Alexandra ZBUCHEA
Rares MOCANU
rares.mocanu@facultateademanagement.ro
Florina PINZARU
Abstract
While artificial intelligence is becoming part of daily life, bringing with it a large number of
benefits to companies and society as a whole, it’s fast-paced introduction presents unique ethical
challenges. Having the ethical and legal framework in mind, the present study aims to map which
are the critical ethical aspects related to artificial intelligence by focusing on three main lines:
knowledge handling, managerial processes, and the relationship with consumers as viewed
through a marketing/branding framework. Knowledge and algorithmic bias and decision
autonomy are discussed in the context of these three main lines.
Keywords: artificial intelligence, business ethics, knowledge management
Introduction
Though artificial intelligence has been historically more prevalent in science fiction than
in board meetings the recent technological advances in both computing power and
algorithms seem to be moving Mr. Data from the bridge of the Federation Starship
Enterprise in meetings with managers at all levels. The science-fiction dream of having
an unbiased, unlimited knowledge collaborator seems to be closer to us now more than
ever. However, dreams have a chance of turning into nightmares as the same technology
that can be used for good, experience teaches us, can be misused, whether intentionally
or not. To put it another way and keeping with the same metaphor, we can get Data or
we can get Lore in our meetings. And Lore may have an interest in influencing and
controlling our decisions.
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Even if the significant value of AI and its complex use are generally recognized, there are
also many critics and ethical concerns. For instance, Elon Musk, Bill Gates, and Stephen
Hawking believe that AI is “potentially more dangerous than nukes” – as the first one
expressed his concerns, arguing in the same vein as science-fiction scenarios (Metz,
2018). AI also poses a series of political and military concerns (Larson, 2018).
Regular companies exist for profit (Friedman, 1970), even if some equally assume
additional socially responsible missions. Therefore, there is a high temptation to adopt
unethical behavior if an increase in profits is expected. Limits of the legal and ethical
norms are constantly tested aiming for higher revenues for shareholders. Therefore,
there is a risk for companies to use artificial intelligence in an unethical way for profit
growth, especially. The lack of experience and insufficient regulation in this field are
factors increasing this risk.
Having this framework in mind, the present study aims to map which are the most
critical ethical aspects related to artificial intelligence. To reach this goal, a descriptive
literature review is developed, focused on three main lines. First, the concept of artificial
intelligence and its relationship with knowledge handling is discussed. The following
section discusses ethical aspects related to the use of artificial intelligence in connection
to managerial processes. The next section discusses the ethical challenges of using
artificial intelligence in relationships with consumers – having in mind a
marketing/branding framework. Conclusions and implications are discussed in the final
section of the paper.
Artificial intelligence (AI) and knowledge
There is an increased interest in AI both in an academic framework and a business one.

Since it has a high potential to lead to profit growth, most top managers consider it as
important for the future success of their companies (E&Y, 2019). Nevertheless, the level
of adoption of AI strategies is much lower (MIT Technology Review Insights & E&Y,
2019). This situation shows that the domain is only emerging and many facets of AI still
have to be explored. A starting point would be to understand its significance.
At the present, there is no universally accepted definition (Allen, 1998; Simon et al.,
2000; Nilsson, 2009; Wang, 2019). Legg and Hutter (2006) have collected and classified
70 separate definitions of intelligence. They grouped the collected definitions under
three large categories: collective definitions (proposed by groups or organizations),
psychologists’ definitions, and AI researchers’ definitions. Russell and Norvig (2010)
present another approach to the definition of artificial intelligence by dividing the
available definitions into four categories based on one hand on their rationality and
similarity to the “human” way and the other based on thinking and acting. Basically, they
propose classifying AI definitions by matching them to one of the following general
categories: acting humanly; thinking humanly; thinking rationally; acting rationally.
Different approaches are to be observed between technical papers and conceptual ones,
or between academic papers and those connected to the business environment
(Zbuchea, Vidu, & Pinzaru, 2019). Some focus on practical aspects, others are
philosophical, some are metaphorical while others are as concrete as possible.
There are cases in science when formal definitions appear only after the field matures
(Wang, 2019) and it is not considered a problem since, as the research field matures, the
spread between the available definitions reduces. Also, as pointed out by Thórisson
(2020), definitions affect the way phenomena are studied, and the lack of a definition in
the initial stages of research has probably had the consequence of allowing the AI field
to “grow, blossom and advance at an ever-accelerating pace” (Stone et al., 2016).
However, as Wang (2019) also points out, the definition guides the research path. The
significant difficulty here is not with the “artificial” part of the term (which, as per
Cambridge Dictionary, simply means “made by people”), but rather with the
“intelligence” part of it.
One of the definitions that benefits from significant coverage sees AI as being that
“combination of cognitive automation, machine learning, reasoning, hypothesis
generation, and analysis, natural language processing, and intentional algorithm
mutation producing insights and analytics at or above human capability” (IEEE, 2017).
Having this definition in mind one observes that the raw material of AI is data which in
turn can be used to support knowledge transfer and produce new knowledge. Even
more, AI could effectively operate in a knowledge-scarce framework. Therefore, there
are various perspectives in the academic literature investigating the relationships
between AI and knowledge management (Liebowitz, 2001; Metaxiotis, Ergazakis, &
Psarras, 2005). Most of them are concerned with practical aspects (Zbuchea, Vidu, &
Pinzaru, 2019).
Alternatively, Fjelland (2020) brings forth a different hypothesis by discussing the

causal knowledge building employed by humans (by using available data and their
ability to intervene and force well-designed changes to the experiential environment to
test hypotheses, infer a cause, and build a causal model) and the correlative knowledge
building brought forth by AI, machine learning, neural networks and the Big Data
revolution where it is enough to use huge amounts of data to find statistically relevant
correlations to detect patterns.
This Big Data approach to knowledge carries an inherent risk as there is significant
danger around issues such as bias and inclusion in the underlying data sets employed
for training the models by disregarding niche users and nuances (Lauterbach 2019).
This becomes more important in the context of AI transparency and explainable models.
AI is also connected to knowledge-based systems, contributing to their design,

development, and reengineering (O'Leary, & Selfridge, 1999). It contributes to successful
data mining, generating competitive advantage, and more effective management
(Folorunso, & Ogunde, 2005). AI could support knowledge management in many aspects,
including creating an effective knowledge management system (Liebowitz, 2001).
AI and ethical management
AI has become a global concern because of its contribution to economic development.

McKinsey Global Institute notes that “the impact of AI may not be linear, but may build
up at an accelerating pace over time” (Bughin et al., 2018). Due to its high practical
relevance, AI is also increasingly wider adopted by businesses. AI can support business
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development in many ways, from its administration to decision-making and business

processes reengineering (Hamscher, 1994; O'Leary, & Selfridge, 1999).
The multiple impacts of AI on business are too wide to be covered in the present paper.
Therefore, we will briefly focus only on the main influence on management. In
sustainable organizations, AI does not replace managers. Managers should work with
AI, adding empathy, and observing ethical concerns (Kolbjørnsrud, Amico, & Thomas,
2016). Several practices should be considered by companies: administrative tasks to be
controlled by AI, support for decision-making, embedding design thinking, support
development networks.
The legal implications of AI carry important consequences to the adoption of AI in

businesses. Nevertheless, there are few laws specifically dealing directly with
particularities of AI decisions (Kingston, 2016; MIT Technology Review, 2018; Scherer,
2015). Strictly regulating the field is important since the increase of the AI capabilities
provides it with more powers and increases the responsibility that the AI itself carries
for the decisions.
Ethical concerns related to AI are rather an old phenomenon, having two main facets –
which knowledge and aspects of the decision-making aspects to entrust to AI and
responsibility associated with AI processes (Taddeo & Floridi, 2018). Besides delegation
and responsibility, invisibility and influence are two other key concerns related to AI.
These last two aspects are tightly related to the use of AI in marketing.
In dealing with AI, several aspects would be relevant when considering the moral
consequences of the actions of AI. One of them is liability. Product liability is the most
basic form of liability. Bequai (1988) discusses this in the context of the early expert-
systems and argues that AI can be treated as products from the perspective of liability.
This suggests that at the very least AI systems carry a risk in this area and that the risk
should be evaluated and budgeted when designing, selling, and using AI products.
Another position is taken by Scherer (2015) who considers the topic of public risk. He
argues that regulation should be considered for the field of artificial intelligence due to
the very clear risks that it poses. The increasing degree to which the current forms of
artificial intelligence are permeating our lives makes it important to analyze the public
risks and consider the possible paths of action. Considering various associated risks and
AI’s complexity, the academic community is not the only one arguing for regulation of
the field, the industry itself is voicing concerns regarding the lack of oversight and the
high risks involved. Elon Musk, Bill Gates, and Steve Wozniak are quoted by Scherer
(2015) voicing concerns about the development of AI without international oversight.
Nevertheless, regulation is not enough to protect businesses and markets from the risks
associated with AI. The legal framework provides an acceptable level of protection. Still,
sensitive ethical concerns might emerge in connection to AI use. An exhaustive
identification is not possible considering the limitations of the present research.
Nevertheless, we specify some of the most frequent concerns in academic literature.
Harming humans is, as already mentioned, one of the widest-spread concerns (see also
Bostrom & Yudkowsky, 2014). Another frequent concern is the AI algorithms, their
transparency, and biases that paradoxically might appear in the context of machine
learning (Bostrom & Yudkowsky, 2014; Larson, 2019). Ensuring a moral decision-
making framework for AI becomes critical for management, included from the
perspective of risk management. This challenge is not easy to face (Conitzer et al., 2018).
Generally, ethical concerns towards AI go in several directions: transparency, justice,

and fairness, non-maleficence, responsibility, and privacy (Jobin, Ienca, & Vayena, 2019).
Additionally, explicability is a dimension specifically linked to AI (Piano, 2020). Still, the
ethical aspects covered by AI ethical guidelines are more complex (Hagendorff, 2020,
p.102), and additional ones will emerge as the domain develops. Being a relatively new
field, AI development is agile but also lacks stability and professional
norms/accountability (Mittelstadt, 2019). This is another aspect that could generate
ethical concerns in AI practice.
Some ethical questions raised by AI commercial use have led to the establishment of
guidelines to support fair business practices (Piano, 2020). Taking into consideration
the perspective and values of stakeholders, monitoring the impact of AI-based decision
making and improving the use of AI during the full life-cycle are among these
dimensions. Greene, Hoffmann, and Stark (2019) identified the following themes which
ensure the moral background of AI: Universal concerns, objectively measured; Expert
oversight; Values-driven determinism; Design as a locus of ethical scrutiny; Better
building; Stakeholder-driven legitimacy; and Machine Translation.
AI and marketing. Ethical dilemmas
AI has many applications in digital marketing and brand management. It can greatly
reshape service delivery, for instance, supporting mass customization (Grandinetti,
2020). Another aspect to consider is that big data has become critical for marketing/
branding, and AI facilitates its exploration and valuation. Even more, marketing-related
AI applications have been developed to augment capabilities (Davenport et al., 2020).
Marketing activities of brands under the environment of electronic commerce have

shown a series of new characteristics due to the reframing of marketing operation
models which differ from traditional modes. Nowadays for successful marketing and
brand management, tightening relationships with consumers is a necessary path. AI is
changing these encounters because of the increasing data sets which allow analysis and
contextualization of information that has inherent benefits… but also vulnerabilities to
individuals and society, real and yet to be revealed. (Chi, Denton, & Gursoy, 2020; Kumar,
Rajan, Venkatesan, & Lecinski, 2019; Robinson, 2020).
Nevertheless, AI also comes with risks for companies and consumers. AI presents
challenges in the field of data protection and privacy, transparency, accountability, or
other ethical aspects (Larson, 2019; Lu et al., 2020). These aspects determine some
segments of the audience to be reticent towards the (extensive) use of AI – for instance
in cases when clients were informed that there was a chatbot service answering, the
purchase rates dropped significantly (Davenport et al., 2020). Several ethical concerns
have been manifested concerning the use of robots (Bershidsky, 2017; Lu et. al., 2020).
One of the subfields of AI having the greatest impact in digital marketing is machine
learning, software systems, and applications that learn from data and user actions. The
approach of the latest AI learning applications outlines the main benefits of composing
778 Strategica 2020
predictions about consumers’ actions, their value, as well as classifying data into useful
categories. Emerging technologies that schedule meetings, respond or deliver tailor-
made content or messages, writing emails on the company’s behalf can turn out a range
of possible outputs rather than just an action with a clear right or wrong answer (e.g.
multiple persons are interested in the same product and which is the threshold for
purchase decision) or a strictly binary decision (Will this customer have a steady
engagement or will churn?). (Satapathy & Rath, 2016)
Present-day consumers expect brands to customize messages to their specific context,

demographics, interests, or behavior. Many will not engage with brands or may ignore
non-tailored marketing content. Artificial and machine learning systems enable
marketers to customize their communications and brand experience on an individual
clustered level rather than generic target groups that marketers relied on in the past
(Taddeo, 2017), therefore, contributing to brand engagement and driving sales.
This technology empowers the prediction of customer behavior based on knowledge

about consumers learned from previous brand interactions. This means that marketing
specialists can develop content and marketing actions that are most likely to convert the
lead into a sale, at the best possible times increasing the conversions rate and brand
consideration (Borenstein & Arkin, 2019).
Artificial intelligence ethics becomes more important when is given the ability to
recompose consumer brand experience without consumer awareness or choice (Rao,
Srivatsala & Suneetha, 2016). Invisibility and influence become moral concerns (Taddeo
& Floridi, 2018).
Digital marketing could effectively benefit from AI in several ways:

 AI can allow for hyper-personalized customer experience by analyzing their
profiles.
 AI speeds up the design of multiple content types and formats, based on unique
customer profiles.
 By making accurate predictions based on patterns that emerge from processing
vast quantities of data AI can predict customer actions and behavior identifying
and nurture the most valuable leads.
 AI-powered software can decide based on big data, user profile, and digital
footprint what content to create and when to distribute it.
As it shows, today artificial intelligence systems have increased advantages with high
efficiency and low costs compared to traditional human customer service in the field of
business and digital marketing. But at the same time, it is also said that the current AI
customer service systems still have general weaknesses. For example, the response is
inflexible, the tone is rigid, the form is single, and the lack of care. Ultimately, there is a
high degree of automation on the company and brand side, but no significant increase in
success rates, and a significant downgrade of user experiences on the customer side
(Arnold & Scheutz, 2018).
AI and consumers. Responsible approaches
The advancement of ML (machine learning) and AI-related developments are facilitating

the automation of many digital marketing activities (e.g., in social media and content
points) allowing the emergence of big-data-driven and micro-targeting marketing
practices, forecasting all day, analyzes patterns, oversees custom feeds to produce
content (e.g., personalized content recommendation algorithms). (Wierenga, 2010)
AI can rapidly and precisely project a 360-degree view on clients in real-time, enabling
knowledge in many ways, by creating a comprehensive profile of current or potential
customers improving customer experience, and prospecting of future customer actions.
Besides, AI can enable marketing efficiencies and action effectiveness at each stage of
the customer journey and sales touchpoints.
Current and past web browsing behavior, psychographic and demographic

characteristics, type of purchases, brand interactions, content preference along with any
form of structured and unstructured data inputs of various types, such as recency, size,
frequency are dimensions mapped by AI which can contribute to prospect scoring, i.e.
evaluating prospects based on their propensity to buy and identifying high-quality leads
(Kanagarajan & Arumugam, 2016). The amount of data pulled by companies these days
is staggering and it became obvious that how you handle that data is key to being able
to utilize it. Moreover, the ethical challenges regarding data computing facing us today
we will be presented with new and elaborate one's tomorrow (Rao, Srivatsala &
Suneetha, 2016). AI could also eliminate data paralysis, which is a risk connected with
human-based marketing decision-making processes.
The paramount importance of AI for marketing has been also revealed by the Covid-19
pandemic. This unprecedented health crisis has determined business groups to
drastically reduce the number of staff working, while a large portion of the population
who are quarantined at home has exponentially increased the number of online requests
for services, products, and acquisitions (Seth, 2017). Still, in the peak of the crisis,
understaffed companies are scrambling to build comprehensive artificial intelligent
customer service systems to handle the new influx of specialized items and requests.
From February to April 2020 online shopping has doubled for many business segments,
retailers are reporting some of the biggest online sales gains in their history. At the same
time, more people reported problems with online shopping about sellers failing to
deliver on promises. Scammers have sharpened their ability to put up remarkably
polished looking websites, deceptively operate social media and online advertising to
their advantage, making this an imperative issue since the web furnishes scammers
cheap access to consumers and consumer data worldwide (Taddeo, 2017).
Online fraudsters have adapted well-known fraud schemes to capitalize on the anxieties
and fears of victims throughout the crisis like counterfeit healthcare and sanitary
products, fake brands, and cheap products. Taking into consideration actual standards,
clever marketing communication doesn’t have to align with ethical corporate behavior
to please customers. However, in a time of crisis, when hedonistic consumerism takes a
backseat to responsible conduct, the standards change suddenly and drastically. People
who haven’t been as comfortable with e-commerce and other digital technology have
been pushed to overcome their hesitancy (Eshak, Ahmad & Sarlan, 2017).
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As businesses adapt, their watchwords must be trust, relevance, and convenience. Many
brands and marketers still find it difficult knowing when and how to talk and to
reconfigure consumer experience and this pandemic crisis brought a spin in how brands
managed to keep consumers interested and engaged, in many cases having undesired
effects on business overall. In some ways, it is not appropriate to post anything that isn’t
related to the virus, as if the brand is shouting to a consumer that doesn’t live in a real
context. How many customers nowadays want to hear about luxury skincare products,
handmade earrings, or special branding services when half of the world is collapsing
under the strain of an unstoppable virus? This is where the debate begins, with one side
of marketers arguing for the continuation of pseudo-normality and holding on to the
traditional marketing approach were providing for needs is more coveted than strategic
adaption to consumer context and others struggling to process and reposition anything
that is consumer data-driven and virus-related (Rao, Srivatsala & Suneetha, 2016).
In the new context, brands and marketers tackle this health-issue and associated ethical
concerns, at the same time coping with the ever-present demand for reassurance and
repositioning a new-normal of the consumer experience. Some important ethical
implications of responsible AI actions that have emerged are (McCaig, 2020):
 Customers and digital audiences are virtually intolerant to fake or selectively
blind statements from brands;
 The no-action implication for the customer of any changes or adjustments made
to services or products (increasing of delivery processes and prices);
 Customers information about the procedures and measurements you’ve put in
place to keep them safe and protected;
 Making use of the customer feedback – the real coefficient of user responses
negative vs. positive to the brand typical promotional post;
 Expand the brand definition of responsibility related to consumption and data
processing.
The world, at least for now, no longer operates like it normally would, and brands have
had to make rapid changes to their marketing strategies. Some of the most obvious shifts
concern media communication and digital ads (Yuniarthe, 2017). But probably the most
important one is a long-term concern with integrating AI in marketing and branding
processes.
Conclusions
The advantages of AI and machine learning offer a huge potential to businesses and
society. The ability to process big data at scale and use machine learning to get insights
from that data has shifted the balance between enterprises and consumers. Band and
product proposal used to be unidirectional and one size fits all but, thanks to machine
learning, relationships between consumers and businesses are becoming bidirectional:
the actions consumers take and demand provide a window into who they are, what they
want, and what they value. As in interpersonal relationships, companies can listen to
this feedback and use it to render more relevant products, services, and experiences.
AI machine learning and innovation are deeply implemented in marketing and

communication, becoming more and more omnipresent and unobtrusive. In
consequence, we become decreasingly aware of the extent to which our choices are
planned and how little freedom of choice we have left. It is obvious that AI has the
potential to transform the way we live, interact with companies, and work, therefore it
is important to develop appropriate limitations and elaborate controls.
Our modern societies are built on an idea of freedom of choice which is referred to as
the “autonomy” of the individual, considered to be the foundation of the sovereignty of
the people. However, our contemporary societies seem to be handling much of the
individual’s control over to AI, to the point where the autonomy given to individuals is
eventually shifting.
Associated risks notwithstanding, it is obvious that artificial intelligence is here to stay

and it is sure to continue to shape marketing and customer experience in the future. As
has been stated, there are many benefits associated with AI when it comes to marketing;
improved product and content recommendations, better social engagement, better
customer service, better contextual experience, and improved search. However,
marketers should be careful, and utilize AI wisely to avoid eroding consumer trust by
over dehumanizing the brand relationship. This involves transparency and responsible
marketing tactics.
AI and machine learning are not regular technology, therefore, it needs to be approached
differently than regular technology maneuvering. The power of AI to fuel the extremes
of business performance on both perspectives, positive and negative, requires a
purposeful approach built on three pillars: robust and reliable technology infrastructure
and data processing power; a specific focus on utility functions, new business models,
and social context; a thoughtful approach to ethics and human rights. An AI strategy
needs to be built on a solid foundation to survive the strong winds of change and at the
same time has to be developed by balancing the following for money to the following of
society's best interests.
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THE IMPACT OF A COUNTRY’S REPUTATION IN THE ECONOMIC

DEVELOPMENT OF A NATION
Adina SĂNIUȚĂ
30A Expozitiei Blvd., District 1, 012104 Bucharest, RO
adina.saniuta@facultateademanagement.ro
Abstract
National brands compete on a huge market, and it is no wonder that governments that are aware of
the importance of the national brand are constantly working to promote, protect, and evaluate it.
The governments of these countries understand the benefits of building a good reputation and are
preparing strategies for the development of the country brand. It is through these strategies that
they expect to improve their national competitiveness and gain competitive advantages on the global
market. The methods and tools used to outline these strategies are similar and sometimes even
identical to those traditionally used in business management. This paper is a literature review that
aims to establish the basis for future research, through it, the author will study the impact which the
growing reputation of the country has over the entrepreneurial environment.
Keywords
Country reputation, nation branding, economic development, Romania.
Introduction
Globalization and the increased levels of competitiveness to attract tourists, talent,

investors and to open up new markets, lead countries to use reputation management as
a key factor of competition and economic, social, and cultural development. The image
we have of a place directly affects our behavior and attitude towards it, its products, and
its population. In this sense, all countries try to develop in a more or less strategic,
structured, and organized way through actions that promote their image both in the
domestic and international markets. These tactics seek to change or strengthen the
perception of potential investors, tourists, and other stakeholders.
This paper is a brief review of the current literature and aims to establish the basis for
future research through which the author will study the impact which the growing
reputation of the country has over the entrepreneurial environment. Also contains data
from the informal discussion the author had with different stakeholders and
observations made during the working years.
Nations compete with each other and communicate with the international audience how
good they are (Fan, 2010). Taking into account the fact that brands add value to products
and services, strong, well-known country brands can offer nations competitive
advantages on the global market (Anholt, 2007). Thus, the purpose of developing a
national brand is to increase the country's reputation. As such, it can be defined as the
sum of the perceptions international stakeholders have for a nation (Fan, 2010).
The country brand strategy is not represented by a slogan and a logo. National branding
involves a systematic process of actions, behaviors, investments, innovations, and
786 Strategica 2020
communication methods in regards to a country. All of these are centered on a clear

strategy that aims to achieve a strong, competitive identity.
Interest in the development of the national brand has increased in past years due to the
fierce competition between nations, all aiming to attract limited resources, to increase
exports, to attract foreign tourists, to increase investment, but also to attract foreign
students. National brands compete in a gigantic market, and governments that have
understood the importance of the national brand are constantly working to promote,
protect, and evaluate it.
Once a favorable national reputation is created, the nation can gain a competitive
advantage in the global market. These competitive advantages include attracting
tourists, investors, and foreign consumers (Dinnie, 2015). A study by Kalamova and
Konrand (2010) found that foreign investment is directly influenced by the national
brand of the receiving country. The results of the study also indicated that the volume
of foreign investment increases by 27 percent when the national brand index increases
by 1 point.
The country of origin should also be taken into account. For example, companies from
countries with a favorable image, such as Germany, may have competitive advantages
on the global market despite their low reputation at the company level. There are also
companies and countries that benefit from each other's good reputation, for example,
Volvo uses the slogan "made by Sweden" to transfer Sweden's favorable reputation in
terms of perception: in Sweden people are placed first. Conversely, Sweden is associated
with the good reputation of Volvo, being discussed in the speeches about Swedish
companies. This creates a reciprocal image transfer. Other examples of companies that
pride themselves with and use their home country communication to add value to their
products are Rolex and Apple. On the other hand, companies from countries with an
unfavorable reputation try to detach themselves from the association with the country
of origin and focus on the reputation of the corporation. For example, China still faces
difficulties in selling Chinese products due to the country's negative reputation. Thus, it
is relevant to understand the relationship between national and corporate reputation
because reputation has implications at both the micro and macroeconomic levels. (Kim,
2016)
The governments of the countries that have understood the benefits of building a good
reputation are creating strategies for the development of the country brand. With its
help, they expect to improve their national competitiveness and gain a competitive
advantage in the global market. The methods and tools that are used to outline strategies
are similar and sometimes even identical to those traditionally used in business
management. Although some states enjoy natural resources that already provide them
with competitive advantages, most nations have become aware of the importance of
intangible assets such as reputation. Efforts to improve reputation are made to attract
new foreign investment, find new sources of financing for national projects, develop
private companies, and attract qualified employees, tourists, and new residents. In the
contemporary economy, based on knowledge and information, one of the most basic
resources that guarantee strategic advantages and the development of new markets is
reputation.
Reputation and country brand
In a general sense, reputation is a public opinion, favorable or unfavorable, developed

about someone or something; the way someone is known or appreciated, be they
famous, infamous, or a celebrity (dexonline.ro, 2020). The term reputation has also been
scaled up at the company level. The reputation they have affecting the number of
products or services they sell. Corporate reputation management is not a recent idea,
but the concept of reputation continues to gain importance in the daily life of companies,
especially in the field of management (Fombrun, Ponzi, & Newburry, 2015).
Analogously the concepts of reputation, image, and identity can be used in regards to
nations (Szwajca, 2017):
 A country's reputation is a relatively well-established opinion of various groups
of internal and external stakeholders assessed based on environmental aspects
and the activities of its citizens;
 The image of a country is given by the perception of its identity of internal and
external observers based on information from various sources;
 The identity of a country is a system of visual elements: name, national emblem,
flag colors, cultural monuments, works of art, landscapes, architecture, but also
traditions, customs, attitudes, and behavioral patterns especially concerning
foreigners.
 Reputation is also built on the experiences of a nation.
The entities that take part in the reputation assessment process are external and
internal stakeholders. Internal stakeholders can be public administration institutions
(parliament, government, ministries), tourists, media (traditional and digital), investors,
businesses (domestic and international), business partners, control and supervision
institutions, NGO opinion formers (politicians, economists, activists). Internal
stakeholders are citizens of a nation and members of various organizations.
The reputation and image of a country are closely related to the notion of a country
brand. Simon Anholt (2011) who is considered one of the pioneers of the development
of the country brand concept argues that a nation's reputation is built by exchanging
material and immaterial values explained further. According to S. Anholt countries are
building their reputation through the exchange of material and immaterial values
through the following six communication channels:
Governance: public opinion on the competence of the government, its honesty, and the
perception of the commitment to regional and global issues. An important aspect to
consider is the quality of life, an indicator that is measured by the FutureBrand-Country-
Index.
Population: the reputation of the country's citizens regarding competence, openness to

foreigners, and a friendly attitude. Alongside these factors are also prominent and
respected figures from the world of science, politics, sports, art, media.
Culture and heritage: public perception of national heritage and culture.
Investment and immigration: the power to attract people to live, work, and study; the
perception that people have in regards to the quality of life and business environment.
788 Strategica 2020
Tourism: the level of interest in visiting the country.
Export: the public image of a country's products and services that also involves the
creation of well-known brands that highlight the country of origin and position the
nation in the minds of consumers (e.g. Made in Germany, Made in Sweden, etc.).
An institute has been set up worldwide to measure a country's reputation annually since
1999. The tracked indicators are calculated based on 16 attributes divided into three
groups (Figure 1):
• effective governance: a safe place, ethical country, responsible participation in
the community, development of progressive economic and social policies,
creation of a favorable business environment;
• attractive environment: friendly and welcoming, beautiful country, attractive
lifestyle and pleasant country
• developed economy: contributor to global culture, high-quality products, and
services, well-known brands, well-educated and reliable workforce,
capitalization of education, technologically advanced.
Figure 1. The Country RepTrak® Model

Source: Reputation Institute, 2015, p.4
The data provided by the Reputation Institute dates from 2017, and the study was
conducted in 55 countries and included 39,000 respondents. Image 2 shows the top 20
countries ranked at the top of the reputation table.
Figure 2. The 20 most reputable countries of 2017

Source: Reputation Institute, in Tisch, 2017
The survey has implications for foreign policy, tourism marketing, and international
trade in many countries. A few findings stand out:
• Three factors drive national reputations: 37.9 percent comes from perceptions
of its environment (e.g., welcoming people, beauty, lifestyle), 37 percent from
its governance (e.g., public safety, ethics, international responsibility, social and
economic policies), and 25.1 percent from its economy (e.g., educated and
reliable workforce, contributions to global culture, high-quality products and
services) (Figure 2).
• The strongest national brands focus on all three reputation factors. Of the seven
nations with “excellent” rankings (over 80 out of 100), Canada, Switzerland,
Sweden, Norway and Finland are seen as global leaders in all three categories,
while Australia’s and New Zealand’s reputations are powered by leadership in
the environment and governance categories.
• Strong reputations create economic opportunities. Respondents who perceive
a country as having a strong reputation state a greater willingness to visit it for
business or leisure, or to recommend living in, working in, investing in, studying
in, or buying products from, that country. For example, a one-point increase in
a country’s reputation in a particular mark correlates with a 3.1 percent
increase in visitors from that market and a 1.7 percent increase in exports to
that market over last year’s figures.
• Many emerging economies are gradually growing their global reputations. For
example, while China still has a weak reputation, driven largely by poor
governance, it rose in almost every dimension in the 2017 survey over previous
years, with one notable exception — ethics. China’s most notable areas of rising
strength are in perceptions of its technology, brands, and business
environment. If it can reduce corruption and be seen as a better global citizen,
its reputational rise should accelerate.
790 Strategica 2020
• Reputation is both internal and external — and big gaps mean big blind spots.
For example, Russia has the second-highest self-image in the world, with a
rating of 81.1 from its citizens, compared with one of the worst reputations
(40.3) in the eyes of the rest of the world — a gap of 40.8 points. The US has the
second-largest gap — its internal reputation is 78, which is 23.4 points above
its external reputation. After last year’s fateful Brexit vote, the UK’s self-image
rose, while its external image dropped, most dramatically in respondents’
openness to investing in the country. Since a strong country brand comes from
countless actors — including institutions, businesses, and ordinary citizens —
the inability to be self-critical is a major risk. (Tish, 2017)
The more competitive the global business and trade landscape becomes, the more added
value will be generated by investing in building a strong country reputation. Reputation
building and implicitly the country brand is not something related to the government
nor are they just about marketing. However, they are the responsibility of several
organizations that united under the coordination of a team will collaborate to define
strategy, allocate resources, implement and evaluate results regularly (such as the
business environment, the chambers of commerce, business associations, non-profit
organizations, academia, and the political environment through the legislation and the
ministries).
Conclusions and implications for Romania
A country's reputation is a complex and multifaceted phenomenon, even though at the

moment many countries still take into consideration only certain elements. It must be
treated systemically and integrated successfully so that the effects are sustainable. For
future research, the author proposes to study the impact that the establishment of 3
boards can have on the growth of Romania's reputation and implicitly on the economic
development of the country. These are as follows:
The Romanian Investment Board. It acts as an agency to attract investors in Romania,

facilitates discussions with the prime minister and/or ministers, and is a concierge that
manages relations with the local and central administration. Provides studies based on
which investors make business decisions. It is also meant as a discussion partner with
the national business environment, the academic environment to ensure skilled labor in
areas of investment interest, and the civil society to understand the impact that certain
investments have on the community. In this context, Bucharest can become the business
hub of the Balkans and the Republic of Moldova.
Romanian Tourism Board. It aims to professionally promote Romania in the world,

conducting studies to identify the points where Romania needs investment to attract
certain categories of tourists, evaluating HoReCa players to meet the standards required
by tourists, but also creating a long-life-learning education system for industry
employees.
Export Development Board. Brands are the basis of a country brand (country of origin)
and from this point of view, it is relevant to develop this board to support Romanian
brands to expand on international markets. This structure will manage a national
investment fund to transform products into brands and make them exportable. Target
areas in the first phase of the project: viticulture, cosmetics, beekeeping, IT. The role of
the Board is to permanently evaluate how the funds are invested, the progress that
companies have made, the management of participation in international trade fairs, the
facilitation of meetings with decision-makers from partner countries through the body
of economic advisers at embassies. The Board is also responsible for drawing up
responsibilities for economic advisers attached to embassies so that they can provide
relevant data in regards to the markets. They will also be able to create bridges and
facilitate communication between partners.
The importance of creating the brand strategy for Romania is given by the competitive
advantage that derives from it, aiming to place the country on the world map in terms
of tourism, investment, and national brands. A nation with a strong brand and
reputation in the international space is more attractive to tourists, investors, and skilled
workers, and more resilient to financial crises. National companies also benefit from the
positive effects of the country brand by transferring an image to products and services
and thus enhancing export capacity.
References
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792 Strategica 2020
INTEGRATING INTELLECTUAL CAPITAL AND SMES

INTERNATIONALIZATION INTO A COMMON CONCEPTUAL
FRAMEWORK
Elena-Mădălina VĂTĂMĂNESCU
madalina.vatamanescu@facultateademanagement.ro
Andreea MITAN
andreea.mitan@facultateademanagement.ro
Violeta Mihaela DINCĂ

2-2A Calea Griviței, 010731 Bucharest, RO
violetamihaeladinca@yahoo.fr
Andreia Gabriela ANDREI

University “Alexandru Ioan Cuza” of Iasi
11 Carol I Blvd., 700506 Iasi, RO
andrei.andreia@gmail.com
Abstract
The present undertaking aims to integrate two main constructs into a common conceptual
framework – i.e., the intellectual capital (IC) and the internationalization of small and medium-sized
enterprises (SMEs) – by advancing a structured literature review. The scrutiny followed a step-by-
step procedure, focusing on articles published in specialized journals related to the fields of
international business, management, and entrepreneurship. Relevant sources were selected based on
a multicriterial basis, covering both format and content. As the findings indicated, the empirical
studies are prevalent, emphasizing quantitative methodological designs while the conceptual papers
and the qualitative approaches are outnumbered. In terms of the original input, the current
literature review intends to provide a preliminary picture of the body of knowledge on the topic and
to spot the research gaps which may be exploited by future research directions.
Keywords
Small and medium-sized enterprises (SMEs); internationalization; intellectual capital (IC).
Introduction
The business internationalization process has emerged as a pivotal issue for researchers
and practitioners in the context of gaining competitive advantages by various firms in
the long run (Chen et al., 2017; Fujita & Hamaguchi, 2016; Gittins & Fink, 2015; Hitt et
al., 2006; Vătămănescu & Mitan, 2019). Internationalization supports the increase of
competitiveness and development in a sustainable way (Kok, 2007), and a crucial
adaptive strategy to current challenges (Andrei & Zaiţ, 2014; Andrei et al., 2017; Cerrato
& Piva, 2012; Vătămănescu et al., 2014; Vătămănescu et al., 2016a, b; Vătămănescu,
Alexandru, & Nistoreanu, 2017; Vătămănescu et al., 2019; Vătămănescu et al., 2020).
Recent literature has advanced that the internationalization process would not be
efficient without the influence of intangible resources such as the IC which exerts
meaningful effects on the organizational performance (Basly, 2007; Gruenhagen et al.,
2018; Javalgi & Grossman, 2014; Onkelinx et al., 2015; Volonte & Gantenbein, 2016;
Vătămănescu et al., 2020; Dincă et al., 2019). The relevance of the IC for the SMEs
internationalization has been upheld by a myriad of studies, describing it as a key
variable for understanding productivity growth, economic performance, and
organizational competitiveness (Bilas et al., 2013; Kok, 2007; Molodchik et al., 2012).
Within the current framework, the IC comprises three main dimensions, i.e., human,
relational, and structural capital (Dean & Kretschmer, 2007; Leitner et al., 2014;
Vătămănescu et al., 2015a, b, 2016c; Vătămănescu et al., 2018; Gorgos, Alexandru, &
Vătămănescu, 2019; Vătămănescu et al., 2019; Gorgos, Alexandru, & Vătămănescu,
2019) which are correlated with the international business literature (Kok, 2007;
Nordman & Tolstoy, 2016; Ozdemir, 2017; Sapienza et al., 2006). The investigation of
the nexus between the internationalization dimensions and different types of IC may
provide fruitful insights into the importance of intangible resources and their optimal
exploitation by managers, thus entailing practical and managerial implications
(Vătămănescu, Gorgos, & Alexandru, 2018; Vătămănescu et al., 2019; Watahiki et al.,
2020). In this sense, the present undertaking aims at articulating a conceptual
contribution, filling a research gap via a literature review.
To achieve its goal, the argumentative structure of the paper starts with the description
of the methodological design; the second section scrutinizes the correlations between
the IC and SMEs internationalization while the next one introduces the main research
directions integrating the two constructs. The conclusions and future research avenues
are afterward presented.
Method
The structured literature review on the issue of IC and SMEs internationalization started
with the search for articles published in peer-reviewed journals related to international
business, management, and entrepreneurship, using Clarivate Analytics, EBSCO, Science
Direct databases as search engines. The search was made by using both specific terms,
such as “intellectual capital and business internationalization”, “intellectual capital and
international business”, “human capital and SMEs internationalization”, “relational
capital and SMEs internationalization”, “structural capital and SMEs
internationalization”, “SMEs internationalization and social capital”, and more general
terms, such as “SMEs international networks”, “SMEs strategic alliances and
international collaboration/partnerships”, “SMEs international ventures”.
Secondly, the titles of the papers and the abstracts were analyzed given the goal of the
literature review to remove the unsuitable ones which are incompatible with the scope
of the present endeavor. An analysis of the reference sections was performed on
purpose to identify other relevant articles that were not found in the prior search. Only
works published after 2000 were taken into account.
794 Strategica 2020
Thirdly, a summary was done regarding the focal point of the retrieved studies (i.e., IC
dimensions and internationalization specificity), the type of the study
(theoretical/empirical), and the research design (quantitative/qualitative). The studied
literature spans over 19 years, starting from 2000 to 2019. Certain main themes
stemmed from the scrutiny of the relevant studies, that is, the creation and development
of business networks, knowledge sharing, business innovation and efficiency, the
achievement of competitive advantage, managerial strategic decision-making). 90 final
articles were kept for further investigation in terms of content and overall perspective.
As the corpus of selected papers is wide, scrutinizing the correlations between IC and
SMEs internationalization in an illustrative way comes forward as a basic requirement.
Further, a short introduction to the most prominent research directions integrating the
two main concepts is advanced.
Scrutinizing the correlations between IC and SMEs internationalization
The first criterion for classifying the studies refers to their focal point. The scrutiny
covers contributions that are systematized in relation to the IC type (Table 1) and the
internationalization model (Table 2).
Table 1. Classification of studies based on the IC type

No. IC type References
1. Human capital Ruzzier et al., 2007; Cerrato & Piva, 2012; Alon et al., 2013;
Nowinski & Rialp, 2013; Chen, 2014; Goxe, 2014; Yeoh, 2014;
Javalgi & Grossman, 2014; Gittins & Fink, 2015; Fujita &
Hamaguchi, 2016; Volonte & Gantenbein, 2016; Chen et al.,
2017; Alarcon Osuna et al., 2017; Colombo et al., 2018;
Vătămănescu et al., 2019
2. Relational capital Eternad et al., 2001; Figueroa Dorrego et al., 2013; Musteen et
al., 2014; Vătămănescu et al., 2014; Thurner et al., 2015; L&au
et al., 2016; D’Angelo et al., 2016; Păduraru et al., 2016;
Vătămănescu et al., 2016a, 2017; Badi et al., 2017; Odlin & Rea,
2017; Colombo et al., 2018; Acosta et al., 2018; Vătămănescu et
al., 2019
3. Structural capital Ruzzier et al., 2007; Antonelli et al., 2010; Zhang et al., 2014;
Pacheco, 2016; Scholes et al., 2016; Garcia-Garcia et al., 2017;
Vătămănescu et al., 2019
Table 2. Classification of studies based on the business internationalization model

SMEs internationalization
No. References (selection)
model
1. Born-global model Gilmore et al., 2001; Zhou et al., 2007; Al-Laham &
Souitaris, 2008; O’Cass & Weerawardena, 2009;
Musteen et al., 2014; Gittins & Fink, 2015;
Oparaocha, 2015; Caputo et al., 2016; Dimitratos et
al., 2016; Landau et al., 2016; Alarcon Osuna et al.,
2017; Törnroos & Kujala, 2018; Vaugh & Tsagdis,
2018
2. Uppsala model Vahlne & Johanson, 2013; D'Angelo et al., 2013;
Hsu et al., 2013; Korsakiene et al., 2017; Jardon &
Molodchik, 2017; Vedula & Matusik, 2017; Ribau et
al., 2018
3. Resource-based view Hitt et al., 2006; Ruzzier et al., 2007; Cerrato &
Piva, 2012; Chen et al., 2017; Ferreira & Franco,
2017
4. Network theory of Antonelli et al., 2010; Perrigot et al., 2013; Goxe,
internationalization 2014; Brouthers et al., 2015; Badi et al., 2017;
Ozdemir, 2017
5. Innovation-related models Yener et al., 2014; Love & Roper, 2015
6. Eclectic model Raymond et al., 2014; Merino et al., 2015; Ngoma,
2016; Acosta et al., 2018
7. Agency theory Chen, 2014; Hernández-Trasobares & Galve-Górriz,
2016
8. Transactional cost model Kungwansupaphan & Siengthai, 2014; Yeoh, 2014
9. Stewardship theory Pérez-López et al., 2018
10. Dynamic capabilities view Rod et al., 2016
11. Internationalization from a Mandysová, 2010; Doornich, 2018; Manolova et al.,

time perspective 2014; Hilmersson, 2014; San-Martin et al., 2016;
Welbourn & Pardo del Val, 2009; Zhang et al., 2014;
Nordman & Tolstoy, 2016; Gruenhagen et al., 2018
Even though the papers were categorized according to the main dimension of IC which
was captured by the analysis, most of them tackled more dimensions either in their
conceptual sections and/or in their empirical one.
From a bird’s eye view, some conclusions derive from the preliminary scrutiny of the
literature. Firstly, the born-global approach is mostly linked to human capital and,
afterward, to relational capital; secondly, the Uppsala internationalization model
incorporates references to both structural capital (organizational/innovation capitals)
and human capital; thirdly, when discussing the resource-based view, a special
emphasis is laid on all types of IC; fourtly, human and relational capital is often related
to the network theory of internationalization.
The second criterion considered the type of study, that is, theoretical or empirical. Here,
empirical studies are prevalent (e.g., Alon et al., 2013; Bilas et al., 2013; Cerrato & Piva,
2012; Ferreira & Franco, 2017; Hitt et al., 2006; Jardon & Molodchik, 2017; Javalgi &
Grossman, 2014; Musteen et al., 2014; Onkelinx et al., 2015; Ozdemir, 2017; Ribau et al.,
2018; Ruzzier et al., 2007) whereas theoretical papers are scant (e.g., Gittins & Fink,
2015; Landau et al., 2016; Pillai et al., 2017).
Shifting to the third criterion - the research designs of the empirical papers - the
quantitative studies (e.g., Alarcon Osuna et al., 2017; Alon et al., 2013; Bilas et al., 2013;
Chen, 2014; Hitt et al., 2006; Musteen et al., 2014; Ngoma, 2016; Nordman & Tolstoy,
2016; Ruzzier et al., 2007; Volonte & Gantenbein, 2016) predominate over the
qualitative ones (e.g., Braga Rodrigues & Child, 2012; Fujita & Hamaguchi, 2016; Goxe,
2014; Nowinski & Rialp, 2013; Oparaocha, 2015; Scholes et al., 2016; Vahlne & Johanson,
2013). Nevertheless, few complex studies advance both quantitative and quantitative
methodological designs (e.g., Cano-Rubio et al., 2017; Javalgi & Grossman, 2014;
Kungwansupaphan & Siengthai, 2014) and, therefore, propose more robust outputs.
796 Strategica 2020
Research directions integrating IC and SMEs internationalization
The research areas which cover the relationship between IC and SMEs
internationalization fall under the following conceptual frameworks: strategic alliances
(e.g., Afsharghasemi et al., 2013; Bilas et al., 2013; Brouthers et al., 2015; Ferreira &
Franco, 2017), social and business networks (e.g., Braga Rodrigues & Child, 2012;
Musteen et al., 2014), business skills (e.g., Alon et al., 2013; Bilas et al., 2013; Ruzzier et
al., 2007), pursue or achievement of competitive advantage (e.g., Bilas et al., 2013;
Landau et al., 2016; Odlin and Rea, 2017), SMEs performance (e.g. Fernández-Olmos et
al., 2016; Hitt et al., 2006; Volonte & Gantenbein, 2016), family-owned business (e.g.,
Basly, 2007; Cano-Rubio et al., 2017; D’Angelo et al., 2016; Graves & Shan, 2014; Merino
et al., 2015), prior international experience (e.g., Alon et al., 2013; Bialek-Jaworska &
Gabryelczyk, 2016; Galati et al., 2014; Vedula & Matusik, 2017), knowledge transfer (e.g.,
Gittins & Fink, 2015; Nordman & Tolstoy, 2014; Vaugh & Tsagdis, 2018), business
innovation (e.g., Antonelli et al., 2010; Figueroa Dorrego et al., 2013; Love & Roper, 2015;
Nordman & Tolstoy, 2016; Nowinski & Rialp, 2013; O’Cass & Weerawardena, 2009; San-
Martin et al., 2016), and the export intensity (e.g., Antonelli et al., 2010; Ayob et al., 2015;
Bilas et al., 2013; Calabro & Mussolino, 2013; Cancino, 2014; Galati et al., 2014).
In most of the investigated studies, the IC encompasses skills, capabilities, and acquired
knowledge, comprising a set of assets that assist the achievement of business objectives.
The human capital is the lynchpin of new assets generation for international ventures
(Alarcon Osuna et al., 2017), while the structural capital elements are relevant in the
process of capitalizing knowledge (Vătămănescu et al., 2017). The SMEs' internal
resources are imperative for sustainable growth, hence they should be treated with
proper attention (Molodchik et al., 2012). The relational capital forms the relational
platform for the internationalization strategies, plans, and practices, so the goal is to
efficiently manage each collaborative relationship with existing or potential partners
(Ozdemir, 2017; Vătămănescu et al., 2017; Vătămănescu, Alexandru, & Nistoreanu,
2017; Vătămănescu et al., 2019).
Focusing on the human capital dimension, human capital positively moderates the
relationship between internationalization and firm performance (Hitt et al., 2006;
Volonte & Gantenbein, 2016) whereas key success factors of SMEs internationalization
are often linked to the skills and knowledge of human resources (Bilas et al., 2013;
Vătămănescu et al., 2019). Positive relationships were supported between human
capital and the firm’s level of internationalization (Cerrato & Piva, 2012; Hitt et al., 2006;
Jardon & Molodchik, 2017). Here, the entrepreneurial international orientation involves
the perceptions regarding the benefits and the costs of the internationalization, and the
business experience along with international exposure develop mechanisms to enter
foreign markets (Nowinski & Rialp, 2013; Rod et al., 2016).
Moving to the structural capital dimension, the international business literature is in an

embryonary stage in what concerns the integration of the structural capital and SMEs
internationalization. Some authors refer to the dynamic capabilities supporting SMEs to
better handle organizational resources to overcome market challenges (Landau et al.,
2016). Ozdemir (2017) considers that high-quality products/services and professional
competence (foreign language and knowledge of export procedures) stand for
important IC factors, subsequently linked to the structural capital. In the absence of such
assets, the internationalization process is likely to fail.
The relational capital is a strategic asset for SMEs in the quest for competitive advantage.
Social capital represents per se a resource for SMEs and might be defined as the
formation of social relationships which bring benefits (Braga Rodrigues & Child, 2012).
The capabilities and behavior of an entrepreneur, his education, and his learning
capacity convey a different perspective on the need to engage in business abroad. As
Ruzzier, Antoncic, Hisrich, and Konecnik (2007) reveal, internationalization cannot
succeed without the convergence of the four dimensions of human capital: international
orientation, risk perception, business skills, and management know-how.
When corroborating human, structural and relational capital, the organizations with a
larger web of contacts, more resources, and managerial know-how are more likely to
internationalize (Alon et al., 2013). Alongside, firms with founders acquiring and storing
more industry-specific knowledge and managing specialized employees are more likely
to grow internationally (Sapienza et al., 2006).
To sum up the findings abovementioned, the analysis had shown, on the one hand, that
conceptual papers are still in their infancy. In terms of empirical-focus papers, the
quantitative designs prevail, while mixed methods research designs are scant. The state-
of-the-art indicates the imperative to develop more conceptual undertakings sounding
out the inner relationships between constructs and qualitatively appraising their
phenomenology.
On the other hand, the literature review revealed the context-driven nature of the
empirical studies, i.e., focus on a certain country or region. In this sense, cross-country
or cross-cultural perspectives would be beneficial to find out potential moderators of
the relationship between the two constructs.
Further, in terms of content, the selected studies settle various conceptual issues under
the lens. On this front, future literature reviews in the field may envisage additional
criteria and/ or constructs, models, theories, etc. which may account for fruitful research
streams.
Lastly, most of the papers have not approached a certain type of IC, but they implicitly
refer to its scope and aims. Similarly, most studies are not explicit in depicting a clear
model of internationalization. This also engenders the exigence to better integrate the
two constructs into common conceptual frameworks.
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806 Strategica 2020
THE IMPORTANCE OF EMOTIONAL INTELLIGENCE IN THE TIME OF

THE CORONAVIRUS
Moldvoy AKOS
Babes Bolyai University
Cluj Napoca, RO
akos.moldvoy@eon.com
Abstract
In a volatile world, when most of the social conventions are violated, when leaders have to work
remotely with different generations having different technical knowledge when the wellbeing and
health of the employees and their families are more important than daily activities when the pressure
of uncertainty affects the efficiency of the employees, leaders and managers have to rethink the frame
of values and missions of the company, and how they will handle the social problem. The COVID-19
pandemic started in late 2019 and continuing in 2020 is a test for all societies, companies, leaders,
and it is also testing the status quo of the leadership theory. A crisis can emerge in many different
forms and COVID-19 in one of them. Big companies have formulated business continuity plans for
emergencies. Usually what companies omit to consider is emotional intelligence, one of the crucial
factors of effective crisis management. An emotionally intelligent leader can have better solutions
and reactions in a crisis than a leader without emotional intelligence competencies. This short paper
explores a series of early risk mitigation strategies to prevent COVID-19and prepare leadership to
face this inevitable challenge. The research design types used are literature review and naturalistic
observation. The research methodology is observation.
Keywords
Leadership; Emotional Intelligence; Coronavirus; Risk mitigation; Handle crisis.
Introduction
The world reacts with unprecedented efforts to handle the COVID-19 pandemic, leaders
try to keep mission-critical initiatives moving forward, but it is predictable that sooner
or later organizations will confront a black swan event. In a very volatile environment,
a good leader should always follow the strategy of preparing the things he knows, to be
prepared for the things he does not know.
In the crisis of the COVID-19 pandemic, companies know that

1. They have to continue their critical activities and for this
2. They have to keep and motivate their employees
For the first point, to continue their critical activities, almost all big companies have
business continuity plans, fallback procedures, and desktop procedures. Keeping and
motivating employees in a crisis is a challenge and it can be considered/called a
leadership art. One of the most important skills of a leader to achieve these goals is
emotional intelligence. This article will focus on the importance of emotional
intelligence in the COVID-19 pandemic situation.
As mentioned, leaders should prepare/apply/work with what they know, to be

prepared for the things they do not know. The COVID-19 pandemic crisis and the
recovery from it will most probably require a special blend of skills. We do not know
exactly what skills will be required from leaders in the future, but we know which skills
are important after a few months of the COVID-19 pandemic crisis.
In this paper, we take the four domains of the Emotional Intelligence presented by
Daniel Goleman (1995, pp.71-72): self-awareness, self-management, social awareness,
relationship management, and check how leaders can prepare, use and benefit from
them. Each of these (domains) can help a leader face any crisis with lower levels of
stress, less emotional reactivity, and fewer unintended consequences.
Self-Awareness
The definition of self-awareness is: ‘’the ability to focus on yourself and how your
actions, thoughts, or emotions do or don't align with your internal standards.’’
(https://blog.hubspot.com/marketing/self-awareness) Self-awareness is considered
very important, because allows people to better know their internal states, preference,
resources, intuitions, and also allows them to understand better the emotions of the
people around them.
Self-awareness can be split into two. The first category is internal self-awareness, the
way how we see ourselves, and the second category, the external self-awareness, the
way how others view us. The leaders who see themselves as their employees do are
more efficient. The employees have better relationships and are more satisfied with
them. Leaders must actively work on both, seeing themselves clearly and getting
feedback to understand how others see them. People having a high self-awareness level
are usually people balancing the scale.
Usually, leaders think, that the more experience they have their self-awareness will
increase. This is not always true. Experience can lead to a false sense of confidence about
performance and can make leaders overconfident about their level of self-knowledge.
High experience can make leaders not questioning their assumptions. The more power
a leader has, the more likely he overestimates his skills and abilities.
‘’At the core of EI, self-awareness is the area that leaders’ least enjoy or spend time on.’’
(Murray, 2020) They see it as self-focused or a waste of time. Leaders can effectively
work with others only if they get really good at knowing themselves. When a leader can
see clearly himself, he will be more confident, more creative, he can make sounder
decisions, build stronger relationships, and communicate more effectively. He will less
likely lie, cheat, and steal. He will be more effective with more satisfied employees.
Although most of the leaders think they are self-aware, just 15% of them have this skill
(Eurich, 2018). It is important to see how our values, passions, aspirations, behaviors,
and reactions fit into our environment and how their impact on others is.
A good manager shouldn’t be led by emotions. (Goleman, 2013, p.31) Being aware of
one’s feelings makes one in charge. In the COVID-19 pandemic, most of the employees
are working from the home office. The efficiency of the employees is not the same. Often,
when having online meetings with the noise of their children can be heard, and one has
the impression, that people are not focused on the discussion. Small mistakes that didn’t
808 Strategica 2020
occur before started popping up. All these make a leader angry. The question is how do
they manage these situations?
One should be aware, that in a crisis when the health and the well-being of the family
are at risk, employees cannot focus on their work as they did before. Leaders should
analyze every mistake individually, and where it is possible to implement additional
controls in the process, so the same mistake will not happen again. For the cases where
additional controls do not solve the problem, and mistakes are caused by a low level of
focus, leaders should discuss assertively with their employees, explaining the
consequence of their mistake, but making them confident that finding a solution to the
problem is a common goal. Making people understand, that in these cases the future of
the company is also important, is not so easy, but organizations do not hire leaders to
maintain the status quo, they are hired to drive the future.
Performance and target settings need to be thought out differently. The focus is to act as
one team, to fight for survival. The weighting assigned to individual objectives should
give way to collective, shorter-term team-based targets. The whole is truly greater than
the sum of its parts. Companies that can keep their employees engaged and motivated
during the first half of 2020 will take advantage of the global economy in the second half
of 2020.
The good news is that self-awareness can be improved. For a leader, it is important to
improve his self-awareness, as this is associated with higher job and relationship
satisfaction, personal and social control, and happiness. The highest the self-awareness
is the lower will be the anxiety, stress, and depression of a person.
There are more techniques to improve self-awareness, but we will take on the most
important.
-Look at yourself objectively: analyze and try to improve the behaviors and reactions
you don’t like. It is interesting how we see our values, passions, aspirations.
-Keep a journal: some of the reactions and behaviors may not be appreciated by others.
Keep a journal and note all the cases when people disagreed with you. You can also use
the journal for self-analyze. ‘’It allows you to identify, clarify, and accept your thoughts
and feelings. It helps you discover what you want, what you value, and what works for
you. It can also help you find out what you don’t want, what is not important for you, and
what doesn’t work for you.’’ (https://positivepsychology.com/self-awareness-matters-
how-you-can-be-more-self-aware)
After identifying the behaviors and reactions that need to be improved write down your
goals, plans, and priorities. Having a plan helps to start improving the skills. It is always
good to do daily self-reflection. Even if you started to improve your skills, this takes time.
Self-reflection helps to have a good picture of where you are in the process.
Introspection doesn’t always improve self-awareness. Sometimes it can be ineffective
because most people are doing it incorrectly.
Practicing meditation and other mindfulness habits helps in clearing the mind from
negative emotions and negative energy. After negative emotions are cleared it is easier
to start planning and focusing on the activities you have to do, and also helps in the good
collaboration with other people. Mindfulness refers to paying attention to yourself and
your surroundings rather than getting lost in thought or ruminating or daydreaming.
Meditation is a practice for focusing the attention on one thing, like a breath, a mantra,
or a feeling, and letting thoughts drift by instead of holding on to them. Both practices
can help in becoming more aware of your internal state and reactions to things. They
can also help to identify thoughts and feelings and keep from getting caught up in them.
Another practice is yoga. Yoga helps the mind to learn discipline, self-acceptance, and
awareness.
Taking personality and psychometric tests can reflect who we are and how we think and
react. A test can have a good result, just if the one filling it does it honestly. Ask trusted
friends to describe you. It can be the best test. People who know us very well can have a
different view of us as we do. It is always hard to receive negative feedback. But if one is
considering the negative feedback a constructive one, that person can already start to
improve their skills. To get a comprehensive view you need to talk to a variety of people.
High self-awareness is a good predictor of success in life because a self-aware person
knows when an opportunity is a good fit for him and how he can take advantage of it.
Becoming a good listener can also increase self-awareness. By being open to someone
else, we can learn to listen objectively to what the person wants or needs to share. This
also helps to listen to our inner dialogues and opinions objectively.
Self-Control
Self-control is defined as ‘’the ability to manage actions, feelings, and emotions and to
regulate and alter responses to avoid undesirable behaviors, increase desirable ones,
and achieve long-term goals. ‘’(https://www.yourdictionary.com/self-control) Self-
control is important in achieving common goals such as losing weight, exercising
regularly, eating healthy, not procrastinating, giving up bad habits, or saving money.
Self-control is also important for maintaining healthy behaviors. What we eat for
breakfast, whether we go to the doctor regularly are all decisions that are impacted by
our levels of self-control and have the potential to affect our health.
Emotional intelligence means being aware of our emotional state. Being emotionally
intelligent means that we know what are the emotions we feel and we can name them
accurately, and we can express them in a non-harmful way. We do not/should not have
to feel overwhelmed by emotions. Usually, we suppress emotions when the information
they try to convey seems uncomfortable. This happens quite often to leaders, and
because they don’t look to the full situation their perception of the situation stays the
same. In situations of the COVID-19 pandemic, the emotion we most likely suppress is
fear. Emotionally intelligent leaders try to understand the reason for the fear and find
solutions to reduce it.
We have to face and solve the suppressed emotions, because these will cause stress, and
stress harm our immune system, relationships, and peace of mind.
When managers are led by their emotions, the part of their brain responsible for the
planning and the strategy is affected. Without self-control, the amygdala part of the brain
is making decisions. (Goleman, 2013, p.40) This part of the brain is responsible for the
response to threats, real or perceived, and can overwhelm the prefrontal cortex, the area
of the brain responsible for planning and strategy. (Goleman, 1995, pp.29-30)
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In the middle of a crisis, employees are expecting a strategy from their leader and not
reactions. Research done by Richard Davidson (2013, p.17) and Jon Karat-Zinn (2012,
p.28) shows that the brain can be trained to strengthen the prefrontal cortex’s capacity
to exert control over the amygdala. This can help leaders become more emotionally
balanced and effective.
Every leader had at least one crisis that was not handled as they would have imagined
it. A good exercise is to reflect on these and train the brain with solutions that could be
used. In the past months, we have stepped into an unknown world where certainty is
low and our safety is challenged. The system in which we work has turned upside down.
Leaders face many situations for which they do not know the answer or do not have a
solution. What is happening when a leader doesn’t know the answer? Leaders do not
need to know the answer to everything. What they have to do is to make the best
decisions with the information they have. A more skilled leader can make better
decisions than a less skilled one, using the same information.
Leaders should listen to the concerns of employees and where necessary acknowledge
that there are no easy answers. They shouldn’t be angry if the employees do not have
the same performance in a crisis. It is an opportunity for the leaders to use their skills,
to show and lead by example. Self-control brings the right decisions in difficult moments.
Leaders should be understanding if there are occasional outbursts or changes in the
behavior of the employees. They should bear in mind that everyone’s situations are
different; they should be sensitive to other experiences, especially where the future of a
person’s employment may be in question.
Leaders should spend time to spoil themselves, to find something each day, they enjoy.
They cannot care for others without being healthy themselves. The most important
techniques, to improve self-control are the following:
-Avoid temptation. This can be avoided by distraction. People should do whatever it
takes to get their mind off the thing that is tempting them.
-Planning can improve willpower even in situations where people have experienced the
effects of ego depletion.
-Focusing on one goal at a time can turn the behaviors into habits, and there is no need
to devote as much effort toward maintaining them.
-Meditation is a great way to strengthen the self-control muscle, so people can better
resist temptations. This technique can also help to learn slowing down the thoughts,
which can help to control any gut impulses getting in the way of self-control.
-Sleep can help self-control. When we are tired, our brain cells’ ability to absorb glucose
is highly diminished. The brain’s ability to control impulses is nil without glucose. What’s
worse, without enough sleep we are more likely to use sugary snacks to compensate for
low glucose levels. So, if we are trying to exert self-control over our eating, getting a good
night’s sleep is one of the best moves we can make.
Social awareness
The definition of social awareness is: ‘’the ability to take the perspective and empathize
with others from diverse backgrounds and cultures, to understand social and ethical
norms for behavior, and to recognize family, school, and community resources and
supports’’.(https://www.transformingeducation.org/introduction-to-social-
awareness)
In March 2019, one of the big companies from Cluj Napoca announced to their
employees, that a building with an asbestos roof was deconstructed in the neighborhood
of their office building. The access of the employees was not allowed until the quality of
the air was not checked, and management made sure that there is no risk. The testing of
the air quality and the cleaning procedure of the area was a three weeks’ process. At this
time the employees worked from a different location and home office. The empathy of
the managers in this period for the health of their employees helped the managers to
solve easier the crisis. Employees knew that for the management the health of the
employees is a priority, and they can focus on daily activities. One year later they are
facing a similar situation with the COVID-19 pandemic. Employees are confident that
their leaders are empathic and taking the best solutions.
Leaders are always under intense pressure from investors looking at the financial
damage the COVID-19 pandemic is producing. But employees don’t want to know how
much the virus is costing the company, they want the same values and behavior from
their leader, with which they are used to. People have to feel that the leader understands
what they are going through. Making people feel secure and taken care of will help
leaders get the workforce focused on preserving operations as best as possible.
Many employees work better in a physical environment and face-to-face collaboration.

Changing this to a home office can easily impact their engagement and feeling of being
properly enabled to do their job. For these employees is important to have daily calls
with their leader but also to translate some of the office’s culture to virtual work.
A good leader in a crisis should lead agilely. He has to change leadership styles, the work
schedule plans according to the situation, and the needs of the team.
The most important techniques, to improve self-control are the following:

- Understanding the importance of listening: most of the leaders think they are good
listeners, but the truth is they are usually too busy thinking of their next response to
hear what others are saying. Good listeners don’t assume they know or understand a
situation before hearing someone out. When leaders start listening, they may be
surprised by what they learn about their employees and organization.
- Repeat what was said: The best way to prove that you understand what’s been said is
to repeat back what you heard in your own words and ask for more information, if
appropriate. This helps to show that you understand what was said, and it conveys to
the other person that their opinion is valued and heard.
- Pay attention to the tone of the voice: pay attention to the energy behind what your
employees say to get a sense of how they’re feeling. This is especially critical during
virtual meetings when you do not have visual cues. A person’s tone of voice can help you
get a read on how they’re feeling and give you a better opportunity to choose the most
appropriate response or course of action. The best leaders are in tune with others’
feelings.
- Nonverbal expressions should be noticed. Sometimes employees say yes, but their
physical reaction is telling no.
- Keep a finger on the pulse of the office: Observation skills are fundamental to social
awareness. When you pay close attention to what’s happening around you, your
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awareness of your surroundings can help set the tone of how you approach varying
situations.
- Notice the details: If you want to be connected to your employees, you need to keep
your eyes open to your environment and really see what’s in front of you. Make the
rounds in the office regularly and observe what’s happening. It helps to get to know your
workforce as people and interpreting the mood of the team. Ask questions to show your
employees that you’re interested
- Stop taking notes: It’s easy to miss something when you’re busy scribbling away in your
notebook. Put down the pen and look up from your paper in meetings. In a meeting, you
should actively engage with others.
Relationship Management
‘’Relationship management is a strategy in which an organization maintains an ongoing

level of engagement with its audience’’ (https://www.investopedia.com/terms/r/
relationship-management.asp) This is one of the most important but also one of the
most difficult skills a leader should have in a crisis. Managing relationships among many
people with a different personality, having the ability to inspire others, to manage
conflicts, foster teamwork to move people in the direction you desire and all this in a
home office way can take a lot of time and energy, but it can be rewarding. The leader
should be the connection between people, and this connection can make a difference
between a group remaining a group or a group becoming a team.
In the COVID-19 pandemic, daily discussions with the team are important. These
meetings should not just focus on the daily activities, but also leaders should have a
filling on the wellbeing of their employees. Leaders can use the phone, Skype, or web
conferencing to connect. The emotional intelligence of the leader is not making the
COVID-19 pandemic disappear but keeps the employees motivated. With motivated
people, it can be easier to get through a crisis. When there is fear, it is the job of the
leader to demonstrate compassion, set direction, and get people focused. Keeping
people motivated and having a good relationship with the team can help in finding
solutions. Leaders should be transparent with their employees. If the people know the
problems the company is facing, and they are confident that their opinion matters
forward-thinking strategies throughout the crisis can come. A strategy or idea coming
from the team can be easier implemented as one coming from the leader. Employees put
additional effort to demonstrate that their idea is a good solution for the problem. An
emotionally intelligent leader knows that he has to offer these opportunities to the team
members. A leader should be real. He should share with the team his personal worries,
concerns, and common thoughts.
How can it be ensured that people still work collaboratively? Much of this comes down
to communication. This means that leaders need to equip people with the right tools to
support collaborative working in a digital environment. The suggestion is not doing this
via email as messages can quickly accumulate and get lost, plus it’s all too easy to miss a
recipient out of the replies or accidentally hit ‘reply all’ were not required. It’s a sure-
fire way to stagnate any workflow. Instead, it should be considered having different
workplace scenarios with the appropriate tools to implement each of these. Remote
access to the workplace domain or intranet has to be ensured for everyone Everything
needs to be installed and ready to go before remote work is assigned Everybody should
have access to what they need, whenever they need it – this will save hours spent
searching for lost or inaccessible files. It is suggested using Google Drive to share and
work collaboratively on different documents. Whether it’s a shared calendar, word
document, spreadsheet, or presentation, access can be granted to multiple people to give
them instant access to the most up-to-date version of any file.
How can loneliness during remote work be prevented? The lack of social contact during
lockdown can create emotional discomfort. The absence of workplace interaction,
shared lunch breaks, social events, and even the simple ‘watercooler chat’ can trigger
feelings of isolation during prolonged periods working from home. Without the usual
team-building events and social opportunities, remote workers are feeling isolated in
this respect. Video lunch clubs and social events are encouraged, to provide a bit of light
relief with pet photos and personal milestones. It’s a simple measure to take, but the
resounding feedback from the team can raise a smile. Where possible, virtual meetings
with the camera on are encouraged; just seeing a familiar face can make all the
difference. With options such as Zoom, Skype, and Google Hangouts, it’s easy to get set
up. It is recommended to use these tools for social events too, whether that’s a virtual
lunch club, a quick chat, or even streaming an online exercise session. It’s the perfect
way to stay in touch with others while keeping in good health.
Conclusions
Organizations taking advantage of the COVID-19 pandemic will be the companies having
leaders who drive change around how they operate, who focus on engaging, rewarding,
and retaining employees. After the COVID-19 pandemic, people will remember two
things about this crisis: How they got through it and the leaders who led the way.
Leaders should think about how their team will remember them.
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aware/
EMOTIONAL INTELLIGENCE AND ENTREPRENEURIAL SKILLS

Norina POPOVICI
1st Aleea Universitatii, 900470 Constanta, RO
norinapopovici@yahoo.com
Ionela MUNTEANU FLOREA

6 Piata Romana, 1st District, 010374 Bucharest, Romania
csultant.munteanu@gmail.com
Oana OPRISAN
1st Aleea Universitatii, 900470 Constanta, RO
oana.oprisan@yahoo.com
Abstract
Emotional intelligence is a story hidden behind the entrepreneurial phenomenon. The
entrepreneurial process goes beyond the job, profession, and lifestyle, and the basis of
entrepreneurial infrastructure includes innovation, creativity, love for continuous work, dynamics,
risk-taking, forward-looking value, idealism, need for progress, and positive thinking. Entrepreneurs
are people who have well-developed emotional skills, are productive and efficient but who feel the
need to do more. Emotionally intelligent entrepreneurs can manage their emotions. If they get angry
or upset, they did not unload those around them, thus creating a tense atmosphere; rather, they
calmly deal with the problem and find a way to control and alleviate their anger. Being able to
control emotions is essential when communicating with investors and other important allies for their
business. Starting from these elements, in this paper, we want to analyze whether there is a
connection between an individual's emotional intelligence and entrepreneurial abilities. Applying
two questionnaires to a significant sample of students: one that measures the individual's emotional
intelligence based on self-awareness, empathy, social skill, managing emotions, and self-motivation,
and the other that assesses the necessary skills for starting a business. At the end of the paper, based
on the correlations between the two questionnaires, we highlight the connection between the spirit
of initiative, the attitude towards people, the spirit of leadership, the ability to take risks, the desire
for a job well done, the confidence in people, the health, on one hand, and abilities such as self-
awareness, empathy, social skill, managing emotions, and self-motivation, on another one.
Keywords
Emotional intelligence; entrepreneurial abilities; business; motivation.
Introduction
Entrepreneurial activity is at the heart of the spirit of economic innovation, increased

productivity, economic competitiveness, and job creation. At this moment,
entrepreneurship is manifesting itself with a much higher incidence than ever in the last
100 years. Recent studies show that entrepreneurship has reached a significant lifestyle,
and a career for many and that 1 in 25 adults is trying to start a business.
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Young people who are encouraged to develop their emotional skills, know each other
better, know how to express more empathy, increase their degree of self-control, and
enjoy more harmonious human relationships, which are essential in shaping successful
entrepreneurs.
We consider the development of entrepreneurial skills as a national long-term priority,

considering emotional intelligence as a motivational factor that determines the involved
stakeholders to move from a passive position of intention to dynamic action, by
planning, organizing, and involvement in activities that instill entrepreneurial skills.
Theoretical aspects concerning emotional intelligence and entrepreneurial

capability
The term intelligence has a double meaning: on one hand, it represents the process of
assimilation and processing of variable information with the purpose of optimal
adaptation and on the other hand, it signifies aptitude, residing in operational structures
endowed with certain qualities (complexity, flexibility, fluidity, productivity), through
which is ensured the efficiency of the conduct. The term of adapting consists of balancing
the assimilation of information to the pre-existing schemes and the accommodation or
restructuring imposed by the new information that does not fit perfectly with the old
schemes (Cretu, 1993, p.4). Emotional intelligence is "the ability to perceive and express,
to resemble emotions in thought, to understand the prism of emotions, and to regulate
one's own and others' emotions" (Caruso et. al., 2002, p.306).
Emotional Intelligence is self-knowledge, self-awareness, social sensitivity, and the

ability to communicate successfully with our peers. It is that state of synchronization
and social opportunity and is manifested through the courage to recognize our mistakes,
to express differences, and to respect them (Everac, 1967, p.2).
To the five dimensions of emotional intelligence (self-knowledge, self-motivation, self-

regulation, social consciousness, and social skills) there is a correspond of 25 emotional
competencies, but no one has them all. But to achieve outstanding performances, we
need to be strong in just a few of these skills - about six - and those to be "spread" across
all five areas of emotional intelligence (Goleman, 1998, p.123).
From Daniel Goleman's point of view, emotional intelligence has the following
components (Goleman, 2007, p.20):
 Self-knowledge - emotional self-knowledge - realistic and correct self-
knowledge - self-confidence,
 Self-control - emotional self-control - transparency and maintaining integrity -
adaptability to change – orientated towards results - initiative - optimism and
perseverance,
 Social “Awareness” (social awareness, group awareness) - empathy (feeling
the feelings and perspective of others, a real interest towards the worries of
others) - service orientated,
 Interpersonal relationship management - developing others, their skills,
coaching - inspirational leadership - initiating and managing change - influence
- conflict management (related to negotiating and resolving disputes) -
teamwork and collaboration (creating group synergy in pursuit of group goals).
In general, emotional intelligence consists of four elements (Togan, 2016):

1. Better identification and understanding of one's emotions.
2. Effective management of one's emotions and a significant increase in life
quality.
3. Better understanding of those around you and coexistence with a high degree
of comfort.
4. Creating better relationships at all levels with those around you and increasing
productivity and self-image.
In terms of entrepreneurship skills and spirit, the specialized literature and practice
have shown that not everyone can be an entrepreneur. These necessary characteristics
are innate or acquired throughout life, and in the following, we will present some of
them, as we have deduced them from the materials consulted for the realization of this
article (Bugaian et. al., 2010).
Determination and perseverance. More than any other factor, total dedication to success
determines the entrepreneur to overcome all obstacles. Strong determination and
perseverance help him cope with any difficulties that others may find insurmountable
and can sometimes make up for the lack of experience and skill of the staff.
The desire to win. Entrepreneurs examine a situation; determine how they can increase
their chances of winning and act accordingly. As a result, the risks considered high by
ordinary people are easily assumed by entrepreneurs.
Seeking feedback. Effective entrepreneurs are often described as having the ability to
learn quickly and the strong desire to know how well they are doing and how they can
improve their results. Feedback is important because the entrepreneur is willing to
learn from mistakes and past experiences.
Initiative and responsibility. Entrepreneurs have always been considered independent

people; they seek and take the initiative; they do not avoid situations in which they are
personally responsible for the success or failure of the whole operation. They like to get
involved in issues where their impact can be measured.
Opportunity orientated. What characterizes entrepreneurs is the focus on opportunity

rather than on resources, structure, or strategy. Once the decision has been made, they
act in a calculated way, trying to get as many chances of winning as possible, but they
avoid taking unnecessary risks.
Failure tolerance. Entrepreneurs see failure as an experience from which they can learn.
The most efficient entrepreneurs are those who expect difficulties and are not
disappointed, discouraged, or depressed by failure.
Self-confidence and optimism. Although entrepreneurs often face major obstacles,

confidence in their personal abilities leads them to overcome them and makes others
maintain optimism.
Clairvoyance. Entrepreneurs know where they want to go. They have a clear vision of
what their company should be like. Not all entrepreneurs have predetermined concepts
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for their companies, some develop them over time, realizing what the company is and
what it can be in the future.
High energy level. The enormous work done by entrepreneurs requires enormous
energy. Many entrepreneurs dose their energy by carefully monitoring what they eat,
drink, do physical exercise, and know when to retire for relaxation.
Creativity and innovation spirit. Creativity has long been seen as something genetic, with
which you are born with and which you cannot acquire.
Independence. Frustration with bureaucratic systems, along with the desire to change
something, make from entrepreneurs’ independent people, acting according to their
conceptions.
Teamwork. The desire for independence and autonomy does not prevent the
entrepreneur from working in a team. In fact, while the entrepreneur is dealing with the
future of the company, the staff performs the current activities, just as necessary.
Managerial skills. These are not indispensable, but a successful entrepreneur also needs
this type of knowledge.
Starting from the theoretical elements presented above, in this paper, we wanted to see
if there is a connection between emotional intelligence and entrepreneurial abilities.
The study was conducted on a sample of 98 students of the Faculty of Economics from
the Ovidius University of Constanta. These students completed 2 questionnaires that
assessed both emotional intelligence and entrepreneurial ability. One of the
questionnaires has a number of 10 closed questions to determine whether the individual
has entrepreneurial skills, and the second questionnaire, with a number of 50
statements (10 for each of the five specific IE skills) with answers ranked in ranks, has
the role of determining whether the individual possesses specific IE skills: self-
knowledge, self-control/self-control, the ability to remain motivated to achieve goals,
empathy and relationship management. Statistical analysis was performed based on an
R environment that contains a set of software packages specialized in data manipulation,
calculus, and graphical display (Rahlf, 2013).
Statistical study
The steps undertaken in our empirical study are:

(1) preparation of the dataset composed of answers from the questionnaire
(2) the exploratory data analysis of the empirical data
(3) choosing the appropriate statistical tests to be applied
(4) interpretation of the results of the statistical analysis.
First, the answers to the individual items in the dataset were logged. The first 3 variables
in the dataset refer to demographic characteristics of the individuals, namely age, sex,
and the environment of origin (their distribution is presented in Figure 1). The rest of
the items consist of questions with Likert answers on a scale of 1 to 5. These items in the
questionnaire were grouped according to their meaning, and 6 new statistical variables
were defined, each corresponding to a certain category: Self.awareness,
Managing.emotions, Motivating.oneself, Empathy, Social.skill, and

Entrepreneurial.capability.
The values of these variables were constructed as average aggregates of the scores of
the individual items corresponding to the respective categories from the questionnaire
(Harpe, 2015; Sullivan & Anthony, 2013).
Figure 1. Demographic characteristics of the respondents.
The exploratory data analysis started with the computation of descriptive statistics for
the variables in the dataset. We computed means and standard deviations of the
numerical aggregated variables previously mentioned (see Table 1). We can observe the
fact that the mean and median values are very close, which means that our data did not
contain outliers.
Table 1. Numerical aggregated variables summaries.

Variable Min. 1st Qu. Median Mean 3rd Qu. Max.
Self.awareness 2.100 3.700 4.050 3.971 4.300 4.800
Managing.emotions 1.900 2.900 3.300 3.315 3.800 4.600
Motivating.oneself 2.100 3.300 3.800 3.787 4.200 5.000
Empathy 2.200 3.400 3.800 3.859 4.300 6.400
Social.skill 2.300 3.500 3.800 3.791 4.200 5.000
Entrepreneurial.capability 17.00 24.00 26.00 25.96 27.75 30.00
The statistical distributions of the indicators are depicted graphically in the histograms
in Figure 2. It can be noted that, while the Social.skill and the Managing.emotion
indicators seem to be Normally distributed, we cannot say the same about the rest of the
indicators. Moreover, it seems that the Self.awareness and the
Entrepreneurial.capability indicators are left-skewed, suggesting a non-Normal
distribution.
This is to be analyzed with statistical tests. More precisely, we employed the Shapiro-
Wilks test to verify the hypothesis that the indicator series are Normally distributed. The
results are Self.awareness, Empathy, and Entrepreneurial.capability are Normally
distributed (the p-values are 7x10-4, 6.4x10-3, respectively 2.1x10-5); while the
Managing.emotions, Motivating.oneself, and Social.skill do not follow the Normal
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distribution (the p-values obtained for the Shapiro-Wilks test are 0.418, 0.307,
respectively 0.703).
Figure 2. Histograms of the emotional intelligence indicators
Concerning the aim of this study, this is a noteworthy conclusion, which implies that the
respondents have higher scores at the respective issues, which makes them suitable for
the carrier they have chosen.
Figure 3. Boxplots of the distribution of the indicators, as influenced by grouping by age and
environment
The distribution of the indicators with respect to the factors Sex and Environment are
presented in Figures 3, 4, and 5. It can be noted that, while the mean values of the
indicators seem to be rather equal between the groups defined by the joint factors, the
indicators seem to be quite inhomogeneous with respect to their variances; but this
remains to be verified further.
Figure 4. Distribution of the indicators factored by Sex of the respondents.
Figure 5. Distributions of the indicators factored by the Environment
We were interested to find out if the sex and the environment of origin influence the
emotional intelligence of the respondents, as measured by the aforementioned
indicators. To this end, we examined the interaction plots, to inspect the means of each
indicator. We observe the fact that the lines in the interaction plots are parallel for
Empathy and Entrepreneurial.capability – meaning that these indicators are not
influenced by the interaction between Sex and Environment (see Figure 6). The other
indicators are indeed influenced by the two mentioned factors.
To be certain, we performed a Factorial ANOVA test to verify whether being

male/female and coming from an urban/rural environment influences the
entrepreneurial abilities of our students that participated in the study. The results were
not significant (p-value of 0.84), hence the interpretation from the interaction plot was
accurate.
822 Strategica 2020
Figure 6. Interaction plots
We were also interested to test the homogeneity of the variances in the groups defined
by the factors Sex and Environment. We employed the Levene test for this purpose. The
groups defined by the environment are homogeneous, for each of the indicators (all p-
values were greater than the significance level 0.05). The p-values are in Table 2 below.
The only exception is the variable Managing.emotions, where the variability of the
responses differs significantly with respect to the sex of the respondents (notice the p-
value < 0.05). Also, a certain difference exists between respondents of different Sex with
respect to their entrepreneurial abilities, since the p-value obtained for the
Entrepreneurial.capability is very close to the threshold.
The conclusions we draw from this are that the results are encouraging: we note that
there are no significant differences between the students that come from a rural
environment and those that come from urban environments. The same is true for the
grouping with respect to sex. Our results will further be enforced by studying students
from other specialties within our faculty.
Table 2. The p-values obtained in the Levene test for homogeneity of variances
Group by Groups by
Variable Group by Sex
Environment Environment*Sex
Self.awareness 0.4584 0.3461 0.6938
Managing.emotions 0.6472 0.01838 0.1148
Motivating.oneself 0.9696 0.5826 0.5914
Empathy 0.9673 0.4325 0.8902
Social.skill 0.5094 0.4573 0.5271
Entrepreneurial.capability 0.9243 0.06353 0.3624
Next, we analyzed the pairwise correlation coefficients. They are depicted graphically
below, in Figure 7. It can be noted that the Entrepreneurial.capability is poorly
correlated to the rest of the emotional intelligence indicators. At the same time, strong
correlations exist between Empathy and Social.skill, between Self.awareness and
Motivating.oneself, Empathy, and, respectively, Social.skill.
Figure 7. Correlations between emotional intelligence indicators
When building a general linear model that tries to explain the Entrepreneurial.capability
based on the other EI indicators, we find that the only statistically significant coefficient
is the Intercept; none of the indicators are relevant for the Entrepreneurial.capability
(see Table 3).
Table 3. Variables’ coefficients and their associated p-values

Variable Estimate Std. Error t value Pr(>|t|) indication
(Intercept) 29.74859 2.12118 14.025 <2e-16 ***
Self.awareness -0.20033 0.69562 -0.288 0.774
Managing.emotions -0.28734 0.46084 -0.624 0.534
Motivating.oneself -0.08312 0.62047 -0.134 0.894
Empathy 0.15832 0.59674 0.265 0.791
Social.skill -0.61660 0.73880 -0.835 0.406
Conclusions
This result is surprising since we expected the Entrepreneurial.capability to be strongly

related to Emotional Intelligence indicators such as Empathy and Social.skills. Further
824 Strategica 2020
studies should be devoted to identifying relevant features to distinguish among possibly

successful future entrepreneurs.
Surprisingly compared to the conclusions of previous scientific papers on this topic and
what happens in current practice, our research has shown that there is no direct link
between emotional intelligence and entrepreneurial skills. We attribute this to the fact
that students completed the questionnaires looking for an ideal situation, not
considering their traits and characteristics. Maybe out of the desire to assert themselves,
maybe out of certain frustrations, maybe out of the multiple unmet needs and hopes that
characterize the age of adolescence, young people have built through these
questionnaires an ideal image that unfortunately has nothing to do with reality.
Much can be said about the importance of IE in entrepreneurship. As its importance has
been highlighted over time in many areas of activity, IE is certainly not only useful but
even necessary to become a successful entrepreneur. Young people need emotional
literacy, financial education, and also need to know what entrepreneurship entails.
These young people, through their businesses, through the companies created, will raise
the Romanian economy and implicitly will create more jobs, thus raising the standard of
living and reducing the degree of poverty.
References
Bugaian, L., Catanoi, V., Cotelnic, A., Curagău, N., Dolghi, C., Enicov, I., Gheorghiţă, M.,
Golovco, V., Jalencu, M., Levitschi, A., Melinte, C., Solcan, A., & Tomiţă P. (2010).
Entrepreneurship: Starting a business, Chisinau, MD: Technical University of
Moldova.
Caruso, D.R., Mayer, J.D., & Salovey P. (2002). Relation of an ability measure of emotional
intelligence to personality. J Pers Assess. 79(2), 306-320.
Cretu, T. (1993). Psychology, Bucharest Publishing House.
Drucker, P.F. (1995). Innovation and Entrepreneurship, Elsevier.
Everac, P. (1967). Reflections on intelligence, Bucharest, RO: Politica Publishing House.
Farrell, L. (2008). How to Become an Entrepreneur, Curtea veche Publishing House.
Goleman D. (1998). Working with Emotional Intelligence, Bantam Books Publishing
House.
Goleman D. (2007). Emotional Intelligence, Bucharest, RO: Curtea Veche Publishing
House.
Harpe, S.E. (2015). How to analyze Likert and other rating scale data. Currents in
Pharmacy Teaching and Learning 7(6), 836–850.
https://doi.org/10.1016/j.cptl.2015.08.001
Rahlf, T. (2013). Data Visualisation with R. New York, NY: Springer.
Sullivan, G.M., & Anthony, R.A. Jr. (2013). Analyzing and interpreting data from Likert-
type scales. Journal of Graduate Medical Education 5(4), 541-542.
Togan, D. (2016). Emotional Intelligence. Retrieved from http://a-man-
apart.com/wpcontent/uploads/2016/06/Inteligenta-emotionala-ebook2-
10.pdf.
SPECIALIZATIONS OF THE FUTURE. CHALLENGES AND

OPPORTUNITIES FOR GENERATIONS Y, Z, AND ALPHA
Daniela Mihaela NEAMTU
13 Universitatii St., Suceava, RO
dana.neamtu@usm.ro
Cristian Valentin HAPENCIUC

valentinh@seap.usv.ro
Ruxandra BEJINARU
ruxandrab@usm.ro
Abstract
Today, we are facing the fourth industrial revolution called 4.0 or the Digital Revolution. By 2025, it
will bring major transformations through artificial intelligence, robotics, 3D printing, biotechnology,
augmented virtual reality, or autonomous transport. The consequences will be seen quickly in the
way we live and work. There will be new career opportunities that we may not even be thinking about
right now. For the foregoing, we believe that the most valuable resource has become the knowledge
in a society that we most often call one of knowledge, since they are considered, unanimously, to be
what differentiate not only individuals but also social groups or the economies and states of the world
in competitive terms. Thus, universities must look at this responsibility and prepare young people for
a labor market in which the most important skills are not of the nature of physical skills, but of
intellectual ones. That's why jobs require innovative and creative people who are willing to put their
knowledge to work to create new knowledge, implicitly value. The question that derives from this so-
called point of view is: How can universities properly prepare the transition of young people to an
active life under the given conditions? What will be the trades of the future for generations Y, Z, Alpha
(YZA)? What are the emerging, transforming, or even disappearing trades? What will be the skills
most enjoyed by employers? How can we acquire them? The purpose of this research is to identify the
main determinants in shaping the specializations of the future and to identify what the emerging
trades would be for YZA generations. Presentation is the outline of the future over just a few years,
in which any young person of the said generations will seek a job in a human, technological,
industrial, and commercial context changed to a large extent from the one in which we now live.
Building on the latest and most important events, information, and reports, this study wants to
portray young people (YZA generations) with the current directions in technology and the economy
that are now restructuring the labor market.
Keywords
Generations Y, Z, Alpha; future skills and competencies; digital skills; future jobs.
Introduction
The European Union Youth Strategy for 2019-2027 recognizes that young people who
are architects of their own lives, contribute to positive change in society and enrich the
EU's ambitions and that youth policy can help create an area where young people can
826 Strategica 2020
benefit from opportunities and adhere to European values. Given the changing
employment landscape, the European Union should support personal development and
growth towards youth autonomy, strengthen their resilience and equip them with the
resources to participate in society, thereby helping to eradicate poverty among young
people and all forms of discrimination, as well as promote social inclusion (Prelipcean
& Bejinaru, 2018).
Young people in the European Union tend to see their future working lives with fear or
uncertainty. The presence of this discomfort, in particular, if accompanied by rejection
of applications, problems in the quality of job-related relations by profile, poor work or
social pressure to find or retain a job, can have a negative impact on the emotional state
of young people, which could also lead to mental and physical health problems or
growing concerns among young Europeans (Thematic Report, 2018; Zbuchea & Vidu,
2018).
Future generations of young Europeans will enter a labor market landscape full of
opportunities and challenges, in a global context in which the EU will strive to improve
the quality of life of its citizens and thus strengthen their economic competitiveness,
labor productivity, and skills and ensure that the goals, expectations, and ambitions of
young people can be achieved. The changing nature of work can have a positive impact
on the lives of young Europeans and future generations. It is also necessary to address
the relevant concerns and implications related, inter alia, to the forms of employment
and professional status that accompany these transformations, in particular with regard
to young people with fewer opportunities that could be low in qualifications. In this
context, it is necessary to increase the information and awareness of young people about
the implications of different forms of employment and professional status (Zbuchea &
Leon, 2015). Young Europeans believe that employment should be one of the EU's top
three priorities and also one of the areas where the EU must take action to encourage
young people to express solidarity. This demonstrates the tendency of young people to
adopt a human dimension-centered approach in their future working life (Bratianu &
Bejinaru, 2016).
In the digital age, the use of the Internet and the computer has become for young people
a common occupation with strong interference in the vast majority of fields of activity.
Against the background of accessing the online environment, the most important
aspects of the social development of young people acquire new values and specific
features of the approach (Bejinaru & Hapenciuc, 2016). Since the beginning of the
association of concepts in the field of social development, with those of direct
implications arising from the use of these technological means, we have identified
relevant and differentiated features that indicate important changes in adolescence and
youth, perception as a current stage of life (Pinzaru et al., 2016).
The generation of young people who have grown up with the means of new technologies
is a generation of technological ascension that fully explores the benefits brought by it,
but which also exposes the risks associated with it (Rollot, 2012). In the context in
which, the more varied and increased the challenges, today's young people differentiate
themselves from previous generations by increased opportunities (access to knowledge,
communication, leisure, etc.) but also by risks and responsibilities (dissemination,
selection and patterns of internet use) arising from these facilities (Dagnaud, 2011;
Ellison et al., 2007).
Generational theory is based on the idea of cohorts - groups of people with particular
beliefs and attitudes, who experience similar problems and share similar experiences
over some time. Each generation is shaped by strong external forces (which are not
intrinsically linked to the personality of each member): media, economic and social
events, popular culture, values shared by family and friends, and used as guidance in
action, etc. These forces create unique sets of values that help researchers understand
the differences between different generations (Bratianu, 2015; Bratianu &
Vatamanescu, 2017; Neamtu, Hapenciuc, & Bejinaru, 2019).
All these variations and challenges that determine obvious changes in the life trajectory
of young people can underpin the design of new hypothetical models for framing the
various stages taken by individuals in other periods of life (restructured and categorized
differentiated). Thus, for the young people of the digital generation, new technology
presents an important variable of existence. The social environment and the virtual
space interfere with each other, in a context in which the virtual world serves as a field
of exploration for developmental issues in the physical world, such as identity,
relationship formation, and development, school or professional training. Online
communication, educational and professional software, the variety of relaxation
mechanisms in the virtual environment determine multiple implications in the social
development of young people (Bejinaru, 2018).
Both national and international statistics indicate that adolescents and young people
specify the population category that uses the computer and the Internet on a larger scale
(Shields & Kane, 2011; Regan & Steeves, 2010; IRES, 2011; ONS, 2011). Obviously, the
impact of the use of new technologies has an impact on the entire development path of
adolescents and young people. There is a lot of research that reveals a beneficial effect
on psycho-cognitive development, such as improving visual memory, increasing
reaction speed, etc. (Allison et al., 2006).
The purpose of this research is to identify the main determinants in shaping the
specializations of the future and to identify which would be the emerging trades for YZA
Generations. Through this research, the explorers propose a virtual tour into the future,
considering the challenges and opportunities of the economy of the future, based on the
latest research in the field and the opinions expressed by YZA generations who are going
to choose their professional course or opt for a career change. Building on the latest and
most important events, information, and reports, this study wants to portray young
people (YZA generations) with the current directions in technology and the economy
that are now restructuring the labor market. The results of the study suggest what some
labor market players should do to cope with the changes due to the fourth industrial
revolution. We stress the need for new skills (improvement, retraining), lifelong
learning, new professional knowledge, and the adoption of additional actions for the
older and diverse population, which will represent a significant part of the Romanian
labor market in the future.
Creative agreement of YZA Generations
Generation Y is the generation that has entered the labor market since 2005, started
innovation and technology, is interested in the social involvement of the companies in
828 Strategica 2020
which they are employed, or even own some. This generation wants to change the world
around it, working on the internet through state-of-the-art technology, at any time, and
from an inspiring place. This generation doesn't like the fixed work schedule, always
wants to know what the purpose of the work is, always expects feedback from superiors
and wants to contribute to the company's development through innovative ideas
(Pinzaru et al., 2016).
Current studies have described Generation Y with conflicting ideas: first, it has been
categorized as individualistic and focused on their own needs. (Twenge, 2009) and
secondly, it is considered a generation of activists who aim at the general good of society
(Greenberg & Weber, 2008). However, the phenomenon of social and cultural change
they went through during their studies and training positively influenced the
development of a high IQ but also contributed to less discipline and the rejection of
formal hierarchy (Twenge, 2009).
What remains to be done, though? Could entrepreneurship be with all its kinds of
reflections, the solution for the generation called by some specialists the lost generation?
Economic, social, and educational realities highlight the need to grow and develop a new
generation of entrepreneurs with characteristic skills such as Generation Y. In this
context, European studies show that companies set up by students or young graduates
are the most innovative and ambitious in terms of turnover and number of employees.
So entrepreneurship is not lacking, but it must be cultivated and supported by the
presentation of viable and easy-to-use tools to make businesses, so ingeniously built by
young people, sustainable (Vatamanescu et al., 2017).
According to a study conducted by Yourway Counseling, a Romanian counseling

company, the business direction focused on providing evaluation and counseling
services to graduates, students and children has set up the temperament characteristics
of Generation Z look like this: extrovert (vs. introvert) - emotional (vs. rational) -
practical (vs. imaginative) - flexible (vs. organized), with weights between 70 and 80%.
In the study, they analyzed more than 700 profiles of young people aged 8 to 20 years.
According to the data revealed by the study, the new generation of professionals is
rational, meaning it tends to perceive and take reality and filter it through its own versus
rational experiences. As far as they are concerned, a humane relationship is well
welcomed, persons are valuable, and communication is openhearted. Also, the new
generation is extroverted, i.e. it is open to communication and seeks to live in good
relationship with others, and if these relationships are not as expected, then the other
working conditions, like salary, office or projects no longer matter (Hapenciuc et al.,
2016).
The number of those born in Romania between 1995 and 2010 (representatives of
generation Z, current ages 10 to 25 years) was over 3.6 million, according to data from
the National Statistical Institute. According to a study published by the United Nations,
last year the share of Generation Z accounted for 32% of the world's 7.7 billion
population is represented by those who are already starting to enter the labor market,
where they are expected to generate significant change. They are increasingly found in
the target of more and more brands, especially in the area of fashion, music, or FMCG
(Cristea, Vatamanescu & Mitan, 2017; Eurostat, 2018).
The Alpha generation, born after 2010, is supposed to be the first generation with a
fingerprint even before they themselves use social media or the Internet. Another factor
is that the emergence and widespread of smartphones has only occurred in the last 10
years. At the moment, most marketers are addressed through their parents, but their
power of influence in purchasing decisions is perhaps greater than any previous
generation (Kong, Okumus & Bu, 2020).
A first difference between Millennials and Generation Z is related to the use of devices,
but also to the time allotted to watching video content, which is significantly higher for
Generation Z. If among Millennials, globally, the desktop is the screen with the highest
share of use, followed by smartphone and TV, Generation Z prefers the smartphone,
followed by the TV and then the laptop (Guan et al., 2017). Interesting to note is that,
although the consumption of digital content exceeds that of TV, especially in the case of
Generation Z, TV is still a channel that should not be neglected, a trend also manifested
on the Romanian market. Recently an opinion in The Guardian drew attention to the fact
that soon there would be no person on Earth who would be able to remember what the
world was like before the internet. The author's vision was somewhat nostalgic and
slightly dramatic: it drew attention to the fact that we were on the verge of losing a
certain kind of innocence that came from the lack of continuous connectivity, of direct
access to information, an innocence that was therefore fueled by long times, in which
boredom and total lack of activity could constitute an impetus for exploration, internal
or external, or an engine of creativity (Lavelle, 2019).
The methodology of research - Defining the decision-making problem
Professional skills are a key factor in finding out to what extent a graduate has or does
not have employment potential. They are, according to the authors (Bradley and
Nguyen, 2004), a condition for completing the academic curriculum vitae and are
essential for the selection process for employment. Authors like (Garcia-Araciland & Van
der Velden, 2008) have concluded that these key skills can be achieved through
experience, training, or more informal means. Many studies point out that some generic
social skills such as communication skills, leadership, customer orientation,
understanding, emotional intelligence are directly related to success in the labor market
(Bejinaru, 2018; Prelipcean & Bejinaru, 2018).
One of the most common discussions about the future is that robots will replace people's
work. By 2022, 42% of all current tasks will be carried out by robots, with more than 75
million jobs to disappear in three years. As a result of this new technological revolution,
however, the "robots" will generate 133 million new jobs, according to the World
Economic Forum. However, many will suffer in the absence of the ability to adapt to new
technological realities and new business models, but mainly because of the too short
time left for reskilling. The future doesn't come at once and it certainly doesn't come
everywhere at the same time. Developments in artificial intelligence, automation, big
data, or the least technological as ageing trends in the population, however, have
significant effects on human trades and activity in the future. Robots don't come and
take all our jobs, but certainly, many of the classic jobs are in danger of significant
transformation over the next few weeks. Tasks involving repetitive actions will
disappear more and more quickly (Bejinaru & Balan, 2020; Frunzaru et al., 2018).
830 Strategica 2020
Purpose of the research
The purpose of this research was to identify the main determinants in shaping the
specializations of the future and to identify what the emerging trades would be for YZA
generations. An online questionnaire was distributed during April and May 2020 to the
population of Suceava County through the Google forms platform. The researchers
propose a virtual tour into the future, with the challenges and opportunities of the
economy, based on the latest research in the field and the opinions expressed by YZA
generations who are going to choose their professional course or opt for a career change.
The research carried out was designed to obtain a basis for analysis that would allow us
to outline how skills and formed competencies will enable integration into the current
and future labor market; which would be in the opinion of the respondents’ future
specializations and future employment opportunities.
Research tool
For this research, 300 surveys were applied to the respondents of the two YZ
Generations, Generation Alpha only at the focus-group level because they are children
who are 10 years old today, with only 168 questionnaires valid. The research method
used the online data collection tool. The questionnaire contained items structured on
four themes: a) the profile studied or what would be the specializations they would
attend; b) shaping the image about the ideal job and perspective, motivations; c) skills,
competences, training courses for accessing a future occupation; d) future jobs and
specializations, opportunities, opinions, fears, and expectations. For young people of the
Alpha generation we used as a research tool the in-depth interview among children,
directly, personally, and unrehearsed, which was based on 5 specific questions of their
age and individual peculiarities. The focus group was made up of 10 4th and 5th graders
who wanted to share ideas about the cliché question "What do you want to do when you
grow up?". The empirical relevance of this study lies in the usefulness of the results
obtained for several interested categories, stakeholders, students, graduates,
employers, and teachers.
Research hypotheses
1. More than 60% of respondents believe that the jobs of the future will be related to
new technologies.
2. The average score of the skills acquired by the students is equivalent to a self-
assessment of the knowledge acquired by them at a high level.
3. The average score of the skills acquired by the students is equivalent to a self-
assessment of the knowledge acquired by them at a high level.
4. Availability to change jobs is directly proportional to salary expectations.
5. Salary expectations are directly proportional to the respondent's age.
Data processing and interpretation
The centralization of the questionnaires applied allowed the determination of a

structure of the sample contained in the analysis. Thus, of the 168 respondents, 54% are
aged 20-30 years, 33% between 16-19 years, the rest over 30 years; by gender variable,
67.8% are female, 32% male. The distribution of respondents, according to the level of
the program they were enrolled in at the time of the research, shows that of the nearly
90 students, representing 54% of the analyzed community, 40% follow the
specializations in the field of Economics, 11% management and accounting, 7%
informatics, 5% international affairs at Faculty of Economics and Public Administration
from the “Ştefan cel Mare” University of Suceava; 11% engineering and robotics and
25% letters and communication sciences at the same university. On the other hand,
students, who are 33%, attend high school courses distributed: 20% pedagogical profile,
50% of them attend courses at the human profile, 25% go through the real profile, while
at the end of the ranking are those who carry out teaching activities in the technical and
sports field. Our study aimed to achieve a respondents’ self-assessment of the level of
competences acquired by them during the study program attended.
The centralization and processing in SPSS v.21 software of data show there was a high
and very high degree in terms of self-assessment of the level of skills acquired during
university and high school studies.
The average of the assessments calculated for the 20 aspects investigated is between the
value of 3.58 (knowledge of other fields or disciplines) and the average score of 4.23
(ability to work in a team).
Table 1. Standard averages and deviations

Crt. Standard
Aspects Average
No. deviation
1 thorough knowledge of the field of study 3,89 0,869
2 knowledge of other fields or disciplines 3,58 0,967
3 analytical thinking 3,90 0,880
4 critical thinking 3,89 0,909
5 ability to quickly acquire new knowledge 4,15 0,884
6 ability to act well under stress 4,08 0,863
7 ability to identify new opportunities 4,12 0,824
8 ability to coordinate activities 4,16 0,806
9 ability to effectively manage working time 4,06 0,909
10 ability to work as a team 4,23 0,891
11 ability to mobilize other people 4,04 0,888
12 ability to transmit clear information 4,17 0,796
13 ability to exercise one's authority 3,98 0,861
14 ability to use computer programs 4,09 0,941
15 ability to provide solutions in various situations 4,06 0,817
16 ability to negotiate effectively 3,87 0,921
17 ability to present to an audience 3,86 0,893
18 ability to produce various documents 3,96 0,967
19 ability to write in a foreign language 3,66 1,078
20 ability to converse in a foreign language 3,68 1,075
Average level of competence 3,98 0,039
Source: authors elaboration in SPSS v.21
832 Strategica 2020
The average score of the skills acquired by the students is 3.98 which is equivalent to a
self-assessment of the knowledge acquired by them at a high level, hypothesis 2, being
fully confirmed. Depending on the average score of the items proposed in the
questionnaire, the students appreciated that they have high skills regarding the ability
to work in a team, the ability to identify new opportunities, the ability to quickly
accumulate new knowledge, the ability to work on the computer, the ability to provide
solutions in various situations, the ability to transmit clear information, the ability to
effectively manage working time and the ability to work under stress. On the other hand,
with lower average scores, students positioned and appreciated: the ability to know
other subjects or areas of interest other than those studied, the ability to dialogue/write
in a foreign language is a general problem, the ability to present to an audience and the
thorough knowledge of the field of study. The answers also have a possible argument
because the high school students are very young and the experience is missing and then
this score must motivate them to continue their studies at a higher level of training.
We will further focus our attention on the last parts of the questionnaire, namely to
outline the image about the ideal job and perspective, motivations; c) skills,
competencies, training courses for accessing a future occupation; d) jobs/trades, and
specializations of the future. In figure 1, we have represented the responses for the item:
What is the specialization you are going through or have completed, and to what extent
do you think it will make its mark in choosing a profession?
30
25
20
15 very much
10 much
little
5
very little
0
not at all
Figure 1. Specialization that determines the choice of a job

Source: authors elaboration
We note from Figure 1 that most of the "very much" responses are obtained in the
specializations "Economic Sciences" and "Human Sciences". Most of the respondents
believe that these specializations will have a strong impact on the chosen profession and
future job.
80
70
60 very
much
50 much
40
30 little
20
very little
10
0 not at all
Figure 2. Coordinates of choosing a job

Regarding the factors that cause respondents to consider a job, the highest values were
recorded in the case of "personal development possibility" and "salary", as shown in
Figure No. 2.
80
70
60
50
40
30
most pleasant
20
very pleasant
10
0 pleasant
very unpleasant
Figure 3. Ideal job description

834 Strategica 2020
Looking at it from an idealistic perspective, the vast majority of respondents said they
would prefer a job that would ensure "work-life balance" followed by the "pleasant
working environment". From an idealistic perspective, salary is in fifth place as a
motivating factor, as represented in Figure no 3.
[legal] [medicine]
12% 15%
[psychology]
[sports ]
11%
10%
[economic/
entrepreneurs
hip] [IT]
12% 15%
[education]
13% [police
/military]
12%
Figure 4. Future Jobs

With regard to the jobs considered 'for the future', in Figure No 4: we deduce that
respondents opted for the fields of "IT" and "Medicine" (both with a share of 15%),
followed by "education" with 13%. The fewest of the respondents opted for "Sport" as a
"future" job area.
[virtual [blockchain]
reality] 13%
18%
[robotics and
artificial
intelligence]
[computers] 19%
17%
[ 3D print]
[internet] 15%
18%
Figure 5. Job areas of interest in the future

Of the areas that will generate the new trades and jobs, most of the respondents
identified "robotics and artificial intelligence" (19%), "virtual reality" and "online
business (internet)" (both with a share of 18%), hypothesis 4 is fully confirmed.
[ability to work [passion]

under stress] 13%
11%
[adaptability]
[teamwork] 13%
12%
[knowlwdge of a
foreign
language]
12%
[opened to new]
13%
[ambition]
14%
[curiosity]
12%
Figure 6. Skills and competencies needed to integrate into the trades/jobs of the future
The most important skills and competences for the "future trades" identified by
respondents are: "ambition" (14%), "openness to the new" (13%), "adaptability" (13%)
and "passion" (13%) as represented in Figure no 6.
Statistical interpretation and analysis
One of the key features of the labor market is mobility. This is the argument for which
we wanted to see the respondents' perception of this characteristic. Specifically, we
wanted to identify whether there are correlations between respondents' willingness to
change jobs and their willingness to specialize in other fields, or between the willingness
to change jobs and salary expectations, not least how respondents' age influences the
perception of job mobility. But, the tests carried out did not result in any statistically
representative correlation between the willingness to change jobs, the willingness to
specialize in other areas, salary expectations, and age respectively. Thus hypotheses 3
and 4 have not been confirmed.
The only statistically representative correlation was between wage expectations and
age (Sig. <0.05). In the case of the two variables, a direct low-intensity correlation (<0.5)
has been identified, indicating that older people tend to have higher wage expectations,
but other factors influence these expectations (professional training, practical
experience). Under these circumstances, Hypothesis 5 was confirmed.
836 Strategica 2020
Table 2. Analysis of the links between the variables proposed in the 9*, 17*, 21*,22*
Correlations
I9 I17 I21 I22 Varsta:
Correlation
1,000 -,089 ,035 -,021 ,034
Coefficient
I9
Sig. (2-tailed) . ,255 ,658 ,794 ,677
N 166 165 164 164 156
Correlation
-,089 1,000 ,044 ,135 ,019
Coefficient
I17
Sig. (2-tailed) ,255 . ,578 ,084 ,813
N 165 167 165 165 158
Correlation
,035 ,044 1,000 ,004 ,214**
Spearman's Coefficient
I21
rho Sig. (2-tailed) ,658 ,578 . ,963 ,007
N 164 165 166 164 156
Correlation
-,021 ,135 ,004 1,000 -,082
Coefficient
I22
Sig. (2-tailed) ,794 ,084 ,963 . ,308
N 164 165 164 166 156
Correlation
,034 ,019 ,214** -,082 1,000
Coefficient
Age:
Sig. (2-tailed) ,677 ,813 ,007 ,308 .
N 156 158 156 156 158
* 9. What do you think of people who have held a job for 20-25 years because it gave them
stability, even though the salary was lower than in other areas and not too attractive?
*17. How often do you think you'll have to change your career until retirement?
*21. What is the motivating salary for you as a beginner in terms of a particular job?
*22. When you have a job do you want to specialize in other areas?
**. Correlation is significant at the 0.01 level (2-tailed).
Qualitative stage
Given the exploratory nature of this qualitative stage, we used a rational theoretical
sample (sampling sample/purgative sample), one of the important criteria in the
selection of children was that of the Alpha generation, as well as the portfolio of each in
school competitions regardless of the field. Interviews were conducted based on a
sample of 20 children. The estimated time for each interview was about twenty minutes.
The investigation directions focused on three main, parallel themes, based on the
research objectives identified above:
-identifying the main strengths, weaknesses of their training (hobbies, preferred
study discipline, extracurricular activities, frequented clubs, areas of interest);
-aspects of their school journey (which they want to follow both as a school and as
subjects) what they want to become when they will be adults.
Results and findings
Most children, especially those of the male gender prefer the subjects of real profile
study (mathematics, computer science, geography, and grammar). They also frequent
children's clubs in computer science and robotics. Have passions related to computer
science: play computer games online, shyly penetrate the area of robot creation, and
design games. Last but not least, these children know English well above their level of
training and age. They want to become "cops", "doctors", "make money on the
computer", "teachers", "invent computer games", "do business", and be "bosses". Only
10% of them have sports (like football, handball, volleyball) as a hobby.
If we were to point out the opinions of Alpha female respondents, we can say that they
are passionate about technology in a much smaller percentage, i.e. 5%. As common
points: they are passionate about studying a foreign language, embracing the profession
of a doctor, lawyer, and fashion designer. Results show that parents are for all children
role models and examples of life because they want to become what they are; all want
to go to university (the vast majority having brothers/sisters attending university
courses).
It is worth pointing out that 5 children have as passions sport and arts, and they practice
at private clubs various sports activities (swimming, dance, football, volleyball, ballet,
singing, instrument, painting, etc.). As for weaknesses we would list: totally lacks the
passion for reading; are dependent on adults, do not do things by themselves; do not
socialize outside of school; and present significant consumption of online content.
We could in conclusion outline a ranking of job areas of interest for children of the Alpha
generation who will access the labor market of the future: 1. New technologies &
computers, software developer; 2. Medicine; 3. Police, military officer; 4. Entrepreneur:
5. Teacher; 6. Lawyer, prosecutor; 7. Chef; 8. Hairdresser.
Conclusions
The conclusions related to the literature review show that according to Romanian
managers, youngsters from Gen Y believe that all the other people around them must
help them grow and they do not make specific efforts at their job, being rather
superficial. The situation changes only when they feel their colleagues appreciate them
and when they understand the meaning of the work they are supposed to do. A
remarkable increase in productivity is present when they are allowed to make their own
decisions in their area of expertise.
Resuming the profile of the digital natives, we conclude that: they do not want to follow
a strict work schedule, they try to identify more efficient ways to get things done, they
feel they can give more than they are asked to and they do not always feel respected by
their older colleagues. This situation upsets them because they prefer to work in teams,
they expect their manager to be their mentor, but not in an intrusive way; they believe
in meritocracy, although they do not believe in formal hierarchy, they ask for
transparency from the companies they work for, they promise more than they deliver
and sometimes they use the companies they work for as launching platforms for their
careers. Furthermore, they believe they know better how things should be done and
refuse the directions their superiors give.
The keywords for Generation Y are freedom, innovation, social responsibility,

dynamism, and flexibility. If it is allowed to express its views and strategies, which is
838 Strategica 2020
more important than financial stimulation, it is very likely to surprise through creativity,
efficiency, and competence. Some young people are proposed for important leadership
positions from an early age, others do not find a job at all because they do not meet the
criteria sought by employers, or they do not comply with working conditions. So the
youth unemployment rate is increasing, the number of vacancies is also starting to rise,
labor is plentiful, employers are looking for specialists and yet the gap between the two
categories deepens from day to day. Some employers have managed to understand the
new generation's way of acting, others have not.
Although for the Alpha generation there is still no data available for most platforms, the
increased appetite for screens (smartphone, tablet, and TV) is also clear here, but also
for the significant consumption of online content, a conclusion also confirmed by the
responses of the children, who are part of this Alpha generation. Thus, their expectations
turn to the same use and seamless functionality for all devices and content types around
them. Also through technology, they want to be constantly in communication with each
other, from every corner of the world, and they know how to identify fake news.
Whether we are talking about jobs related to information technology, medical

engineering, or human interaction, more and more of the jobs of the future are closely
linked to technologies like AI, machine learning, or life in the digital space. What skills
should children from current and future generations acquire to adapt to the future?
Below are 15 of the skills that are important to each of us, but especially for younger
generations, derived from this context: adaptability, self-discipline, autonomy in
learning, virtual collaboration capacity, interpersonal communication and teamwork,
creativity, empathy, cognitive flexibility, collaborative leadership, and initiative, solving
complex problems. The skills they acquire in their years of study and their first job are
the most likely to help them build a successful future career. In conclusion, we should
also reflect on all the opportunities that the Internet has brought and how we have
become more informed, more adaptable, and fitter for decisions as a result of this digital
revolution. And beyond that, let's think about how we use this new power in support of
ourselves, as individuals, but also for the communities we belong to.
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9
Challenges and Opportunities
in the Social Economy
Chair
Cristina BARNA
842 Strategica 2020
THE IMPACT OF SOCIAL BUSINESS ON THE ECONOMY: THE CASE OF

LITHUANIA
Zaneta SIMANAVICIENE
20 Ateities St., LT-08303 Vilnius, LT
zaneta.simanaviciene@gmail.com
Eimantas KISIELIUS
Kaunas University of Technology
73 Donelaicio St., LT-44249 Vilnius, LT
ekisielius@gmail.com
Arturas SIMANAVICIUS
Lithuanian Sports University
6 Sporto St., LT-44221 Kaunas, LT
Arturas.simanavicius@lsu.lt
Daiva BICKAUSKE
20 Ateities St., LT-08303 Vilnius, LT
daiva.bickauske@gmail.com
Abstract
This article discusses the links and dimensions of social business and other activities as a form of
social enterprise. In addition to the theoretical discussion, the practical benefits of social business are
analyzed. The benefits for social business were assessed using social performance and impact
assessment studies, which assessed changes in key areas such as a change in income, change in
housing, change in criminal activity, change in health, and change in income. The benefit-cost ratio
and return of social business were determined by conducting the following studies: evaluation of the
results of work in a social enterprise using two questionnaires, evaluation of the impact of work in a
social enterprise using two research groups, and two questionnaires. The cost-benefit analysis made
it possible to assess the benefits and costs of social business and to assess the benefits or value of one
euro spent on social business. In this study, the benefit-cost ratio was calculated. The article aims to
substantiate the impact of social business on the country's economy, which allows us to calculate the
benefits of social business according to the established criteria. Research has shown that work
experience, housing, and family and dependents have led to a higher probability of employment, and
convictions have significantly reduced the likelihood of employment. Meanwhile, other
characteristics such as income level, gender, age, and native language did not have a significant
impact on the likelihood of employment in social business. Assessing the averages of different
variables in the primary and secondary (secondary) survey, their difference shows a positive result
of work in social business. The results of the study also revealed that working in a social business
enterprise significantly changed the attitude of employees to work as a social institution and
increased their positive attitudes towards the future. The impact assessment study, based on the
double-difference method, confirmed the data obtained in the results study and was used in the cost-
benefit analysis. The significant positive increase in gross income and labor income over the last
month, as well as the number of avoided arrests and changes in stable housing and reduced number
of persons counseled on alcohol and drug addiction, led to a positive current net benefit per person
employed in the social enterprise for all groups. It amounts to EUR 1.63 per year, with a return of
EUR 0.63 per euro spent on social enterprise support.
Challenges and Opportunities in the Social Economy 843
Keywords
Social business; impact; benefit; the cost-benefit analysis.
Introduction
Social business is associated with phenomena such as the social economy and social
innovation, and thus the social business is receiving increasing interest from different
stakeholders. Social business initiatives are increasing in Lithuania. Legal regulation is
beginning to be formed - the Concept of Social Business has been issued, and the Law on
Social Business is awaiting approval. Social business events, which are already becoming
traditional, are taking place, for example, the Social Business Forum, where reports are
read and experiences are shared by both practitioners and representatives of the
academic community.
During the research of social business, a problem was raised: how can the impact of
social business on the country's economy be measured and what is it like in Lithuania?
The object of research – social business.

Aim of research – justify the impact of social business on the country’s economy.
Research methods - Mathematical, statistical processing, and questionnaire evaluation
methods were used in the study to evaluate the impact of social business on the
economy. The assessment of the impact of social business on the economy is based on a
cost-benefit analysis, a multidimensional regression.
Social business is still a new phenomenon, especially in Lithuania. Social business is

undoubtedly important, with getting attention from different stakeholders. Research
focuses on the uniqueness of this business in relation to operating principles
(Šalkauskas & Dzemyda, 2013; Kvieska, 2015), social business models (Kuklytė,
Vveinhardt, 2016; Yunus, Moingeon, & Lehmann-Ortega, 2010; Pol & Ville, 2009,
Simanaviciene, 2017), Ridley Duff and Bull (2011) developed a comprehensive
description of social business, managerial specifics, and place in a cross-sectoral
environment. Alter (2007), Martin and Osberg (2007), Defourny (2001) have
contributed greatly to the definition of social business. The social business model is
examined by Gucku, Dees, and Anderson (2003), Sommerrock (2010), Guclu et al.
(2002), and Perrini and Vurro (2006). However, in Lithuania, we have very few social
business organizations that meet the EU criteria (Stroputė & Kairytė 2016). The benefits
of social business have already been understood not only by scientists but also by
entrepreneurs and politicians who appear on their own. European Union policy
promotes the creation of such businesses, education, and information for the general
public on social business. One of the key elements in accelerating the start-up of such
businesses and in increasing public interest is to demonstrate the benefits of such
initiatives. So far, no evaluation system in Lithuania would show the value and impact
of such social business initiatives.
Ridley Duff and Bull (2011) prepared a comprehensive description of social business
with literature analysis, managerial specifics, and place in a cross-sectoral environment.
Alter (2007), Martin and Osberg (2007), Defourny (2001) contributed the most to the
definition of social business. The social business model is examined by Gucku, Dees, and
Anderson (2003), Sommerrock (2010), Guclu et al. (2002), and Perrini and Vurro
(2006). Despite all the existing work, the social business model is not sufficiently
844 Strategica 2020
explored to single out the essential components of the business model. According to
Yunus (2010), social business is a new type of enterprise that differs from traditional
forms of enterprise organization, the main goal of which is to maximize their profits.
M. Wildmannova (2018) points out that the concept of social business is based on public-
private partnerships in the provision of public services and the promotion of public
employment policies.
The European Commission (2013) provides the following definition of a social

enterprise: “A social enterprise is a social economy entity whose main purpose is to have
a social impact and not to make a profit for its owners or shareholders. It operates by
providing goods and services to the market on the principles of entrepreneurship and
innovation and uses its profits primarily to achieve social goals. It shall be managed in
an open and accountable manner, in particular involving employees, consumers, and
stakeholders affected by its commercial activities." This definition shows that the social
economy in particular is a good example at the micro-level and how market economy
principles dominate, while at the same time having a social impact rather than a profit.
Lithuania in 2015 approved the Social Business Concept (2015). It states that social
business is a business model in which, through the use of a market mechanism, profit-
making is linked to social goals and priorities, based on the provisions of socially
responsible business and public-private partnerships, and social innovation is applied.
The concept stipulates that social business may be carried out by for-profit enterprises
whose main economic activity is social benefits, and non-profit organizations that apply
business models in their activities.
The existing Law on Social Enterprises in Lithuania encourages the growing number of
socially disadvantaged workers in social enterprises that comply with the law and this
restricts the freedom of such enterprises, they become more dependent on subsidies,
and the growing number of such workers leads to increasing government spending.
According to the European Commission (2014), such use of public funds is inadequate.
Rising costs are not supported because they do not solve the essence of the problem,
provide unequal opportunities for the representatives of the target group.
As González (2017) argues, social value creation is related to social impact. Other
scholars (Gregori, 2019; Jiao, 2011; Cohen, Smith, & Mitchell, 2008; Kuratko, 2016;
Gordon, 2018; Margion, 2018; Choi, 2014) state that creating a positive economic, social
or environmental impact on society is considered a prerequisite for social or sustainable
entrepreneurship.
Cost-benefit analysis is a key method of economic analysis that allows the economic
impact of certain measures or initiatives to be identified and assessed by assessing the
direct and indirect economic costs and benefits (Boardman et al., 2011; Cordes, 2012).
These economic costs and benefits are expressed in monetary terms. In this way, the net
benefits of the initiative can be assessed by comparing its different alternatives. The
purpose of a cost-benefit analysis is to determine whether the initiative benefits society
and whether it is needed. Cost-benefit analysis is also useful in that it provides a
common methodological framework for assessing the impact of a particular initiative on

various aspects.
When developing the research methodology of the impact of social business on the
economy, it is important to single out the main entities related to the benefits of social
business. The main entities are: employees of social business enterprises, social
business enterprises, taxpayers, not related to social business and the whole society,
therefore the benefits and costs can be assessed by individual entities and the return on
social business costs can be calculated by individual entities.
Benefits of social business are evaluated through the results of working for social
enterprises and assessing their impact, which will assess changes in these important
areas:
• Change in income (change in labor income, change in taxes and state support, etc.);
• Change in housing (change in housing costs and change in the quality of life, better
housing status);
• Change in criminal activity (scale of detention and imprisonment);
• Health change (assessment of health status, drug addiction status);
• Revenue change (from the collection of information from enterprises on business
revenue and support received for social business).
Costs are obtained by interviewing social enterprises and collecting data on the costs
associated with business costs and the costs of carrying out a social mission.
Thus, the benefit-cost ratio of social business and the return are determined by the
following studies:
• Evaluation of the results of work in a social enterprise, using two questionnaires: a
survey of persons employed in a social enterprise a year ago (primary survey) and a
survey of the same persons who had already worked in a social enterprise for a year
(secondary survey);
• Impact assessment of work in a social enterprise, using two research groups and two
questionnaires: primary and secondary of persons employed in the selected social
enterprise a year ago (target group) and primary and secondary including but not
employing potential employees in the same company (control group) surveys.
This study will allow a quasi-experimental study to determine how working in a social
enterprise (SB) affected the lives of individuals in the year after they applied to the SB
for employment compared to individuals who also applied to the SB for employment but
were not recruited.
The cost-benefit analysis (CBA) will allow us to evaluate the benefits and costs of social
business and to evaluate the benefits of the created value of one euro spent on social
business. This study will calculate the benefit-cost ratio obtained by dividing the current
net benefit of social business by the cost of social business. For evaluation of benefits,
the results of the work social business and the results of the impact assessment studies
and the information gathered from the social enterprises participating in the study will
be used to assess the benefits.
• When assessing the aggregate benefits of working in a social enterprise over the year,
the averages obtained with the help of regression were estimated and assessing the
846 Strategica 2020
variations of demographic characteristics and employment barriers among the

respondents.
• The outcome and impact assessment study will assess changes. The outcome study
identified changes in self-efficacy and life stability and a change in attitudes to work one
year after employment in a social enterprise. Multivariate regression was also used to
determine which factors (descriptive variables or characteristics) related to SB work
experience have the greatest impact on those changes. Meanwhile, the impact
assessment study seeks to assess whether changes in individuals' self-efficacy and life
stability after one year in a social enterprise were greater than changes in self-efficacy
and life stability in individuals who did not find work in a social enterprise but were
listed as potential employees a year ago. Two-tailed t statistics were used in the analysis
to assess whether the observed changes in means were statistically significant (p <= 0.5)
and a chi-square test to determine statistically significant differences in distributions. If
significant differences in distributions were found, a double t-test was used to identify
statistically significant differences between the distribution of individual categories.
The main assumptions of the cost-benefit analysis are:

• The full benefits of a working SB can be assessed in the year in which the individual
started working;
• SB expenses are covered from cash reserves and do not require borrowing and
interest;
• 8 percent discount rate applied;
• Capital investments are integrated as flows;
• To estimate the average cost per employee per month, the discounted monthly cost for
the whole period is added and divided by the number of people expressed in months of
employment during the survey period;
• To estimate the average cost per employee, the average cost per employee per month
is multiplied by the average number of months worked by individuals in social
enterprises.
The benefits are identified in 5 main areas: income, housing stability, criminal activity,
health, and SB income from the SB survey.
The social business benefit per employee is calculated by adding together all the benefits
of employment in SB (income, stable housing, health, criminal activity) assessed in euros
for the whole society, SB employee, SB, taxpayers not related to social business. The
benefits were assessed by assessing changes in outcomes in each and all social
enterprises involved in the study and changes in impact assessment.
The total monetary benefits of social business to the public, SB employee, SB, taxpayers,
discounted and recalculated per employee can be compared to SB discounted costs per
employee to quantify the benefits and costs or to assess the benefits to society of one
euro spent on SB (formula 1), SB employee (formula 2), SB (formula 3) and taxpayers
(formula 4) or return (formula 5) and other indicators of economic analysis such as
internal rate of return, payback period.
𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑝𝑒𝑟 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒 𝑎𝑟𝑒 𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒𝑑 𝑓𝑜𝑟 𝑠𝑜𝑐𝑖𝑒𝑡𝑦

𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑝𝑒𝑟 𝑒𝑢𝑟𝑜 𝑠𝑝𝑒𝑛𝑡𝑆𝑜𝑐𝑖𝑒𝑡𝑦 =
𝑆𝐵 𝐶𝑜𝑠𝑡𝑠 𝑝𝑒𝑟 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒
(1)
𝑇ℎ𝑒 𝑏𝑒𝑛𝑒𝑓𝑖𝑡 𝑝𝑒𝑟 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒,𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒𝑑 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑆𝐵 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒
𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑝𝑒𝑟 𝑒𝑢𝑟𝑜 𝑠𝑝𝑒𝑛𝑡𝑆𝐵 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒 =
(2)
𝑇ℎ𝑒 𝑏𝑒𝑛𝑒𝑓𝑖𝑡 𝑝𝑒𝑟 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒,𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒𝑑 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑆𝐵

𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑝𝑒𝑟 𝑒𝑢𝑟𝑜 𝑠𝑝𝑒𝑛𝑡𝑆𝐵 =
(3)
𝑇ℎ𝑒 𝑏𝑒𝑛𝑒𝑓𝑖𝑡 𝑝𝑒𝑟 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒,𝑐𝑎𝑙𝑐𝑢𝑙𝑎𝑡𝑒𝑑 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑡𝑎𝑥𝑝𝑎𝑦𝑒𝑟

𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑝𝑒𝑟 𝑒𝑢𝑟𝑜 𝑠𝑝𝑒𝑛𝑡 𝑇𝑎𝑥𝑝𝑎𝑦𝑒𝑟 =
(4)
𝑅𝑒𝑡𝑢𝑟𝑛 = 𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑝𝑒𝑟 𝑒𝑢𝑟𝑜 𝑠𝑝𝑒𝑛𝑡𝑆𝑜𝑐𝑖𝑒𝑡𝑦 − 1 (5)
Assessing the benefits of social business: research results
The study lasted from September 2018 to September 2019. The study involved 3
companies meeting SB status. Four samples were drawn during the study: employed
and non-employed in the initial survey conducted in September 2018 and employed and
non-employed in a follow-up survey conducted in September 2019. The study was
conducted by interviewing individuals directly.
Primary and secondary surveys showed that the share of employed people with stable
housing did not change significantly, but remained high enough (96%). Among
employed respondents, the share of paid employees increased from 74 percent in the
last month up to 96 percent (significant difference).
There has also been a significant increase in the share of paid employees in the last six
months and in the share of time spent working in recent years. No homelessness was
recorded among the employed in SB. Among employed in SBs, a significant increase in
gross income (from EUR 417 / month to EUR 525 / month) and a significant increase in
labor income (from EUR 149 / month to EUR 480 / month) were recorded. accordingly,
the share of labor income in total income also increased significantly (from 36% to
92%).
The share of income from state benefits did not change significantly and amounted to
10-19 percent. The share detained by people working in SB in the last year has dropped
significantly from 59 percent up to 11 percent. The number of avoided arrests after one
year of work in SB was 2.4 cases.
The depression index among those working in SB decreased significantly, and physical
health indicators did not change significantly, although the proportion of respondents
who said they felt excellent increased.
The number of consultations on drug or drug addiction has not changed significantly
(26-29% of respondents have attended consultations in the last year).
Working in SB changed the attitudes of employees to work as a social institution. The

number of those who believe that work is the only source of money has dropped from
56 percent up to 37 percent (significant difference). There has also been an increase in
the proportion of respondents who think they would work even in the absence of
economic necessity from 15% up to 30% (the difference is significant). Respondents'
848 Strategica 2020
attitudes on career prospects did not change significantly during their work in a social
enterprise.
The work in SB significantly influenced respondents ’beliefs about their further social
integration. The share of those who are confident that they will have private housing has
increased from 7% up to 30% (significant difference). The proportion of those
convinced to leave illegal activities has increased from 7% up to 37 percent (significant
difference). The share of those who are confident that they will be in good mental
condition has increased from 59 percent up to 74 percent (significant difference). The
proportion of those who believe that they will rarely use drugs increased from 52
percent up to 74 percent (significant change).
The social business benefit per employee is calculated by adding together all the benefits
of employment in SB (income, stable housing, health, criminal activity) assessed in euros
for the whole society, SB employee, SB, taxpayers not related to social business.
Based on the data presented in Table 2 and the data on business income obtained from
the business survey, a cost-benefit analysis is carried out below.
The results of the benefit assessment per employee are presented in Table 1.
Table 1. Key indicators measured in monetary terms (per SB employed)

Double
Benefit, EUR
Indicator difference Rate per year, EUR
(undiscounted)
rate
Stable housing in the last year (change 0.0873 810 *12= 10800 849
in the share of persons with stable
housing)
Total income during the last month 30,63*12=367,6 368
(monthly income change in Eur) 30,63
Labor income during the last month 311,17*12=3734,04 3734
(change in monthly labor income) 311,17
Avoided detentions 1,1650 19566 22794
Alcohol or drug addiction counseling 967
(percentage change in counseling) -0,0597 16200
Applying Table 1 determined nominal values and additional data from the overlap
analysis (double difference), discounted present values were calculated. For example,
discounted 3734 Eur / y. the value is 3577 Eur / y. Monetary values have been
recalculated accordingly. As a result of employment, in SB employee loses part of the
state subsidies, and his taxes and contributions increase. It is estimated that on average
the state subsidies (social benefits) decreased by 36 EUR / month, and the paid taxes
and contributions increased by 87 EUR / month, thus the SB employee lost a total of
123.5 EUR / month. The estimated annual discounted effect is 1420 Eur / y. The income
of SB employees from family members and friends decreased, while that of other
respondents increased, therefore the double-difference reaches 244 Eur / month. The
discounted annual effect is 2808 Eur / y.
Due to the lack of permanent residence, the state has to cover the cost of living (it is
assumed that they amount to 810 EUR / month). Taking into account the value of double
difference, the obtained discounted annual effect value is 81.3 Eur / y. (It should be
noted that the majority of respondents in both study groups had stable housing).
Housing costs per year (discounted value) for SB employees increased by EUR 124 /
year. The quality of life index increased by 0.07, so the annual effect is 630 Eur / y.
(discounted value 591 Eur / year). The impact of criminal activity on society has been
assessed as the ratio of the number of detentions avoided to the costs of detention and
imprisonment. The estimated discounted annual effect is 21106 Eur / y.
Due to health changes, the annual discount benefit is 93 Eur / year. Due to the reduced
use of drugs, SB employees have a positive impact. The average annual discounted effect
is 908 Eur / y.
Table 2. Cost-benefit analysis (per SB employee employed), EUR

Taxpayers Friends
SB as a not and
SB
Variables Society business directly relatives of
Employee related to the SB
enterprise
SB employee
Incomes
Labor income 3577 3577 0 0 0
Taxes and government

0 -1420 0 1420 0
subsidies
Other income 0 -2808 0 0 2808

Housing
Amounts paid for
43 -124 0 81 0
housing
Quality of life 591 591 0 0 0
Criminal activities
Criminal activities 21106 0 0 21106 0
Health
General health 93 93 0 0 0
Addiction to drugs 908 908 0 0 0

SB incomes
Business income 29004 0 29004 0 0
State support 0 0 2305 -2305 0
Total SB costs -21034 0 -21034 0 0
Present net worth 34288 817 7970 22607 2808
Benefit for one SB
1,630 0,039 0,379 1,075 0,133
employee employed
Return 0,630
The society receives a positive net benefit of € 1.63 per SB employed, and the return on
an SB spent per euro is € 0.63. The current net benefit is positive for all groups in society
due to one SB employed per person.
850 Strategica 2020
Conclusions
The results of the empirical study revealed that work experience, having housing, family,
and dependents led to a higher probability of employment, and a criminal record
significantly reduced the probability of employment. Meanwhile, other characteristics
such as income level, gender, age, and native language had no significant effect on the
likelihood of SB employment. Assessing the averages of different variables in the
primary and secondary survey, their difference shows a positive result of work in SB: a
significant increase in the share of employees in the last month and the last six months,
a significant increase in gross and earned income and a share of total income in earnings;
over the past year, the share and number of arrests and the depression index among SB
employees, has decreased significantly and the share of respondents who say they feel
great has increased. The results of the study also revealed that the work in SB
significantly changed the attitude of employees to work as a social institution and
increased their positive attitudes towards the future. The impact assessment study,
based on the double-difference method, confirmed the data obtained in the results study
and was used in the cost-benefit analysis. The significant positive increase in gross
income and labor income over the last month, as well as the number of avoided arrests
and changes in stable housing and reduced alcohol and drug substance counseling, led
to a positive current net benefit of one employed SB for all groups in society. It amounts
to EUR 1.63 per year and the return on one euro spent in support of SB is EUR 0.63.
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FOOD AND HUMANITARIAN NON-PROFIT ORGANIZATIONS IN

GREECE: SYNERGIES, NETWORKS OF KNOWLEDGE AND
INNOVATION
Smaro BOURA, Orestis VATHIS, Nikolaos TZIFAKIS, Asteris HULIARAS
University of the Peloponnese
Karaiskaki 70, 221 00 Tripoli, GR
sboura@uop.gr
Abstract
Civil society organizations (CSOs) provide humanitarian services, often substituting the welfare
state. CSOs have developed new capacities and knowledge-based innovative methodologies to
efficiently deliver quality services. Moreover, they participate in formal and informal networks and
coalitions with diverse actors that have a positive impact on creativity and innovation and permit
the transfer of knowledge and source-pooling. Networking and co-operation between CSOs further
multiply the impact of their actions and provide more effective management of contributions in-kind
in times of humanitarian emergency. The purpose of this paper is to examine whether and how these
global trends are observed in the case of Greece’s CSO ecosystem. During the last years, Greece has
experienced both an economic and a migration/refugee crisis, which have required the supply of
emergency humanitarian assistance. In this paper, we will examine the experiences of food and
humanitarian CSOs operating in Greece during the last two years and investigate the following
topics: a) the extent to which they have been implementing actions autonomously, or in cooperation
with other organizations; b) with what type of actors CSOs usually partner to deliver services and for
which reasons; c) how effective are these partnerships and what problems frequently occur; and f)
how do CSOs manage contributions in-kind. Methodologically, our research will be based on a nation-
wide quantitative survey with a representative sample of national and international food and
humanitarian CSOs carrying out operations in the Greek territory.
Keywords: civil society organizations; knowledge management; humanitarian assistance; in-kind

aid; Greek economic crisis; migration crisis;
Introduction
During the last decades, the eruption of humanitarian crises has become very frequent.
Humanitarian crises last longer, affecting critically people’s lives and making them
susceptible to shocks (UN, 2019). As crises emerge regularly ‘humanitarian responses
must be quick and context-based to be effective’ (IOM, 2018). In such situations, civil
society organizations (CSOs) have an important role in providing humanitarian
assistance in an often challenging environment. To respond to the increased needs in
the humanitarian sector, CSOs have developed new capacities and innovative
knowledge-based methodologies. Besides, they formulate connections with formal and
informal actors through their participation in networks and coalitions which enhance
their creativity and innovation through source-pooling, exchange of knowledge, and
transfer of ideas. The complementarity of their actions has a multiplying effect on the
efficiency of their services. In addition, networking and cooperation between CSOs
affects positively the management of in-kind donations during humanitarian
emergencies. This is very important as in-kind donations offered in the aftermath of
humanitarian crises can cause logistical chaos and disturb relief distribution.
854 Strategica 2020
Global trends lead CSOs to consider collaborations as an almost essential tool to achieve
their goals (Carreras & Inglesias, 2013, p.12). Indeed, diverse actors can produce
different results on the delivery of effective assistance based on their mandates, size,
interests, comparative advantage, and power (OECD, 2014, p.12). In this context, several
studies have discussed how collaborations between aid agencies, international and local
CSOs have contributed to successful operations (AbouAssi et al., 2017; Altahir, 2013).
The role of CSOs in the provision of humanitarian assistance has been highlighted in the
case of Greece which has recently experienced both a severe economic and a
migration/refugee crisis. At the beginning of the economic crisis in Greece, the voluntary
sector was underdeveloped and the civil society “atrophic”. However, social solidarity
groups and non-governmental organizations (NGOs) have mobilized to support the
“victims” of the crisis since 2010 (Sotiropoulos & Bourikos, 2014) and new
collaborations were established at an unprecedented level. The revitalization of civil
society – engaged in various activities – was widely recorded after the outbreak of the
crisis, even though state financing towards CSOs suffered a severe curtailment (Huliaras,
2015; Loukidou, 2014). In this respect, our article investigates whether the global trends
on CSO collaboration and transfer of knowledge applies in the Greek context. Also, it
analyses the experiences of CSOs in Greece in managing in-kind donations. The second
part of this article investigates global trends on coordination and collaboration between
CSOs providing relief services with a special focus on factors that affect the effectiveness
of their activities. The same section also analyses the management of in-kind donations
during humanitarian crises. The third section presents the case of the Greek civil society
sector, focusing on how collaborations among CSOs actors have emerged during the
economic and migrant/refugee crisis. It explains the methodology of our survey and
analyses our main empirical findings. Finally, the fourth part discusses our conclusions.
Collaborations in humanitarian crises
During humanitarian crises, a large array of diverse actors – such as UN agencies and
other international organizations, governments, foundations, INGOs, and LNGOs and
private companies - are engaged to provide relief. In complex humanitarian
emergencies, all actors operating in the field are expected to become part of a co-
operative and well-coordinated effort (UNHCR, 2013). As a result, we remark the
development of various interactions and collaborations at both horizontal (i.e., similar
types of actors) and vertical (i.e., different type of actors) levels (Balcik et al., 2010). In
the latter case, we observe, for instance, that INGOs provide resources and access to
funding to LNGOs that have local expertise and knowledge of the conditions in the
ground in the field of operations (Tzifakis & Huliaras, 2013).
The concepts of co-operation, co-ordination, and collaboration in the humanitarian

sector remain relatively vague. Wankmüller and Reiner (2020, p.243) reviewed the
relevant literature in the relief supply chain management and remarked on the growth
of different approaches. They argue that for some researchers’ collaboration might be
the next step of cooperation while co-ordination a prerequisite for cooperation and
collaboration. Another approach sets co-ordination and co-operation as the
“foundations” for collaboration (ibid). In any case, there is little doubt that during an
emergency, such interactions and relationships among diverse actors are crucial for
alleviating suffering. For this research, the term “collaboration” is used to describe
interactions and joint projects where diverse CSOs participate in humanitarian
emergencies (Saab et al., 2013). As collaboration is related to a long-term process, trust
among partners is vital as CSOs have to share risks; moreover, similarities over
organizational characteristics (culture, norms, language) promote collaboration
(Wankmüller & Reiner, ibid). On the other hand, co-operation is defined as “the process
of [NGOs] operating alongside other NGOs towards a common mission, sharing
information and adjusting tasks in line with specifications of the disaster setting”
(Wankmüller & Reiner, ibid, p.259). Through co-operation, duplication of activities is
averted (Murdie, 2014), while transparency positively affects co-operation. Co-
ordination is defined as “the process of organizing, aligning and differentiating of
participating NGOs’ actions […] to reach a shared goal” (Wankmüller & Reiner, ibid,
p.259); however, for effective coordination, the sharing of information and resources is
of utmost importance (see also Steigenberger, 2016).
Collaborations among CSOs mitigate the risks of emergencies as they contribute to

better identification and assessment of the prevailing conditions on the ground (Twigg
& Bottomley, 2011). What is more, through collaborations CSOs can increase their
impact (Meyer, 1997), improve the quality of their services (Gazley & Brudney, 2007,
p.392) and overall, achieve goals that no CSO can achieve alone (Balcik et al., 2010).
Sapat & al. (2019) argue that collaborations among CSOs and other actors in
emergencies offer positive effects such as improved cost-effectiveness, access to more
resources, and knowledge dissemination. So, innovative methodologies could be
developed through learning, affecting organizations’ effectiveness, but also the
operation of the whole humanitarian sector (Ramalingam et al., 2009, p.37). This acts as
a counterweight to the institutional isomorphism (Corfield & al., 2013, p.181) that is
being shaped in the civil society sector - including the humanitarian field (Ramalingam
et al., 2009) - where actors adopt mainstream practices to “look good” (Corfield et al.,
ibid) while becoming heavily bureaucratic and ineffective in addressing needs at grass-
root level (Korten, 1990).
However, collaboration in such an environment is a difficult task due to the high

complexity and the “non-centralized and multi-organizational” operational conditions
(Stephenson & Kehler, 2004, p.5), on the one hand, and the lack of a single organization
(a UN body for example) that has been authorized to coordinate activities, on the other
(Stephenson, 2005). Moreover, collaboration is frequently hindered by the rise of
competition among the various actors engaged. In many cases, as donor resources are
limited, competition among CSOs appears to be “more beneficial than collective actions”
(DeMars, 2005, p.13). Each actor has its interests and capacities (Cunningham, 2012)
and a partnership does not have the same meaning for all actors, ranging from simple
“coercion” to an honest collaborative attempt (Britton, 2005, p.11). Also, asymmetrical
relations between INGOs and LNGOs exist, instead of being equal partnerships
(Fernando & Hilhorst, 2006, p.298) over control, setting goals, and operational
procedures (Al Adem et al., 2018). Koch (2008) argues that when large numbers of CSOs
concentrate in an area, co-operation among them decreases, mainly due to competition
for funding. In such cases, increased co-operation is noticed only in fundraising
activities, while INGOs are more prone to co-operation as their funding is more secure
(ibid, p.705). In the case of the Haiti earthquake, INGOs had a central role – receiving the
majority of relief funds - and establishing partnerships among them, rather than with
LNGOs. The latter were mainly collaborating with other LNGOs (Sapat et al., ibid).
856 Strategica 2020
Moreover, when competition gets fierce, NGOs might attempt to “undermine

competitors, conceal information, and act unilaterally” (Cooley & Ron, 2002, p.17).
The collaboration of humanitarian CSOs is strategically promoted by donors through the

establishment of specialized bodies, making active CSOs participation in this a
prerequisite for funding (Egger, 2017). However, in cases where NGOs do not have
incorporated the networks’ goals and processes, these are most likely to fail or become
inefficient (Abelson, 2003). To overcome such issues and establish effective inter-
organizational relations, trust between the different partners is vital (Murdie, 2014),
especially in humanitarian emergencies, where actors - that probably had not worked
together before – have to develop ties in a short period of time, based on “swift trust”
(Lu et al. 2018, p.280).
Contributions in-kind
In humanitarian emergencies, a particular issue of concern is the supply by various

donors (ranging from organizations to individuals) of aid in-kind. In the academic
literature, this flow of items is known as “material convergence” (Fritz & Mathewson,
1957). Such items can be categorized based on priority for addressing needs, as “urgent-
for immediate distribution”, “non-urgent distribution” and “non-priority goods-non
urgent distribution” (PAHO 2001, p.19). Unsolicited items constitute a high proportion
of donations. Holguin-Veras & al. (2014) estimated that it might exceed 50% of total
donations. Authorities in Haiti and Japan reported that only 5%-10% of donations sent
after the disasters met urgent needs, whereas 60% of donations were not needed
(OCHA, 2013, p.11).
Aid in-kind has serious management challenges. Items should be examined, assessed for
appropriateness and quality, sorted and stored. Donated goods can only have a positive
impact if they address the defined demands of the organizations that are active in the
disaster areas (Stapleton et al., 2010). However, as low priority items and even useless
items are included, valuable and scarce resources (personnel, infrastructure) are
required (Destro & Holguin-Veras, 2011) for classification, labeling and storing - causing
logistical chaos and disturbing relief distribution. Small – in volume - donations that
come from individuals and small organizations may cause a much more serious logistical
problem in comparison to donations from large actors – companies and international
organizations (Arnette & Zobel, 2012). Such conditions create congestion and block
entry points - thus becoming what has been termed “the second disaster” (Phillips, 2009,
p.376). In some cases, due to management difficulties, CSOs might not accept in-kind
donations (Balcik et al., 2010). While it seems that in some cases in-kind donations
remain an efficient way to provide relief (ANLAP, 2017), governments and international
organizations urge companies and individuals to offer cash donations especially for
urban environments, where cash transfers have major advantages over in-kind or
voucher programs (Cross & Johnston, 2011).
Overall, a well-organized supply chain management is of utmost importance during

humanitarian emergencies – as was the case in the Colorado flood disaster in 2012
where a second disaster was averted (Day et al., 2012). In this context, over the last
decades, the international community has attempted to embody the lessons learned
from the various humanitarian emergencies and increase cooperation and
coordination mechanisms among the diverse actors: various initiatives have been
established, such as the UN Coordination of Humanitarian Affairs (OCHA), the Inter-
Agency Standing Committee (1992), the ANLAP (1997), the Tsunami Evaluation
Coalition (2004), the Code of Conduct, the Sphere Project (Osa, 2013) or the Cluster
concept (Jahre and Jensen, 2010). Having briefly presented the debate concerning the
international experience, we turn to our case study that focuses on how CSOs in Greece
evolved to address emerging humanitarian needs due to the economic and
refugee/migrant crises.
The Greek case
During the last decade, Greece faced both an economic and a migration/refugee crisis
which required the provision of emergency humanitarian assistance. The economic
crisis that broke out in 2009 had social consequences as it necessitated the adoption of
severe fiscal adjustment measures which diminished household income and welfare
spending (Sotiropoulos & Bourikos, 2014, p.35). Poverty levels increased and
inequalities were widened (Simiti, 2015). In the meantime, the Greek civil society sector
was “atrophic” and unable to act as a protection fabric for the vulnerable populations
affected by the crisis. This situation deteriorated over the next years when a high influx
of refugees and migrants started crossing its territorial and sea borders. The
migrant/refugee crisis peaked in 2015 when more than 850,000 arrivals were recorded
(UNHCR, 2019). Unsurprisingly, the Greek authorities were unprepared and unable to
handle the dual crisis. There was an urgent need for the provision of first-aid services,
shelter, food, and healthcare to large numbers of people, which the Greek state could not
meet due to budgetary constraints and bureaucratic impediments.
In this context, social solidarity groups emerged after 2010, in addition to the revival of
non-governmental organizations to assist vulnerable populations (Huliaras, 2015;
Loukidou, 2014; Sotiropoulos & Bourikos, 2014). Various initiatives assisting were
established at that time: The Greek branches of international NGOs and national NGOs
mobilized funds from municipal resources, individual donations, and sponsorships;
charitable foundations donated funds and provided technical assistance to CSOs
(Sotiropoulos, 2014, p.40) while public organizations, as well as international agencies,
were also engaged (Numerato t al., 2019).
These advancements led to the emergence of collaboration structures between CSOs at

different levels. CSOs delivered relief services in cooperation with informal social
networks and self-help groups (Sotiropoulos, 2014, p.40). Collaborations were also
developed between CSOs and municipalities for the establishment of new social
solidarity structures such as social grocery shops, social pharmacies, social tuition
centers, and municipal gardens (Bourikos, 2013, pp.23-24) as well as between INGOs
and local NGOs and solidarity groups (Rozakou, 2018). It should be noted that budget
constraints further intensified cooperation between CSOs (Simiti, 2015). Overall, the
crisis created new collaborations among multiple actors with often diverse interests to
cover emerging needs (Simiti, 2015, p.20).
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Methodology
This research’s primary data were collected through a closed questionnaire which was
designed to reflect the general findings from the literature review. The questionnaire
included 11 questions focusing on cooperation between CSOs and the management of
in-kind donations. It included both closed and open-ended questions and was
distributed in two languages (Greek and English). The questionnaire was created to test
the findings of the international literature on global humanitarian crises and trends in
humanitarian interventions. More specifically, the first part of the questionnaire focused
on networking and cooperation between civil society actors, investigating the benefits
of collaboration in the provision in the field of relief services (Meyer, 1997; DeMars,
2005; Cooley & Ron, 2002; Britton, 2005; Abelson, 2003). The second part researches
the management of in-kind donations in times of humanitarian emergencies (Fritz &
Mathewson, 1957; Holguin-Veras et al., 2014; Stapleton et al.,2010; Destro & Holguin-
Veras, 2011; Arnette & Zobel, 2012). To enhance participation in the survey and to
safeguard sensitive information provided, respondents remained anonymous.
Respondents were sent two reminders within approximately five weeks. Phone calls to
all the selected organizations for the survey followed up to ensure wider participation.
Sampling
The initial sample was based on data from a nationwide study on Greek NGOs conducted
by the University of the Peloponnese in cooperation with researchers from nine Greek
universities and research centers. The research included an on-site survey of Greek
NGOs that was completed in 2015. Thus, a database on Greek NGOs was created
including valuable data on the CSOs ecosystem in Greece. Through this database, a
representative sample was selected for this study, based on specific criteria set by the
research team. The sample comprised of humanitarian and food organizations that were
operational between 2015 and 2019. Geographically, the organizations should be active
in the cities of Athens, and Thessaloniki and on the island of Lesvos and should be
operational for at least one year. Based on the above criteria, a representative sample of
80 organizations was initially selected. Further cross-checking of the database revealed
that five organizations have ceased their operations, while 12 of them were
implementing activities not relevant to the scope of this study. A final list consisting of
54 organizations was compiled. These were the recipients of the on-line questionnaire.
Sample organizations included Greek branches of INGOs, foundations, local NGOs, and
social solidarity groups that are well known for their activities. The survey collected data
from 19 organizations, an answer rate of about 35%. With respect to the organizations
which did not participate in the survey, only one organization strictly refused to take
part. The questionnaire response rate might be affected by the overflow of requests
towards CSOs to participate in similar researches and a lack of motivation for the
organizations to contribute. In addition, considering that personnel and volunteers
continuously change, the current personnel might not have actually knowledge of
activities implemented during the last four years. Finally, some organizations might
have considered that the information required was sensitive and, therefore refused to
respond, notwithstanding that the survey was based on anonymity.
Findings
The main findings of the report concentrate on CSOs actions that have been
implemented either independently or in cooperation with other actors. Interestingly,
the great majority of organizations participated in the survey (15 organizations) stated
that they have implemented actions in cooperation with other actors. Thus, a
collaboration between actors has been considered an important component for the
implementation of actions, since the majority of organizations have formed some kind
of “alliance” with another actor (Figure 1).
Figure 1. Number of organizations implemented actions independently or in cooperation

with other actors
The number of actions implemented differed considerably between organizations, but

that depends also on the size of the actors, their capacity, available personnel, and
funding sources. As it was reported, the highest number of actions implemented by an
organization was 1,250 actions.
This number covers small-scale and large-scale operations on the field. Another
organization reported the implementation of 150 actions/programs, and it was the
second-highest response. The majority of the organizations stated that they have
implemented from 1-15 programs/actions within two years’ period as shown in the
graph below (Figure 2):
860 Strategica 2020
Figure 2: Large- and small-scale actions implemented by participant organizations
Collaborations have widely been documented among actors active on the ground. CSOs
have realized that working collaboratively with other organizations forming alliances
and networks can increase their efficiency and manage more effectively their resources.
The most common collaborations are established between CSOs as it was reported by
16 organizations. The next most valuable collaborations are with foundations (13
organizations) and companies (11 organizations), which partly depicts the necessity for
new funding sources as well as technical expertise. Considering that state funding
towards CSOs has been limited and that the main donors in Greece are foundations and
companies through their social responsibility funding schemes, civil society
organizations need to find sustainable ways to maintain their status and also implement
their projects.
The economic and migration crises have resulted in an increased need for CSOs to work
closely with government agencies, regional and local bodies, to solve emerging
problems and to overcome bureaucratic impediments in Greece. Paradoxically, much
less cooperation can be observed between CSOs in Greece and international
organizations such as UNHCR, UNICEF, IOM as well as EU bodies. Given that UNHCR and
IOM have coordinated many actions during the migration crisis, and EU bodies have
financed many programs in Greece to overcome the crises, it is rather surprising that
most collaborations involve NGOs with private and/or public sector and also between
them (Figure 3).
Figure 3. Cooperation structures per type organisation
To explore this further, participant organizations were asked what are the reasons for
cooperating with other actors during the implementation of programs/actions. The
complementarity of actions was identified as the most important factor for
cooperation by 15 organizations. Organizations consider essential that collaboration
with other organizations is the key to effective provision of services in a cost-effective
way. Exchange of information, ideas, and technical expertise also drives these
collaboration structures. The previous positive experience of cooperation with other
actors is the second most important factor as it was responded by 12 organization
representatives. This is an interesting statement, considering that the same
organizations mostly cooperate either with CSOs or private and public organizations.
Previous cooperation can eliminate arising problems and facilitate collaboration. What
was reported as the third most important factor is the cooperation required by the
program specifications.
Interestingly, when organizations were asked to indicate other reasons which influence
collaborations, three of them reported financial burdens, funding, and lack of resources.
Other organizations stated that although they work independently, dissemination of
information and support towards other CSOs are common practices (Figure 4).
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Figure 4. Reasons for cooperation indicated in the survey
To the extent that the types of relationships between CSOs remain of high importance,
organizations were asked to identify positive and negative outcomes of cooperation
with other actors, organizations have responded positively to all outcomes indicated in
the survey. Very small discrepancies have been observed in the answers of the
participant organizations. Thus, good interpersonal and trusting relationships between
partners (37%), information exchange at the organizational level (35%), and finally the
transmission of good practices and innovative methods (28%) were all identified as
positive outcomes. It is worth mentioning that all participating organizations have
viewed their cooperation with other actors as positive (Figure 5).
Figure 5. Indicated positive outcomes of cooperation with other actors

While cooperation was rated overall positively, when participants asked to evaluate any
cooperation problems, responses highlighted coordination problems as the most
challenging (Figure 6).
This outcome could be expected at a certain level, due to the emergency character of
interventions in the humanitarian field and also because various types of actors with
different sizes, capacities, and organizational structures need to coordinate their actions
in often demanding environments. Particularly in the Greek context, when the
coordinating authority is a public organization, the implementation phase might be
delayed or be problematic due to bureaucratic procedures. This might prolong the
problem but does not cause a further burden on cooperation as respondents suggested.
At this point, there was a disparity in the answers of the participants, who while having
identified good interpersonal and trusting relationships as the most valuable
cooperation outcome, their responses reflected that lack of trust remains the second
most problematic area. Competition between actors was not identified as a problem by
participant organizations, although they have mentioned other emerging issues in
collaborations, such as different working pace between organizations which might
delays project implementation.
Figure 6. Cooperation problems indicated by CSOs
In-kind aid
The research also investigated the reliance of organizations for their operations on in-
kind aid. 89,5% of the participant organizations stated that they received in-kind aid
(Figure 7).
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Figure 7. Percentage of in-kind aid received by participant organizations
With respect to the kind of aid they received, a great majority of participating
organizations (70%) answered that they receive both products and services (for
example, volunteering work). This depicts a positive outcome of in-kind donations in
Greece which is widely widespread as a means of support.
Figure 8. Percentage of in kind-aid per type of assistance

This is an interesting finding as there are organizations that seem to be dependent on

donations and voluntary work, while others receive a very small percentage of in-kind
donations. Results present a great deviation between receiving organizations. The great
majority of responding organizations have stated that in-kind donations correspond
between 1-35% of the total receiving aid, with the average estimated at ≈20%. Only
three organizations totally base their activities on in-kind aid. This is an interesting
finding since it contradicts international literature which supports that in-kind aid can
be problematic due to management problems that it creates (Figure 9).
Figure 10. Percentage of the total received in-kind aid
Survey participants were asked to evaluate positively or negatively the in-kind

donations that they receive. All respondents rated in-kind donations positively,
projecting the necessity of donations in products and volunteering work. In contrast to
the findings deriving from the international literature, civil society organizations
operating in Greece seem to have managed to minimize management problems related
to in-kind aid (Figure 10).
Figure 11. Evaluation of in-kind received by organizations

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When respondents were asked to comment on reasons for identifying in-kind aid
positively or negatively, participants suggested that donations in-kind cover the basic
human needs of vulnerable populations. As some of the responding organizations stated,
they base their whole operational status in in-kind donations, either in products,
volunteer work, or food.
“This job requires a variety of goods and tools, so providing in-kind assistance is a
big part of our job” (Participant 2).
They have explained that in-kind aid has dual benefits both for the organizations
themselves and for the society as a whole. Several participated organizations stated that
they receive large amounts of food surplus and other items and redistribute them to
other charitable organizations or people in need.
“The way that we operate is to redistribute food surplus which is perfectly suitable
for human consumption but is impossible for various reasons to be sold in the
market. The vast majority of the food we redistribute is surplus donations that
instead of ending up in landfills, it ends up in the hands of people in need”
(Participant 1).
In addition, some organizations reported that in-kind contributions provide them with
the opportunity to minimize their operational costs, thus providing more support to
vulnerable groups of the society. This is further reflected in the following statement:
“We accept donations of dry and canned food such as rice, oil, and beans. This
helps reduce our costs so we can provide more help” (Participant 3).
The most important element of in-kind aid highlighted by the majority of organizations
participating in the survey was that they consider volunteering work as in-kind aid.
“Assistance in-kind (goods and services) is valued positively, as it can facilitate the
provision of services by the organization, contribute to the smoother operation of
salaried staff and enables the organization to develop additional actions, which
might not have been developed at the level which is now, due to larger numbers
of salaried personnel and materials” (Participant 5).
What is worth mentioning at this point, is that organizations valued volunteering work
very highly in a two-way approach. The level of mutual benefit in this kind of
relationship depends on the flexibility to adapt and learn from each other, so
organizations appreciated volunteers either way. They considered volunteering not
only to the benefit of their organizations but also as an opportunity for younger people
to learn and assimilate into society. This is mirrored in the phrases below:
“Volunteering is an important part of our organization. We recognize the

importance of a dynamic and dedicated group of volunteers. Our volunteers
mainly contribute to administrative support positions in various departments. We
always try to identify the interests, skills, and experience of the volunteers and
match them with the needs of the organization” (Participant 6).
“We are given the opportunity to have pro bono services, but also to provide the
opportunity especially to young people to gain experience through volunteering”
(Participant 9).
“The contribution of volunteers is among the statutory goals of the organization

and is considered the main way of active participation of society” (Participant 8).
Conclusions
As complexity in world affairs has increased, civil society organizations need to adapt to
a new dynamic environment. Adaptation requires the development of new operational
capacities and knowledge-based innovative methodologies. To respond to humanitarian
crises effectively, CSOs need to develop networks and collaborations with other actors.
Networking and cooperation between organizations multiply the impact of their
services. This facilitates the transfer of knowledge through socialization,
externalization, and interaction with other actors, which combine their technical
capacities and expertise to develop new competencies and generate innovative ideas.
Firstly, because organizations learn from each other and secondly because
complementarity of their services and source-pooling increases the possibilities to
reach their goals, a task that would be impossible to accomplish alone. Moreover, actors
gain the “collaborative advantage” through networking and avoid any overlapping of
activities. Networking and collaborations between organizations can take different
forms. They are identified as formal or informal and may involve public and private
organizations, INGOs, and local NGOs or companies. Thus, this research supports that
inter-organizational cooperation and trust are vital. Therefore, participation in
networks contributes to the building of trust as well as the transfer of knowledge.
As far as collaborations are concerned, the CSOs ecosystem in Greece seems to be

(partly) differentiated in comparison to respected systems in other countries and global
trends. Indeed, CSOs operating in Greece implement most of their actions in
collaboration with other actors. Collaborations take place between NGOs and public and
private organizations as well as with foundations but to a lesser degree with
international organizations and EU bodies. The main reasons which drive collaborations
in Greece are complementarity of actions, previous positive experience in cooperation
as well as the lack of funding, and the existence of financial burdens. This is partly in
accordance with the international literature where collaboration is presented as a one-
way solution for organizations seeking to achieve complex goals and develop new
competencies through mutual learning and transfer of knowledge. But the
differentiation in the Greek case is that most of the collaborative structures are based
on the complementarity of actions and not to transfer of knowledge, or the development
of innovative approaches. At the second level, as the interpersonal relationship and the
exchange of information has been identified as the most positive outcome of
cooperation, the Greek CSOs ecosystem seems to confirm the theories for knowledge-
management and building of trust between organizations. Even though interpersonal
relations were considered as the most positive result for collaborations, the lack of trust
towards other actors has overall been considered as the main problem, thus confirming
international literature that trust is the most important component for cooperation.
868 Strategica 2020
As far as in-kind donations, in comparison with international literature, the CSOs

operating in Greece present an adversary image. The CSOs ecosystem in Greece value
donated products and services very positively. Many organizations in Greece based their
whole operational status on in-kind donations in food and products, while others
receive aid which is later distributed to vulnerable populations. In-kind aid in services,
such as volunteering, is largely appreciated by CSOs operating in Greece because it
minimizes their operational costs. Furthermore, it is considered beneficial for both the
organizations and the volunteers themselves. For the organizations, because they can
facilitate the work of their salaried staff and can help to expand their services even more,
and for the volunteers because it can offer young people the opportunity to participate
in society and gain work experience within a charitable organization.
To conclude, the dual crises that Greece faced, gave the “opportunity” to CSOs to form
new collaboration structures and to learn from each other. Although coordination and
cooperation problems might have occurred, collaboration is still valued positively as it
can maximize the impact of their actions. Similarly, in-kind aid can have positive effects
for the organizations themselves, for the beneficiaries, and the whole society. Thus, this
study provides further opportunities for research on the components of cooperation
between organizations; as issues to be investigated can include the cooperation between
the private sector and NGOs and the initiatives that emerged during these dual crises as
well as the importance of informal organizations in addressing the crises.
Acknowledgement
This research is co-financed by Greece and the European Union (European Social
Fund-ESF) through the Operational Programme «Human Resources
Development, Education and Lifelong Learning 2014-2020» in the context of the
project “Food and Humanitarian Non-Profit Organizations in Greece: Synergies,
Networks of Knowledge and Innovation” (MIS ΕΔΒΜ103).
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PROMOTING SOCIAL RESILIENCE IN RURAL AREAS THROUGH

SOCIAL ECONOMY IN TIME OF THE COVID-19 PANDEMIC
Simona Maria STĂNESCU
Research Institute for Quality of Life, Romanian Academy
13 Calea 13 Septembrie., 050711 Bucharest, RO
simona.stanescu@iccv.ro
Abstract
COVID pandemic impacts the human environment and the social economy as any other ordinary
economic sector. The paper analyzes the potential that the social and solidarity economy has in rural
Romanian areas as a key element in developing social resilience in those communities. The historical
trajectory of the development of the social economy in Europe has highlighted its full capacity to
positively and promptly respond to the increasingly pressing need to create and maintain jobs,
especially for the most vulnerable ones, including the residents of rural areas. Public policies adopted
by the Member States of the European Union towards sustainable development of social enterprises
include support for agriculture and the rural environment with a direct impact on cooperative
societies (especially in agriculture-related fields of activity) and mutual aid associations active in
those areas. The analysis of active social economy entities in Romania highlighted their prevalence
in the urban areas. From this perspective, the research of rural social economy entities brings an
original perspective. Among the active social economy entities in Romanian rural areas, we note the
preponderance of cooperative consumer societies, agricultural cooperative societies, and mutual aid
houses for employees, and to a lesser extent, handicraft cooperative societies as an example. So, rural
social economy entities can either be active in the agricultural or tourism sectors or respond to poor
or even totally not covered social needs of the population (e.g. childcare services, elderly or persons
with disabilities long term care). A key measure in stimulating the continuation and diversification
of social economy entities active in rural areas can be supported by dedicated tax measures or
specific subsidies. Besides, an accurate diagnosis of the underemployed working population living in
rural Romania as well as the support of social entrepreneurial activities could significantly improve
the quality of life for people and support the development of social resilience in rural communities.
Keywords
Social economy; social resilience; social development; agriculture reform; rural areas.
Introduction
Social and economic challenges due to the COVID-19 pandemic emphasized the key role
of social resilience as a successful coping strategy. The paper is focused on Romanian
rural areas selected for research due to their potential vulnerability in terms of coverage
of the social protection provided to the resident population. The first part of the paper
analyzes the characteristics of the Romanian rural area with a special focus on various
factors supporting the development of social resilience, including the community
participative culture. The second part highlights the current situation in the Romanian
rural area from the perspective of the active social economy entities. The third part of
the paper proposes some public policy recommendations to further support the
development of social resilience in rural Romania.
874 Strategica 2020
Rural Romania
The first Law on agricultural reform was adopted in Romania in 1864 by the French
model and the current configuration of the Romanian rural environment is marked by
1921 and 1945 agrarian reforms as well as by massive industrialization and
privatization in the post-communist transition from a planned economy to a market
economy (Vorovenici, 2003; Mihalache, 2020). The 1921 agrarian reform was criticized
because the expropriation of the former landowners and the reforestation of the
peasants were not effective either for the quality of farmers or for the progress of
Romanian agriculture. One of the most popular measures proposed as a solution was
the idea of "uniting peasants in production associations, to adapt parcel ownership to
the technical cultivation conditions of large agricultural exploitation" (Şandru, 2000,
p.307). We also bear in mind that "associationism is one of the expressions of a high
social capital" (Voicu, 2006a, p.47). The agrarian reform of March 23, 1945 "has not only
pursued the peasant gospel settlement on solid foundations, but also the destruction of
the economic base of the great rural landowners" (Şandru, 2000, p. 307). In comparison
with the 1921 reform, this time, the selection was made mainly ideologically, and it was
not based on the assessed working capacity of people to properly proceed in taking care
of the received land. From this perspective, it was considered that the communist
agrarian policy acquired a "pronounced anti-racist character" (idem, p.309). Besides,
massive urbanization in communist Romania has reconfigured rural social capital and it
was followed by industrialization and job placement during the post-Decembrist period
(Ministry of Labor, Family and Social Protection, 2010, p.32.) On the other hand, "rural
workers are the most exposed to social exclusion "(idem, p.47), as unemployment is
sometimes hidden from declaring people to be active in agriculture. In the rural area,
the share of employees is about 38% post-crisis with a 46% jump in 2015 (Ilie, &
Preoteasa, 2017, p.250). The non-salaried occupation is specific to the rural
environment and "is far from being the entrepreneurial initiative of liberal
professionals, creative or niche" (idem, p.252). On the other hand, the initiative to start
a business is directly correlated to ”a relatively high level of regional development and
/or economic growth trends in the region” (Chivu, 2019, p.80). This implies an
additional risk in terms of the lower presence of entrepreneurship initiatives exactly
where they are needed most: in the vulnerable areas. Categories of vulnerable
population in connection with the labor market are homemakers (unpaid family
workers in own households), people who declared themselves as retired for health-
related reasons or by anticipated retirement procedure, long-term unemployment
people, subsistence farmers, and underemployed persons (Preoteasa, 2018, pp.146-
152).
From a social capital perspective, interpersonal relationships, such as trust in people

and institutions are displayed alongside collaboration, participation in associations, and
solidarity in the formation of the common good (manifested especially in rich
communities) (Voicu, 2006a, pp.42-47). Starting from the typology of six Romanian
villages proposed by Sandu in 2004, the analysis of participatory culture elements
highlights a "rural Romania with a low degree of participation in community life, but
with a great growth potential" (Voicu, 2006b, p.219).
Rural communities in Romania are characterized by a low development level mainly due
to „local infrastructure and lack of attractively investment (…) administrative
organization (…) low number of residents, mainly elderly, or isolated villages”
(Mihalache, 2015, p.238). The sustainable reform can be reached by choosing one of the
following two strategies: either the bottom-up approach by „setting up intercommunity
development associations and local action groups which would represent the engines in
supporting micro regional development though involvement of public authorities and
relevant stakeholders from neighbors communities”, either the up to down approach
by „implementing reform administrative-territorial measures able to produce a
reorganization of localities through specific principles of efficient self-governance”
(idem, pp.238-239).
The analyses of recent public administration regulations emphasize that Romania is

selectively implemented multilevel governance. From this perspective, ”the public
administration reform has strengthened rather local authorities who enjoy larger
competences in comparison with the regional ones (…). Regionalization in Romania was
rather a bottom-up reform” (Anghel, 2015b, p.251). This aspect is going on in Romania
despite a post-accession recommendation from European Union institutions addressed
to Romania as an EU member state. ”Despite the fact that European Union supported
during the `90 dispersal of responsibilities to subnational actors, this has put pressure,
with the end of the pre-accession process, on the re-nationalization and recentralization
of regional policies by increasing the capacity of absorption ministries at the central
level” (idem, pp.251-252).
Another hot topic for rural areas is their low capacity to access and implement projects
especially co-financed by the European Social Funds. Such initiatives could support the
identification of sustainable solutions for rural communities. The need to access
supportive funds impact on social economy units from rural areas who face a ”reduce of
even loss of innovatory character (…) which validate to a great extend the theory of
resource dependency” (Vlăasceanu, 2010, p.60).
Successful use of multiannual European funds available for achieving national goals
towards community development involves the appropriate correlation between
domestic multiannual budgetary exercise and the European Union’s one, a continuation
of implemented strategies and projected direction no matter the political scene
configuration as well general agreement of political parties on investment priorities
(Dima, 2015, p,269). Declarative approach of the complex decentralization process
within the inconsistent political, administrative and electoral Romanian context
”negatively disturb the normal function of local administration, with repercussions into
the future” (Anghel, 2015a, p.123). In the same line, „the practice of decentralization in
Romania amplified development gaps at territorial level” (Stănescu, 2015, p.79).
Social economy entities in rural Romania
The historical evolution of the concept of social economy in Europe has highlighted its
capacity to respond positively to the need to create and maintain jobs, especially for the
most vulnerable ones and in rural areas (Ministry of Labor, Family and Social Protection
2010, p.19). Sectorial policies adopted by the Member States of the European Union
towards the support of the social economy include support for agriculture and the rural
environment with a direct impact on cooperative societies and mutual aid associations
(idem, p.28).
876 Strategica 2020
A strategic element in the development of social economy units in rural areas is

represented by the human resource both in terms of employers and employees. In this
line, university education and training of social economy experts represent a key factor
in reducing multiple risks and elaboration of ”employment active policy efficient for
vulnerable groups” (Zamfir, 2011, p.237). On the other hand, atypical work contracts
can potentially become vectors of competitiveness (Ghinăraru et al, 2017).
Social entrepreneurship is perceived as “a global phenomenon focused on the idea of

social innovation and a deeper involvement of citizens in seeking and finding solutions
to solve social problems” (Vlăsceanu, 2010, p.153). On the other hand, social
entrepreneurship is oriented towards “obtaining income that serves a social mission, by
applying market solutions to social problems” (Pavel, 2011, p.79). Social
entrepreneurship “is an innovative process of recognition and consistent search for
opportunities of any kind, in order to obtain social value, being strongly oriented on the
efficient use of available resources and results” (Pavel, 2011, p.79). The support of social
entrepreneurship in Romania should not only main be concerned with the solving of
reducing the labor market dysfunctionalities. Probably a more sustainable path could be
the ”strong message to the society and economic sector regarding the labor potential of
disadvantaged groups on the labor market, which can contribute to overcoming
different stereotypes share by employees, job seekers and employers” (Pavel, 2011,
p.97).
The analysis of active nongovernmental organizations in Romania highlighted their

prevalence in the urban environment (Kivu, 2017, p. 24). When looking at active social
economy entities in rural areas, we note the preponderance of cooperative consumer
societies, agricultural cooperative societies, and mutual aid houses for employees, and,
to a lesser extent, handicraft cooperative societies (Barna, 2014, pp. 20, 72, 79, 85, 102).
Rural social economy entities can either be active in the agricultural or tourism sectors
or respond to poor or not covered needs (e. g childcare services). Stimulating
associations in rural areas can be supported by favorable tax measures or subsidies (Ilie,
Preoteasa, 2017, p.262). On the other hand, an accurate diagnosis of the underemployed
population in rural Romania as well as the support of entrepreneurial activities
(Mihalache, 2014, pp.214-215) could improve the quality of life for people.
When referring to a non-governmental organization, one can notice their openness

towards the provision of collective goods or public services. Their institutional flexibility
and independence support their quick adaptation to new contexts while “their central
value is the constant answer to needs of free association of citizens and individuals”
(Vlăasceanu, 2010, p.50).
Comparative research of two development regions of Romania (Bucharest-Ilfov and

South-East) emphasized the characteristics of demand for the social economy: ”people
identify simultaneously the personal need and the low community one” (Ilie, 2011,
p.172). Taking a look at all social economy entities, the most known ones are the mutual
aid societies (Ilie, 2011, p.163) mainly due to their function of borrowing money to the
in need. The need for financial aid is more acute in a rural area (idem p.166). Among
cooperatives, the most known ones are the handicraft and agricultural ones (idem).
Most probably one of the reasons for such a public perception is the fact that ”the
comparatist sector preserves a strong social character of activities.” (Briciu, & Preotesi,
2011, p.252)
Two traditional social functions of cooperatives were identified: the offer of ”jobs for its
members when the private sector is not able to provide them” especially for historically
land dispossessed classes alongside ”supportive social services for members”
(Alexandrescu, 2011, p.174). The current erosion of the two social functions mentioned
above requires a reinvention of cooperatives as social economy entities assessed as
„vehicles of an economy based on solidarity relations” (idem, p.175). Strongly declining
after 1990, cooperative societies adopted a generally survival strategy but failing ”to
ensure their subsistence through running traditional economic activities” and
depending on ”their capacity to adapt and innovate” in the economic austere
environment (Mihalache, 2011, p.195). Among adopting various survival strategies,
renting owned spaces is common (Briciu, & Preotesi, 2011, p. 52).
From the perspective of confronted barriers when conducting their ordinary activities,
the representatives of social economy entities from two development regions in
Romania (Bucharest-Ilfov and South-East) considered the ”economic difficult context
and regulations in the field” (Mihalache, 2011, p.195). Other barriers were considered:
specific difficulties when hiring a vulnerable person due to one hand their strong
willingness to work and on the other hand the lack of qualifications. Other obstacles
were considered: the difficulties when accessing the international funds and the low
even lack of capacity to write such application forms and to implement in the case of a
winning proposal (Briciu, & Preotesi, 2011, p.252).
Development of social resilience in rural Romania
Initially used in in the context of disaster risk reduction followed by climate change
policy, ”resilience was seen as an overarching concept, a goal for the process of
adaptation, although not without a certain degree of debate around its meaning and
relation to both vulnerability and adaptive capacity” (Lisa et al., 2015, pp.9-10). More
recently and especially within the COVID context, social resilience has become a popular
term in the social field when referring to community capacity to successfully manage
challenging situations.
With regard to the governance of the commons, three models can be identified: the
tragedy of the commons goods, the “prisoner’s dilemma” game, and the logic of collective
action as part of the theory of collective action (Ostrom, 2007, pp.16-21). Attention is
drawn on the applicability of challenging the formulation of theories on an empirical
basis, considering that the missing element of analysts in the field of policies is "a theory
that adequately describes the collective action through which a group of beneficiaries
can organize voluntarily for to keep the surplus of one's own efforts” (idem, p.39).
From a social capital perspective, interpersonal relationships, such as trust in people

and institutions are displayed alongside collaboration, participation in associations, and
solidarity in the formation of the common good (manifested especially in rich
communities). Starting from the typology of six Romanian villages proposed by Sandu
(2004), the analysis of participatory culture elements highlights a low degree of
community participation. Referring to Romania, ”forms of social engineering of social
development type in ‘90s Romania were produced (…) by import, on the line of
international trademarks projects” (Sandu, 2007, p.9).
878 Strategica 2020
Social capital ”refers to characteristics of social organization, such as networks, norms

and social trust, which facilitate the coordination and cooperation for the reciprocal
benefit” (Putnam, 1998, p.485). When referring to communities, ”life is simpler in a
community blessed with a fond of social capital” (Putnam, 1998, p.485). One additional
element within this context is represented by the fact that ”Romanian voluntary spirit
reacts rather to difficult situations that to the general community interest” (Ilie, 2011,
p.168).
Vlăsceanu argues that ”there is a higher probability of obtaining more performant

actions among communities characterized by civic spirit and engagement” (Vlăasceanu,
2010, pp 50-51). Organizations tend to become more and more similar as they gradually
confront at the same time the increasing dependency on resources and their
centralization, and the increase of incertitude referring to purposes and means
(DiMggio, & Powel, 1991). All these elements can lead to the institutionalization of the
so-called third sector (Kramer et al., 1993).
Taking into account the two related concepts of social resilience and social risk
management, Anghel argues that ”a system effective in managing social risks is, also,
more resilient to shocks and stress. And, also, a resilient system is more effective in
managing social risks, no matter the risk” (Anghel, 2014, p.527). Measures taken
towards their development can include ”increase diversity in asset base and
instruments, connectivity among the social actors and their knowledge bases, learning,
reflexivity, redundancy, equity, inclusion, cohesion (…). They should also foster
technological innovation” (idem, pp.527-528). Other successful elements include the
”empowerment of local stakeholders, especially public administration, use of local
resources, and long term investment in supporting local entrepreneurs” (Stănescu et al.,
2014, p.637). Resilient third sector organizations can be considered efficient ones
(Zimmer et al., 2018, p.10). Comparative European analysis on social economy
indicators (GDP contribution, the employed population in the social economy, and the
amount of voluntary involved) reveals that Romania occupies a marginal place (Popa, &
Cace, 2020, p.370). Still, the ones involved in the activity of social economy units are
young persons (Drăgan, 2018, p.187).
Development of social resilience in rural areas involves an overview and assessment of

available human, financial and other kinds of needed resources, commonly set up of
relevant indicators, identification of actions to be taken as well as engagement of
relevant social actors involving both social economy units and public administration. By
their traditional way to function both following social and economic goals, social
economy units can be considered as one of the main vectors in continuing to act for
building up the bridge between vulnerability, adaptability, and answer to social
community needs.
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ACTIVIST MUSEUMS – BETWEEN INTENTIONS AND PERCEPTIONS

Alexandra ZBUCHEA
Monica BIRA
monica.bira@comunicare.ro
Mauro ROMANELLI
Via G. Parisi 13, 80132 Napoli, IT
mromanelli@uniparthenope.it
Abstract
During the last decade, changes in society have triggered a series of new strategic activities
undertook by museums. They transitioned to an increased and more consistent presence in the digital
space, as well as they began to participate in conversations about recent concerns that currently
affect communities. This paper aims to investigate the perception of the general public regarding
museums in terms of activism, considering several dimensions - minorities, migration, global
warming, education, and social inclusion. It offers a broader vision of how museums in Romania are
perceived both as participatory institutions and active „citizens” of society as opposed to their foreign
counterparts.
Keywords
Activist museums; museums and communities; participatory museums; Romanian museums.
Introduction
As Nina Simon (2010, 2016) stresses in her books – instant bestsellers and points of
reference for museum professionals around the world –, contemporary museums
should be about participation, they should be partners of their communities, concerned
not only with the cultural development but also with the general evolution in those
communities. Museums manage and study heritage in connection with communities,
having in mind also the social, economic, and political frameworks. They develop their
exhibitions and public programs together with their audiences not only for their benefit.
Museums are relevant only if they involve communities and stakeholders.
Museums seem to become agents of social change. Contemporary dynamic museums

should also act as active citizens, aware of the social and political environments, and the
concerns of their communities. They should offer support for social debate, invite to
reflection about circumstances of injustice and oppression, both in the past and in
present-day society. The ways museums get involved vary from PR tactics to complex
cultural projects. In this new framework, museums have a voice stressing past
wrongdoings – which might affect present-day societies – as well as react to present
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offenses around the world. Today, both academia and practices in the field advocate for
inclusive and activist museums.
Having this new framework in mind, museums have changed the way they interact and
communicate with their community. They have extended the array of selecting topics
for their exhibitions and programs, as well as their discourse. They have not only
cultural and educational aims, but also they engage in social and civic ones.
Nevertheless, it seems to be a gap between the perceptions of the public and the activity
of museums. The present investigation explores the extent to which museums in
Romania are acting like activist museums, from the perspective of their public, as well
as from the perspective of the museum professionals. Better understanding the public’s
perception could help museums better communicate, be more convincing, and even
more effective.
Toward an activist museum, relevant for the wider society
Deriving from their position as institutions centered on society and their communities,
museums have a social role within the society (Knell, 2019). Also, in their capacity of
memory institutions and sites for critical reflection on the past (Hooper-Greenhill, 1995)
museums contribute to sustainable development, improving the quality of life (Pop &
Borza, 2014) and supporting participation and activism of their communities.
One way of promoting activist practices on behalf of museums is to launch themes and
debates that are going towards the interest of sustainable development to deal with the
challenges that the society faces, in terms of ethical behaviors and social injustice
(Sandell, 2007).
Promoting activism within museums implies museums use heritage to help their
communities develop a sense of belonging and of control over their heritage and life
(Mears & Modest, 2013). According to Sandell (2002) “all museums have an obligation
to develop reflexive and self-conscious approaches to collection and exhibition and an
awareness and understanding of their potential to construct more inclusive, equitable
and respectful societies” (p.4). Museums should identify what is distinctive and
memorable about the experience of visiting a museum in terms of values, ideas that
orient behaviors of people within society and communities. Museums are in charge of
ethical responsibilities and tasks by building public and political support for a particular
vision of the good society and strengthening the accountability of government and
public sector's behaviors (Janes & Sandell, 2019). Museums as providers and custodians
of knowledge and culture tend to increasingly assume a more proactive role within a
knowledge-driven and open global society.
Today, museums are not only knowledge providers and information-oriented

organizations but also social drivers of change and actors that contribute to promoting
the challenges to global problems and matters of concern for their communities and the
society at large. Increasingly, museums tend to behave as agents of social inclusion and
regeneration, and justice too (Sandell, 1998). Promoting social responsibility and
combating social inequality as task museums have to perform implies that museums
“must consider their impact on society and seek to shape that impact through practice
that is based on contemporary values and a commitment to social equality” (Sandell,
2007, p.110). Museums provide a social mission and contribute to processes of social
value creation and inclusion. According to Lynch (2011) “a substantive form of
democratic engagement experienced through participation in museums is, instead, one
in which people might begin to exercise their political agency as citizens, and might
include processes of mobilization and local cultural and social activism” (p. 456).
Museums should use their capabilities to help others to use their capabilities. In
becoming a public sphere of contestation, museums as a participatory institution enter
at the heart of civil society, engaging the community partners as proactive beneficiaries
(Lynch, 2011). Museums should contribute to playing a formative role in defining and
reproducing those relationships through their policies and narrative practices (Coffee,
2008). As Mears and Modest (2013) have explained, museums can use and interpret
their collections to promote and strengthen the need of increasing social justice as an
issue and value that should sway the mission of audience-oriented and knowledge-
driven museums. In particular, the work of museums is to target the ways museums are
to re-inscribe the categories of phenomena and events that they represent by using their
catalogs, the voice, language or positionality they adopt (Mears & Modest, 2013).
Activist museums offer educational support for their communities as a source to

strengthen social inclusion and justice. The activist museum as an agile and learning
organization helps learning and educative processes creating inclusive work
environments and work practices are crucial to moving the museum forwards in
promoting social inclusion (Taylor, 2017). By promoting activism, museums should
restart in enhancing museums' human resources by promoting activist practice
enabling the museum professionals to assume agency and keep the responsibility of
their action or inaction (Janes & Sandell, 2019). As proceeding towards sustainability as
a source for value creation, museums should redefine the ultimate purpose and
standards of work within their boundaries, rethinking their role in terms of mission,
leadership, and design too.
Understanding the role of activism in museums helps to strengthen the museum

community as a global actor able to exercise its power beyond education, entertainment,
and consumption functions. According to Janes and Sandell (2019) museum activism
tends to be claimed as a source for driving political, social, and environmental change
(Janes & Sandell, 2019). For example, promoting activist practices in museums may
benefit the defense of human rights and helps the support of women's rights, increasing
the strength of the feminist movement which relies on museum's potential to reclaim
rights and social instances for equality and fair treatment, and justice (Bartlett &
Henderson, 2013).
One effective way towards museum activism is participation. The participatory museum
(Simon, 2010) refers to a relatively new approach in museums – involving communities
and visitors to engage with museums, to participate in developing and delivering the
museum offer. A museum visit is not only about developing a visitor's experience (Falk
& Dierking, 2016; Best, 2018), but also about designing a new and innovative museum
offer. This particular approach is a result of the many transformations that recently took
place within the museum sector.
A participatory museum is "a place where visitors can create, share, and connect with
each other around content. Create means that visitors contribute their ideas, objects,
and creative expression to the institution and each other. Share means that people
886 Strategica 2020
discuss, take home, remix, and redistribute both what they see and what they make
during their visit. Connect means that visitors socialize with other people—staff and
visitors—who share their particular interests. Around content means that visitors'
conversations and creations focus on the evidence, objects, and ideas most important to
the institution in question" (Simon, 2010). This approach contributes to successfully
achieving the museum's mission while meeting the needs and desires of the audience as
well as being relevant for the audience. Relevance is more than experience,
connectedness, or dialogue. It is all these but also deep meaning, a positive cognitive
outcome (Simon, 2016). This would be obtained by a visitor-centered approach, by
developing effective relationships with communities and society, by developing the
museum's communities.
Not only aiming to fulfill social roles is essential, but also creating a mechanism to reach
them. Curators and educators, together with their audience, have a crucial role in this
process (Austin, 2018). They have to design a compelling and engaging message, to have
a significant impact.
Considering this participatory approach, museums could be at the forefront of debates

in their communities, by the continuous reinterpretation of their collections to be
relevant and add value for the present society. This aim might be achieved through
dialogue and participation. Tschen (1992) launched the concept of "dialogic museum",
as a museum organized by the community. The role of scholars and museum
professionals would be to collaboratively explore the memory and meaning-making of
the community. They ensure a learning environment to empower the community, thus
contributing to its development. Letting communities reflect on their past, their culture,
on critical social aspects, makes them not only more aware of all these aspects but also
helps them to better understand all these issues. It also determines increased
awareness and awareness from the part of third parties as well as of other communities
and individuals. Tschen points out that "such acts of self-discovery shape and reshape
individual and collective identities" (1992, p.293). In this way, museums would be more
relevant and actively contribute to social change and welfare.
Nevertheless, there are risks associated with such an approach. The view could be too
narrow and even exclusivist; some groups might be excluded or marginalized, the
broader framework could be missed entirely. "The meaning of self should be created in
relation to others" as specified by Mikhail Balkhtin (cited by Ananiev, 2011, p.6). To
avoid such issues, museum professionals have a major role. In this way, a museum
becomes relevant for all visitors.
Dialogic approaches are not always easy to consider, even if the necessary resource is
available. Difficult topics might raise everyone’s suspicion and the sensitive
communities might not want to get involved and "exposed" in a museum. But diplomatic
and strategic approaches might contribute to overpass barriers, as in the case of
"Visualizing others", an exhibition on the LGBT community in Taiwan (Cheng, 2011).
Critics of the dialogic approach consider that this is rather a conceptual ideal, and its
implementation is rather formal, to comply with fashionable left-wing politics, or could
be politically instrumentalized to promote ideologies, to impose a "correct" view
(Harris, 2011). We would observe that ineffective strategies or propagandistic
approaches are risks associated with any other method to interpret and present the
museum's collections. Other critics observe that museums tend to present a "monologue
position" even when they aim to be dialogic, that they already select and direct the
choices offered to the audience with which they want to have bi-directional
communication, and museums only offer to the public space for expressing themselves
(Maranda, 2011). Museums are criticized because they "will continue to ask questions
and engage in dialogue with their visitors who in turn will continue to be a sounding
board for museum change. Whether the museum heeds what its visitors have to say is
often irrelevant, as the museum will continue to seek to know and define itself through
others" (Maranda, 2011, p.92). This philosophical observation is useful to draw
attention to the difficulties of being dialogic considering a wide variety of publics,
considering the need for relevance across communities and correctness in the interest
of society, as well as respect for facts and scientific realities. The result of a dialogic
design of museum offers should be relevant as much as possible, pondering several
different systems of reference.
Some authors consider that the current trends in the museum sector, a too prevalent
voice of certain communities, might make museums and museum discourse less
inclusive and museums could be more inclined to reach out to all communities (Gurt &
Torres, 2007). Some other concerns, which might limit the free/honest implications of
museums as social agents are of economic, ethical, and even political nature
(Shermatova, 2015). Museums might find themselves in divisive situations linked to
(part of) various groups. Additionally, voices are observing that the social and activist
approaches of museums are not successful, part of the explanation being the lack of
public recognition (Kinsley, 2015), lack of engagement, or controversial engagement
from part of (some) groups (Robinson, 2017).
Relationships between museums and their audiences are now more important than
ever. To have a relevant impact, the public should be open, should cooperate with the
museum. Awareness and positive perceptions are factors favoring these processes. A
public aware of the activist role museums could play, of its participatory approaches is
more open to cooperating with a museum, and more receptive to its discourse. Having
this in mind, we designed a study to explore the opinions of the Romanian public related
to how participatory and activists are museums.
Methodology
The survey was conducted during March and April 2020, online, self-administered. To
have a more comprehensive sample, the questionnaire was simplified having only a few
questions. Several Facebook ads have also been launched to stimulate a wide variety of
respondents, not only those interested in museums, or culture, in general. Nevertheless,
the sample reflects a more culturally active public and is not representative of the entire
population. To also register the opinions of museum professionals, we posted
repeatedly the survey in the specialized Facebook group.
Two main aspects were evaluated: participation and activism. The second one had
several sub-dimensions: minorities, migration, global warming, education, and social
inclusion. These are among the main concerns of the contemporary society, part of the
worldwide sustainable development agenda and often covered by mass media.
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The profile of the respondents
515 persons filled in the questionnaire. In terms of demographic profile (see Table 1),
almost two-thirds of the respondents are women, the average age is almost 39 years old.
The employees in the cultural sector are a bit older, while those in IT, business &
economic fields, and the nonprofit sector are the youngest respondents. More than half
of the respondents live in Bucharest, the capital of Romania. In terms of educational
profile, most respondents have a university degree, with a high percentage of post-
graduates. Most respondents have no managerial positions.
Table 1. The general sample structure

18-39 years old 40-59 years old +60 years old
F B F B F B
179 74 144 85 21 12
253 229 33
Rural area Rural, in the City with City with City with City with
metropolitan less than 100.000 to 300.000 to over one
area of a large 100.000 300.000 one million million
city inhabitants inhabitants inhabitants inhabitants
21 19 61 59 65 289
Undergraduate Graduate Post Graduate
(high school and post-high (university degree) (MA and Ph.D. degrees)
school degree)
46 178 114+177
No managerial position Middle management Top management
352 117 44
Considering the professional activity, 12% do not work or are retired, 21% (109
persons) work in a museum or a similar organization, 10% work in the cultural field
(except in a museum or any other organization managing heritage), while the others
work in various sectors (economy, health, education, etc.). Table 2 details the profile of
the museum professionals taking part in the study. Most of them have certain experience
but no managerial position, work in museums in large cities, and are, as expected their
job responsibilities, postgraduates.
Table 2. The sample structure of museum professionals

18-39 years old 40-59 years old +60 years old
F B F B F B
18 16 43 18 3 1
Rural area Rural, in the City with City with City with City with
metropolitan less than 100.000 to 300.000 to over one
area of a large 100.000 300.000 one million million
city inhabitants inhabitants inhabitants inhabitants
4 3 13 21 22 45
Undergraduate Graduate Post Graduate
(high school and post-high (university degree) (MA and PhD degrees)
school degree)
4 27 78
No managerial position Middle management Top management
73 29 6
Behaviors and attitudes to culture
In this section, we investigate the relationships with museums of the respondents,

segmented after their activity domain. The aspects explored were the frequency of
museums visitation, the familiarity with museums in Romania and abroad, the desire to
visit museums, and the general interest in culture. A 5-point Likert scale has been used,
ranging from 1 – not at all, to 5 – to a very large extent. Table 3 presents the mean and
the mode for the three segments: museum professionals, employees in cultural
organizations (except for museums), and the general “lay” public.
Table 3. The main statistics analyzing the respondent relationship with cultural
participation and museums
Item Mean Mode
General public
I am a frequent museum visitor. 3.08 3
I would like to visit museums more often. 4.07 5
I am familiar with museums in Romania. 3.36 3
I regularly visit museums abroad when I have the opportunity. 3.51 5
I consider myself a person generally interested in culture. 3.91 5
I would like to have more time to watch/participate in various 3.99 5
cultural activities
Employees of cultural organizations (except museums)
I am a frequent museum visitor. 3.87 4
cultural activities
Employees of museums and similar organizations
I am a frequent museum visitor. 4 5
cultural activities
The general respondent is an average museum-goer in terms of frequency self-

evaluation, while people working in cultural organizations consider that they are more
frequent visitors. All respondents but museum professionals consider they visit
museums abroad more when given the chance. They all also declared to be interested in
culture and they would like to attend more museums and cultural activities.
The employees of cultural organizations reported figures a bit higher than museum
professionals to all items except for the museum frequency. This is not evidence that
they actually visit museums more often, but rather suggest a desire to be more
connected to museums and culture. People active in nongovernmental organizations
890 Strategica 2020
reported figures higher for museum frequency, in Romania and abroad, compared to the
ones of cultural professionals. The highest desire to visit museums, similar to one of the
employees of the cultural organization was shown by research. The lowest figures have
been generally declared by unemployed/ retired persons.
When we investigate the mode, we observe that in most cases the majority evaluated
the items at the highest levels. This shows their strong desire to be culturally active. At
the same time, it might also cover strong social desirability, considering the topic
investigated.
The civic engagement of the respondents
Considering the topic investigated, the perceptions of the public on how activists are
museums might be influenced by the respondents’ activism and civic attitude. Therefore,
they have been surveyed if they would describe themselves as active citizens and if they
consider themselves informed. The data obtained are presented in Table 4.
Table 4. The main statistics analyzing the civic profile of the respondents
Item Mean Mode
General public
I'm following what's going on in society. 4.05 4
I am an active person in terms of civic involvement. 3.38 3
The field of activity is a predictor. Persons working in cultural organizations and those
in NGOs are more interested and involved in social aspects than the other respondents.
People which are not actively involved in any organization present the lowest figures.
Findings and discussions
How participative are the museums?
To ensure common references, the survey defined a participatory museum as “a

museum that involves various groups, communities, and visitors to enter into dialogue
with the museum, to participate in the development and delivery of the museum's offer,
a museum that is part of discussions of interest to the society in which it operates”. Also,
for a more comprehensive view, respondents were asked to compare museums at home
with those abroad. Table 5 shows how respondents evaluated museums.
Table 5. The main statistics analyzing how participatory are museums

Item Mean Mode
General public
Romanian museums 2.71 3
Museums abroad 3.85 4
Respondents agree that museums abroad are in a rather wide degree more participatory
than the Romanian museums. This is in line with the opinion reflected in the cultural
Eurobarometer, showing a greater interest of Romanian for museums abroad,
considering that a main barrier for visiting museums at home is their poor offer (EC,
2017, p.61). The most critical towards the Romanian museums are those working in IT
and NGOs. Those most positive about abroad museums are the unemployed/retired,
health workers, and NGO professionals.
Analyzing the mode, one observes that when evaluating Romanian museums, employees
in the cultural sector (including museums) tend to be critical, while a few are very
positive. When evaluating the museums abroad, only a few are critical compared to a
generally positive evaluation.
The age of the respondents is generally not a predictor of their evaluation of how
participatory are museums, as well as their attitude and behavior related to culture and
museums. Pearson test shows a slight negative correlation between age and the way
cultural employees evaluate museums abroad. Also, a slight positive correlation is
between visiting museums abroad and being interested in culture and the way abroad
museums are evaluated by people working in cultural organizations.
How activists are the museums?
Overall evaluation of the activism of the Romanian museums is rather low, under the
average (see Table 6). The only dimension slightly better evaluated is education.
Nevertheless, we believe that the respondents might have had in mind, not the activist
approach of museums to discuss and contribute to a more effective educational eco-
system, but rather the educational value of the museum experience.
Table 6. Evaluation of how activist are museums

minoritie
inclusion
warming
migratio
educatio
Global
Social
other
n
n
s
Romanian museums
General public 2.35 2.04 1.89 3.25 2.26 2.96
Cultural organizations 2.42 2.04 1.66 3.00 2.13 2.64
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Museums 2.57 1.86 1.64 3.27 2.06 2.70

Museums abroad
General public 3.06 2.98 3.12 3.92 3.20 3.56
Cultural organizations 3.33 3.36 3.19 4.09 3.45 3.85
Museums 3.26 3.10 3.00 4.06 3.40 3.34
As in the case of the participatory dimension of museums, the respondents better

evaluate museums abroad, but the differences are not under one point. The evaluations
are correlated neither with the behavior or the attitude towards museums, culture nor
social connectedness. The demographic descriptors also have no significance. The
residence and the position in the organization are also not significant. A very small
correlation exists in the case of the level of education, the more educated being the more
critical.
There is an average correlation between the general evaluation of how participative

Romanian museums are and how activists they are perceived. The correlation is weaker
in the case of museums abroad.
Conclusions
During the exceptional time of lockdown in March and April 2020, museums in Romania
were, generally, a lot more active in the digital environment, especially on Facebook.
However, for the general public, this did not necessarily spell participation. The
participatory and activist museum, as described by the domain literature, is a complex,
dynamic, and adaptive institution built over time. Meanwhile, museum involvement in
helping their audiences generally or, more specifically, to overcome some difficulties
generated by the Covid-19 lockdown is perceived in a more general frame. More
specifically, museums in Romania are constantly seen as being less activist and less
participative than their foreign counterparts.
All three groups that we investigated (general public, people working in cultural
institutions except for museums and people working in museums) present more or less
the same image: museums are rather averagely participatory and activist; museums in
Romania are perceived as being less involved in current conversation within society.
The lowest perceived involvement concerns the global warming theme, and the highest
seems to be education closely followed by minorities and migration.
All in all, the results above might as well be reflecting the general current of opinion in
Romanian society, which tends to see everything happening elsewhere in Europe (or
generally speaking in the “western world”) as being of better quality or more relevant.
Therefore, we should also add an insufficient exploration of the broader context to the
main limitations of the current research. One of these limitations is the lack of
representativity for the general audience in Romania, due to the online administration
of the questionnaire. Nevertheless, the sample reflects the opinion of those more
interested and connect to cultural activity. Another limitation is the possible effect of
social desirability when answering questions on museum frequentation, and generally
on cultural participation.
The fact that even during an exceptional situation such as the Coviv-19 lockdown
museums in Romania were seen as being less involved in helping audiences coping with
the lockdown than their foreign counterparts implies that general frames are perhaps
more powerful than particular actions undertook by museums in particular situations.
Although museums' digital presence increased overwhelmingly (as international and
domestic studies show) this remains but a small step on the way of building an activist
and participatory museum in the eyes of the public.
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10
Challenges of
Project Management
Chair
Lajos SZABÓ
896 Strategica 2020
HOW DO THE DUE TO THE PANDEMIC REVISED FRAME

CONDITIONS INFLUENCE THE PROJECT MANAGEMENT?
Elvira KUHN
University of Applied Sciences Trier
Schneidershof., 54293 Trier, DE
e.kuhn@hochschule-trier.de
Abstract
Projects serve the innovation of the company and need to operate within a framework set by the
company. Besides cultural, economic, and organizational frame conditions, the technical conditions
play a part to keep within the financial and temporal frames. In times of crisis – for example, a
pandemic – additional conditions become relevant or change their meaning: Political instructions
disrupt the established and scheduled aspects of infrastructure. Therefore, project managers (PM)
will have to reorganize the teamwork and employ long-distance communal work structures. The
whole project team needs information on and help with the use of IT, especially what IT should be
used for and which laws and guidelines must be followed. In this paper, we will consider what kinds
of faculties will have to be developed by each co-worker when considering their changed working
conditions, and how this can be achieved. We will discuss what the PM needs to achieve this and what
kind of additional competence training in this field is necessary. If additional changes in the
company’s strategy are also to be applied momentarily, if projects are canceled or ongoing projects
reduced in scope, these and other disruptive influences on the current teamwork have to be reduced.
We will delineate what the PM has to work on to reduce the negative effects on the motivation of
team members. The possibilities for creative work in the home office shall be examined by
researching published works, technical and human preconditions be analyzed. Checklists for criteria
be compiled by using Methods of requirement engineering, in accordance with which acting
individually as a PM or reacting to unusual circumstances shall be easier. It will become evident in
as much the role of the PM will change during a pandemic and with whom they will have to engage
additionally. So the contents of this paper describe the workflow of a project for a PM and the roles
involved in this workflow, the conditions to be noticed by the PM during normal times as well as the
conditions a PM needs to consider when facing special situations. The findings are the tasks and
conditions a PM may encounter during a pandemic. Additionally, new roles like an event manager,
IT-Controller, IT Support Manager are introduced since the PM will have to deal with them to be able
to take care of the team members from a distance and achieve all goals.
Keywords
Distance working, IT-Controlling, digital coaching, Technology management.
Introduction
Projects are divided into internally and externally aimed, according to their kind of
added value for the company. Externally aimed projects serve the purpose of creating a
new service or product or revise an existing one. Internally aimed projects target
established structures. In the case of a pandemic, extant ways of communication,
coordination, and collaboration need to be reconsidered, to enable distance working.
Critical thought and creativity should not be oppressed here. Acting on pure intuition
may put the positive outcome of any project in jeopardy. But how should the framework
be designed, so that everybody knows which options can and should be used? Because
the project manager (PM) not only has to implement this design but also for example
ensure distance communication, support distance learning, or IT-support for distance
Challenges of Project Management 897
workspaces, we will exactly know which tasks of the PM will be influenced by the
changes and which new tasks will be created. In addition to changed tasks, the PM has
new or more intensive players to work with, such as IT Support, computer scientist, IT-
Manager. If the PM knows about the new tasks, newly demanded knowledge, and new
conditions he can prepare more thoroughly and adjust to new situations more quickly.
Before we can start the discussion on motivated changes, we first have to carefully
examine the tasks and conditions which influence the PM’s work today. After this
analysis, we will have to analyze the expected changes in the new situation: Pandemic.
Also, the relevance and influence of these changes in the work environment will be taken
into regard. We will summarize the changed conditions and related roles and tasks
concerning the workflow of the PM in the end.
Methodical approach
To answer the aforementioned questions, we will proceed in the following way: Using
the standard V-XT-model concerning the tasks of a PM, the design of project procedures
following the Jacobson-technique and BPM, as well as findings from the field of multi-
project management in organizational frameworks we will begin by describing the
current state of a project process. The strategic framework is governed by guidelines or
the culture in a company, as will be described schematically. The technical concept, as it
is used for example in German hospitals, serves as a foundation for the employed IT. We
will discuss certain provisions from the worker’s protection law for a general
description of the workspace. Through requirement-engineering methods, we will
analyze the new demands towards the PM in a pandemic. We will test in a synthesis
phase whether the gained knowledge will be applicable in the new situation. The new
insights will be used to compile a checklist for the PM. It shall serve as an orientation for
the PM, whenever a project needs to be initiated, lead, or concluded from a distance.
The current state of a project process framework
The composition of a project’s management is multi-layered. As has been shown

(BRD,2004), 34 roles are described, all of them working in the different phases of a
project. This paper will focus on the role of the PM, their interactions in the phases of
initiation, development, and conclusion, and what they need to pay attention to. “The
PM is responsible for the overall result of the project and is – in contrast to the project
leader (PL) – not immediately involved in the everyday business but serves as an adviser
to the PL and takes care of problems and complications. Depending on their personality
and position within the line organization, the PM is able to remove obstacles for the
project and cover the PL’s back. “(BRD, 2004, p.22ff]. Furthermore, the tasks and powers
of a PM are described as them leading the steering committee. They also set the
organizational frame and react – or at least influence the reaction – towards external
influences (resources, marketing, specifications). Their competences are not limited to
the application and area of effect of the project, but also extend to experiences in project
work, leadership qualities, knowledge concerning the companies’ organization and
structure, as well as skills in organization and delegation. The PM is responsible for the
declaration of acceptance, decisions regarding project progress, and contracts. They
coauthor the specifications sheet, answer calls for bids, assess project planning, and
898 Strategica 2020
offers. Cooperation between different roles depending on the project phase is a

necessary aspect of project management.
Figures.1 Workflow of a project for a PM in UML-notation
Figure1 shows the actual state-workflow of a project in UML-notation, beginning with

the initiation, to the execution and conclusion. The tasks of the PM and other actors
involved are attributed to the appropriate project segment. Problems, goals, and
rudimentary demands of the final product are already in play in phase1. During the
phase, attention needs to be paid to the company’s specifications, which can take the
form of strategic alinements, public image, the portfolio, the quality of used material,
financial frameworks, timetables, but also legal, technical, methodical, and
organizational conditions. This way, the PM cooperates with the person in charge of
answering calls for bids, the PL, and the requirements engineer. The project
organization is also laid out in this initial phase by the PM. They are supported by the
business process manager in optimizing procedures and by the technology coordinator
in establishing the necessary IT-structures. Deployment of staff is coordinated with the
appropriate person responsible. Before the contract is closed, the PM delineates the
total system specification with the PL, potential users, department managers, the QA-
commissioner, and the requirements engineer. In Phase2, the PM functions as the leader
of the steering committee, co-working with all stakeholders on decision points during
the development of the project. The stakeholders are, among others, the worker’s
representation as well as department and staff managers. Issues are resolved
concertedly by PM and PL. In Phase3, customer circles are approached in project
marketing. The technological conditions play a part of paramount importance
nowadays. This includes available software systems, the target machine’s hardware
components, and organizational conditions, called Orgware. When considering software
systems, it is important to analyze which systems are necessary and whether they will
be developed originally or bought from others. The hardware aspect includes the
technical specifications of a computer or a network and the acquisition of end devices.

The users are prepared for an optimal application of the system. The Orgware comprises
IT-supported organizational conditions. The approval of the project displays a joint
effort including the person in charge of answering bids, the won-orders commissioner,
and the QA-commissioner. But what are the precise conditions? We will take a look at
the following.
Corporate culture – a strategic condition in phases 1-3
The corporate culture is comprised of the shared values, beliefs, and attitudes of the
employees in a company concerning its main goals, given by a Business dictionary. This
includes Reaper´s beliefs in (Reaper, 2019, p.40) concerning time, the world in general,
other people, the nature of humans, and the relationships between people. It serves as
an orientation for anyone in the company and helps model the likely behavior towards
important actors, such as customers, coworkers, suppliers, but also informs the
evaluation of achievements and whether a certain innovation is desired. Cost-
orientation means, that unpromising deals are avoided and that the focus lies on
financial responsibility. Communication-orientation highlights the communicative style
within a company, for example, the effectiveness of the complaint management or the
informative, well-arranged, and appealing design of the company homepage. Corporate-
orientation describes the general aim of the company concerning its micro- and
macroeconomic environment. This includes a functioning QA-system (checklists,
standards, corporate design). Technology-orientation determines how vast and modern
the orientation towards production technology and process engineering should be. The
corporate culture needs to fit the strategic goals of the company. It helps the PM in
keeping the team’s focus on the strategic goals. It should be lived and shown by example.
This way, conflicts and unhelpful discussions between roles in the project can be
avoided.
Portfolio- an additional strategic condition in phases 1 and 2
Before a project is initiated, its fit with the company’s portfolio needs to be verified. The
PM needs to know the objective of the project. This means, according to (Gabriel & Beier.,
2003, fig.24,) whether it will lead to changes in the competitive field and how this relates
to the needed resources. One criterion for evaluation with an internal project is the
penetration of the company, which means whether or not it is relevant for every branch
and level or just one or two departments. The actual and desired states will be
compared; the difference determines the importance of the project. These values set the
priority in discussions on stringency and continuation regarding multi-project-
management.
Time condition – checklists and templates in phases 1-3
Parameters for projects are often standardized checklists known for example from the
V-XT-model or IEEE1471 standard. These not only set the mandatory tasks but also give
a set of expected outcomes. The advantage here is that no element will be forgotten, that
comparisons are possible, that recognition effects make multiple use checklists very
effective and the high usability, leading to less time spent with explanations and higher
efficiency.
900 Strategica 2020
Staff conditions in phases 1-2
Human resources are expensive and rare. To employ these limited resources effectively,
tools from multi-project-management can be used. Is a PM taking care of several projects
simultaneously, they will seek to heighten efficiency and efficacy by applying methods
and standards, structured procedures, and planning, steering, and control tools? In the
paper created from Bircks and Kuhn 2009 about the structuring of multi-project
management (MPM) for integration and functionality in a company, several of these
tools are mentioned, for example in the form of additional committees, enabling the
completion of further tasks while keeping the temporal, financial and other resources in
check. The PM can, for example, use a standardized reporting process for controlling the
progress of individual projects during phase 2. Another instrument is the prioritizing of
projects to meet deadlines. It is hereby important to verify the coworkers’ competence
in fulfilling the tasks.
Guiding concept as a means of orientation during -an additional strategic condition

phases 1-2
A guiding concept helps the planning of projects based on the strategic goals of the
company (Gräber et al., 2003). Beginning with the vision, corporate culture, and main
strategy, all decisions, as well as the executing roles, are described. Tools, standards,
methods, and techniques are suggested in the form of guidelines and possible
alternatives. The organizational structure is a subject of the framework, just as special
structure, externalized quality control (auditing), a security concept for the IT, and the
basic support of informational flow. Also, a case of emergency concept and the
management of changes are described. In addition, methods concerning the analysis of
weak points and needs for action, estimation procedures enabling effective time and
cost scheduling are suggested.
Economic conditions – phase 1
Felbermayr describes 2019 the different economic conditions for innovation and
projects depending on the location. This may be a decisive factor for the feasibility of
certain projects. Because of this, the PM needs to look into the tax situation, the
infrastructure, the job market, public support options, the regulatory framework, energy
and nature protection fees, and environmental specifications. The incurring costs need
to be part of the PM’s planning, to secure financial stability. Either one’s methods and
experiences or specialized experts are employed to achieve a cost estimate. The Delphi-
method is one of the best known in this field.
Professional and personal conditions in phases 1-2
Willpower, faculty and ability, and a dose of creativity are preconditions for the
execution of tasks. Competence in the field of question and relevant methods are
necessary for those tasks to be handled. As seen in (Practice Guide of BRD) well
developed social and communicative competencies such as the ability to cooperate, to
resolve conflicts, to integrate oneself, to work in teams are paramount as factors of
success for the leadership and the joint work in the project“. The PM needs to take care
of staff development with these goals in mind. Special language skills also ensure precise
and fast communication concerning professional matters and should therefore be
improved, especially among new coworkers. Wikis are often used for this. The extant
knowledge and special competencies need to be kept up to date by the leadership as well
as team members through seminars. Usually, actual situations are enacted in certain
specified workshops, including suggestions for immediate implementation. Seminars on
commonly used methods and techniques in a company are not to be forgotten, not in the
least since they have to be used in the company for certification purposes.
Organizational conditions in phase 1
When determining the organization and planning of a project, staff leaders, the project
team and the contact persons of all interested parties are to be named and team
members’ timetables to be scheduled. According to the Practice Guide of BRD page 28,
the resource planning will tell whether or not the schedule is manageable with the
allocated resources. Should the project be unfeasible under current conditions, the
steering committee will need to be informed and rectification to be administered. „When
designing a project organization, tasks, competencies and responsibilities should be
allocated to the team members. The roles and scopes of action as well as the availability
of the participants in the project are defined here.” Modalities of proxy assignments are
also set and vacation days are planned. The PM also needs to establish a welcoming
atmosphere and an environment where team members feel comfortable, can express
their creativity, connect with others, overcome their fears and stay up to date on the
company’s notions.
Legal conditions in phases 1-3
One important aspect of workplace design are legal requirements (Workplaces

regulation) such as pixel illumination, air column, usable space, ergonomic terms like
temperature, and seat height. Additional conditions are to be found with the federal
ministry for work and social issues BMAS on the topics of workers’ rights, minimum
wage, and job protection. Also part of the legal framework are the basic rules for orderly
accounting (GoB). According to Debitoor Accounting dictionary, in addition to the GoB
the basic guidelines for the proper safekeeping of books, manuscripts and files in
electronic form (GoBD) are relevant since they specify the GoB regarding electronic
accounting.
Ethical conditions phases 1-3
Following the description by Gersdorff (2012), it is impossible to achieve goals in

quickly changing situations without a framework. They work as guiding lights when
making decisions and the security of doing the right thing.“ Respect and appreciation
towards each need to be maintained, otherwise, the project’s success comes in jeopardy.
„Lack of respect will lead unerringly to a lack of trust and so to conflict and failure in
meeting goals. (Time, budget & scope)“. Furthermore, it is explained that „honesty is
indispensable in project management“. „Honest criticism needs to be given and accepted
…. Honesty also implies to communicate openly where the project is concerned.“ But an
honest description of the project is futile if not all relevant information is openly
accessible and decisions are comprehensible.
Technological conditions in phases 1-3

902 Strategica 2020
According to V-Modell XT, technological conditions form extant development

environments and platforms. Also belonging to this aspect are required (technological)
standards and guidelines or parameters concerning the usage of ready-to-use
compartments (complete software systems, components, modules, intelligent mem-
sensors). During the execution phase, workflow management systems are used to
improve process effectiveness. These IT-tools are selected, tested, installed, and taught
by centrally organized professionals. They look after the maintainability of the systems,
legal requirements concerning data protection, data security, select fitting hardware or
software for the employment of tools, and ascertain usability. Spreadsheet analysis
programs for cost calculation and scheduling software for project planning are also
explicitly described in a publication from BGW about project management
Summary
The different conditions were introduced in this segment.

Figure 2 shows which conditions need to be handled in the different phases by the PM.
Also listed are necessary actions and decisions with their probable effects.
Figure 2. Conditions to be noted by PM in normal times
Discussion on changed conditions due to a pandemic
At first, we will need to consider the kinds of changes regarding project management
due to a pandemic, before being able to analyze the previously discussed conditions for
possible changes.
Challenges for Home Office work
In a pandemic, people may be ordered by the government to work from their own
homes. Nobody can work from their home office without IT-support. Therefore,
coworkers on a project need to take care of their workspace design. The opportunities
mentioned in the V-XT Modell (more efficient procedures) and risks (lack of acceptance
with users) have to be considered in a vast application. Coworkers may also be involved
in housework or child-rearing and be distracted. These issues will have to be addressed
and diminished. Ideas for how to engage younger and elderly family members are
needed to solve this problem. Self-reliant work is especially important under these
circumstances and needs to be stimulated. In short, we are dealing with an unusual
situation, which sets its working conditions. Special attention needs to be paid to the
required responsibility and trust. The individual may also never feel overburdened or
abandoned. Hence overcoming the distance needs to be considered in the discussion
concerning the home office. The necessary IT-infrastructure will unfailingly lead to
debates on the legal conditions for IT (compliance) and IT-controlling. The PM serving
as a digital coach will now carry additional responsibilities, such as leading by example
and delegating duties and charges.
Changed conditions due to a pandemic
At first, we will need to consider the kinds of changes regarding project management
due to a pandemic, before being able to analyze the previously discussed conditions for
possible changes.
Consequences of distance working on project development
Along with handling their new tasks in managing the social situations and mental well-
being of their coworkers, PMs also have to quickly ascertain a functioning IT-structure.
Home offices need to be connected and everyone needs to be able to participate in video
conferences, learning software, and general work tools through laptops and
smartphones. Access to email- and other accounts is to be secured. The PM has an
overview of all necessities and can set functional parameters. But who is responsible for
training, reducing frustrations when faced with self-inflicted mistakes or connection
issues? Who will now take care of the legal and technological frameworks that have to
be considered with the new IT-setup?
Distance working
The internet is the main necessity for distance working, as a network, a source of
information, and the basis for voice over IP conversations. To be able to use a web-based
e-learning-software, one even needs a continuous internet connection. As David J.
Skyrme described in 1993 „it is increasingly evident that a corporate culture is
necessary for effective work.“ To cut down on the rank growth of diverse tools with
incompatible interfaces and chaotic legal intersections, the adherence to clear
guidelines and laws must be communicated explicitly. User groups are supported
differently depending on their geopolitical situation. Less pollution from unnecessary
journeys can be seen as one positive effect. In distance, cooperation has to be facilitated
by the PL and PM through measures promoting self-reliant work.
Self-reliant work
A certain latitude in making decisions, acting, handling the budget, and choosing
appropriate methods is just as important as informational logistics. But the will to act
needs to be there, too. To facilitate self-reliant work, the trust between PM, PL, and
coworkers should be groomed like a steadily growing plant. The managers themselves
904 Strategica 2020
have to align their actions with ethical tenets: PM and PL lead by example. Their bearing
should be governed by honesty, fairness, integrity, and benevolence. They have the
moral duty to help, support, and encourage their coworkers. Responsibility means
considering the consequences of one’s actions on others. To really feel engaged with
their goals, the actors need to own the consequences of their actions.
Legal conditions
Working time regulations and job protection laws are delimited in their applicability.
Instead, workspace communication law, telecommunication law, laws concerning data
protection, and security now become increasingly important. For example, coworkers
are now required as well to save their data in daily/weekly/monthly intervals.
IT-Compliance is according to Klotz 2009 in Facets of IT-compliance, in IT-Service

Management, 4. Jg., vol. 9, p.5-8 „a segment of compliance on the general company level,
that addresses all legal and other regulatory parameters regarding the use of IT in
business. As described in [RaSp09] „restrictive laws, guidelines, contracts and norms
have risen in the last couple of years. This leads to an increased risk of non-transparency
when dealing with national and international demands towards IT-compliance.
Companies are therefore subjected to a higher risk of breaking rules and need to employ
a systematic approach with IT-compliance. The Federal Data Protection Act (BDSG)
deals with the collection, treatment, and use of any natural person’s data. The goal is to
prevent illegitimate use of personalized data. It establishes specific parameters
concerning the organization and technology. Additional rules, norms, and standards
concerning the PM can be found in the terms of use of IT-based accounting systems, for
example concerning data access rights and the verifiability of digital files. The GDPdU
regulates the safekeeping of digital business files. The IT Infrastructure Library (ITIL) is
an internationally accepted standard for implementing IT service management and
contains a collection of proven Best Practices. ISO 20000 is a norm for IT service
management and defines an array of demands towards the planning, producing,
steering, and improvement of IT-services, that are employed for the support of business
processes. ISO 27001 is an internationally accepted norm for IT-security and contains
requirements for the production, planning, initiation, sustainment, control, maintenance
and improvement of informational security. To ascertain verifiably that compliance
demands are met, targeted management of the IT-compliance is necessary.“ IT-
Controlling has the function of facilitating an effective and efficient informational
provision, according to Binder et al. (2019). The IT-portfolio-controlling handles the
strategic planning of the IT-environment and its development. The IT-project-
controlling transfers the information needed for the planning and execution of the
project to the project management.
Distance Learning
Knowledge has an expiration date and must be renewed again and again. Distance
Learning offers a solution to this. “Distance learning is a way of learning remotely
without being in regular face-to-face contact with a teacher in the classroom” (Midgley
own translation).
As delineated in (Resalat, 2020, own translation) “the main advantage of distance

learning that it allows you to fit your learning around your work and home life. You can
usually also set your own pace of study. It is your decision as to when and where you
learn. Loneliness and feelings of isolation should be avoided however by frequent online
contact with tutors and taking part in virtual forums, virtual help groups, and discussion
rooms.”
Technology management
The use of IT-tools requires not simply a background in functional but also non-
functional demands, such as data protection and security. The legal demands have to be
met too. This necessitates specific knowledge in the fields of software engineering,
network engineering, and coding. Next to hardware and software, the data transfer rate
and availability are important. Login credentials need to be tested methodically and
regularly. In most cases, a central selection of IT-tools is advisable. Individual projects
may only use special tools on a short-term basis, with an emphasis on self-reliance.
Summary
This segment explained how the aspects described in segment 1 need to be revised in
the new situation and what kinds of additional aspects need to be considered. Figure 3
is comprised of the same way as in Figure 2.
Figure 3. Conditions a PM needs to consider in special situations
Checklist for a PM during a pandemic
The checklist should alleviate certain decisions that may arise due to changes in a
pandemic. To be able to react to changing situations, we consider under the aspects of
ability and willingness of working in distance and the communication flow over IP with
the help of IT as being relevant.
906 Strategica 2020
Figure 4. Checklist for a PM during a pandemic
Figure 4 depicts the tasks and conditions a PM may encounter during a pandemic. As
you can see in comparison to Figure 2, many more conditions have to be taken into
account. Each condition has extended, as has its area of influence. One of the new roles
(in addition to the IT-area) is that of the event manager, who will stabilize people
culturally and socially.
Conclusions
The organizational structures are subject to changes in the application of employment

law, the much-needed offer of training classes, the focus on cultural and technological
frameworks, to improve the behavior of co-workers and facilitate distance
communication. IT-application is made possible by the proper selection, installation,
and testing of tools. Legal considerations are also important. Internal marketing
supports the co-workers through event management, psychological care, and virtual
replacements for child and elder care. The distance worker needs to be integrated into
a larger program of business-IT-human and organizational strategy management. The
PM has to recognize and amend social tensions and fears as a digital coach.
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CHALLENGES IN PROJECT MANAGEMENT DURING THE COVID-19

CRISIS
Delia-Simina DĂNILĂ
30A Expoziției Blbv., District 1, 012104 Bucharest, RO
danila.simina@gmail.com
Octavia-Andreea ADAM
30A Expoziției Blbv., District 1, 012104 Bucharest, RO
octaviaadam@gmail.com
Abstract
In the context of the COVID-19 unprecedented crisis, all managers have to face new challenges and
to adapt to a work environment with less social interactions. This paper presents the context, the
situations encountered and the measures taken by the managers in projects financed under the
European Union Operational Program Human Capital followed by our recommendations. The
management type is a more significant factor between success and failure than ever before. Some
managers succeed to convert the risks to opportunities and some, on the contrary, increase the
threats and the uncertainties. Our research focus was on how the managers deal with the World
Health Organization recommendations on social distancing while the experts involved in the project
must be in constant contact with the target group. Also, we evaluated how the Romanian public
institutions responsible for OP Human Capital reacted to the Coronavirus (COVID-19) disease
pandemic. We analyzed, on one hand, the cases in which were considered more beneficial for a delay
of the activities to respect the safety measures and, on another hand, the cases in which the activity
continued online. There were identified the factors that had either a positive or negative impact on
both categories of projects, the grade in which the project managers were aware of them, and their
decisions. For the projects that are implemented exclusively online, we asked the managers how
difficult was to find the most efficient online work tools, how fast occurred the change, how reluctant
the experts were at the beginning, and how sustainable is their new way of implementing the projects.
Moreover, we assessed the capacity of the manager to maintain the project team united and to
motivate his colleagues to achieve the project objectives. Another important aspect followed were
some patterns in financial management, with a highlight on how the managers redistributed their
financial resources for the next months
Keywords
Project management; COVID-19 crisis; challenging management; public institutions European funds
Introduction
Our research aims to highlight the challenges in project management in the context of
the COVID-19 pandemic and the effects of the management decisions on the
beneficiaries of the projects. Our paper addresses an issue of interest for the project
managers by the lessons learned and the good practices that we identified. We did not
seek to design a universal pattern that guarantees the success of any project but to
understand the management experience in what we consider one of the most complex
types of project - the one that has as a target group the vulnerable people. The
beneficiaries in the selected cases depend to a large extent on the activities of the project
910 Strategica 2020
and their dependency is proportionally higher in a period of economic crisis like the one
that followed the pandemic. Further, we do not focus on the number of projects or
beneficiaries that were affected by the pandemic, but on the type of impact of the
measures that were applied. The results are a starting point in developing more
discussions on the types of crisis management.
Taking the responsibility to make a better life for those in need in an environment where
authorities do not know how to manage the funds in an efficient mode, takes a lot of
courage and specific skills are required to succeed. The pandemic brought in a delicate
situation for almost all the beneficiaries of European funds especially because they were
facing problems before the COVID-19 crisis. The lack of quick and efficient response of
authorities was the tip of the iceberg for those who are working or are just simply target
groups in Operational Program Human Capital 2014-2020.
Human resource is as important as the funds in this kind of project and the national
lockdown came in pair with the social distancing (limited interactions) which generated
several challenges for those in charge. As a manager how do you know what is best for
your experts and your target group? Do you just suspend the project and let everyone
out of jobs/money hoping that they will be waiting for things to come back to normal?
Do you move your activities online? It is possible to do that? Do you have enough money
to do all the changes? How many months do you have until the project ends? Can you
obtain a prolongation? These are just some of the questions we have tried to answer.
In times of crisis, authorities must be present more than ever. Taking the situation „in
their hands” will be a sign of responsibility and a way to ensure the society that no
matter how hard the situation gets authorities have several solutions. We can agree that
the COVID-19 crises took everyone by surprise and Romania was one of the countries
totally unprepared. The number one priority was to keep people healthy and safe.
Unfortunately, the inability of the authorities to see the big picture and to intervene in
an integrated way has brought the beneficiaries to the above questions.
Project management in European funds
Nowadays European funds are a „hot subject” among us because it is the best way to
have access to money to make changes in society. As good as it might sound to you, it is
not easy to do that if you do not have the right preparation. When we refer to project
management, we have to keep in mind that „Project management is designed to provide
sustained, intensified, and integrated management of complex ventures. It involves: (a)
the focus of a substantial portion of total organizational resources on a specific objective;
(b) highly interdependent specialized activities; and (c) relatively severe constraints
concerning cost, delivery, and performance of the end product.” (Butler Jr., 1973, p. 85).
The bigger the project is the bigger challenges will face. Each project is unique and the
approach should be the same when problems appear. Butler was saying that” the
unqualified success of the project often requires a breakthrough in the technological
state-of-the-art and pervasive trade of decisions which seek whole-system optimization
rather than sub-optimization at the level of a single parameter or function” (Butler Jr.,
1973, p. 85).
In this period, despite all the abilities to manage a project, the word that can describe
the reality in the field is „uncertainty”. Saunders, Gale, and Sherry (2014) present a
classification of project uncertainties, they determined 5 categories: environmental,
individual, complexity, information, and temporal. For a better understanding of these
categories, I will present for each of them a short explanation and some examples. When
it comes to environmental perspective uncertainty appears due to factors, like the name
of it says, in the external environment, a good example is a situation when there are
changes in the decision-making process at the institutional level. At the individual level
the focus goes to the person where we have our constraints such as incomplete/ limited
information, the capacity or the time to make a decision, the different approach of
(identifying and interpreting) uncertainties from a person to another. The complexity
perspective may refer to the diversity of actors and stakeholders, functional
requirements of the project, or the technological choices. When it comes to information,
it is even easier to guess where possible uncertainties may arise, like imperfect
information, incomplete information, or the understanding of the relationship between
cause and effect, the lack of knowledge, the lack of understanding, inability to estimate
accurately. For the last one, the temporal aria of uncertainty in projects, the important
thing is that uncertainty changes constantly as the project moves from a stage to another
(Saunders, Gale, & Sherry, 2014, pp.468-469).
For our research, we identified three out of five arias of uncertainty: environmental,
individual, and informational. Environmental – the decisions or the lack of them taken
by the government directly (the national lockdown, the state of emergency) or the
Ministry of European Funds (all the recommendations made in documents as
Instruction numbers 4, 5, and 7). Individual – in our case the managers were the ones
targeted because they had to make all the decisions when due to other factors most of
them had limited information or they were not ready to make radical decisions in a very
short time. Informational – the lack of communication between authorities and
beneficiaries was one of the biggest problems in the pandemic crises because the
information is essential when managers had to make decisions – how can you choose
the one that fits most when you do not have the basic information need it?
As mentioned above, most of the projects are focused on creating a change in

marginalized communities. For this, the current EU financial cycle focus on integrated
measures which so far has good results. At the same time, this approach in which there
are implemented integrated measures is one ambitious that involves many resources
and commitment to achieve results. There are unavoidable factors that can ruin even
the best coordination, as the COVID-19 pandemic. Other risks can be tackled to a certain
extent. We are speaking about comprehensive multi-sectoral interventions that require
a long-term involvement, the ability to deal with conflicts or differences of vision that
may occur with the authorities, and a good monitoring system. Also, while having this
holistic perspective over a marginalized community, the implementation team has not
to forget the fact that has to be respected its diversity and has to be centered on
customized assistance. The project will be sustainable only if the beneficiaries are
convinced to participate and there is a consensual effort in building their future. For this,
there is the need to identify the informal leaders and to transform them into accelerators
for behavior and attitude change in the community. Through a project at this scale, the
people have to feel empowered to continue the development of their community. (Nagy
Hanna, 2000)
912 Strategica 2020
Methodology
The research was conducted using two instruments: analysis of documentation and
interview. Analysis of documentation was used, as Chelcea (2001) presented Theodore
Caplow`s classification of documents, only one type – official documents as
recommendations, statements, strategies, etc. issued by the authorities. We chose the
interview because it is a qualitative method and presents several benefits as „flexibility
- the ability to get specific answers to each question, higher response rate - people who
feel more protected when speaking than when writing; observation of nonverbal
behaviors; ensuring the standardization of response conditions; ensuring control over
the success of questions - accuracy of answers; collecting spontaneous responses;
ensuring personal answers - without the intervention of other people.” (Chelcea, 2001,
p 300 – 3001). We realized five interviews to collect data about eight projects under
implementation in the present under OP Human Capital. The interviews are semi-
structured to have the possibility to explore some topics brought up by the interviewee
but which were not included in the interview schedule. The main topics of the interview
are: Implementation status when the COVID-19 pandemic was declared; Perceptions on
authorities’ recommendation; The impact of the decision and Implementation during
COVID-19 pandemic. Regarding the documents, we analyzed, in addition to the scientific
articles, there were also documents issued by the Ministry of European Funds. The
mentioned documents (instructions) were issued to help the beneficiaries of European
funds to make the right decisions for their projects in a time of COVID-19 crisis.
The objective of our research was to explore the experiences of some project managers
in the context of the COVID-19 pandemic and to identify their opinions and attitudes
related to aspects like challenges caused by the imposed restrictions, support from the
authorities, and perspectives for the future. Therefore, our focus was not on quantitative
data because we cannot extrapolate our conclusions on all projects under OP Human
Capital, but rather on qualitative data. It is still too early to identify a pattern and to
select some lessons learned or good practices. In this stage of the study, we do not aspire
to generalize based on the answers we collected, but we have better-shaped directions
that we can explore deeper in the future.
Short description of the studied projects
One of the managers interviewed has under implementation in present four projects
financed through the Operational Program Human Capital 2014-2020. Two of them
have the main objective to reduce the number of people at risk of poverty and social
exclusion in two rural marginalized communities from the South-Eastern region of
Romania by implementing integrated measures. These projects are very complex and
they are managed under a partnership composed of public institutions, NGO’s and
private economical operators. The activities are planned for 36 months of
implementation and the target group is over 500 people for each project. The most
significant measures involve professional training, insertion on the labor market (career
orientation and counseling, mediation), actions for improving living conditions, and
many others. Further in this paper we will refer to these projects as projects A and B and
will be analyzed mostly together.
The other two projects have the same implementation period, but a smaller target group
and with a different profile. The beneficiaries of these projects will participate in courses
of social entrepreneurship and at the end of a business plan contest, they may receive a
grant for opening their social economy structures. When we will discuss these projects,
we will call them to projects C and D.
We also focused on intervention in a marginalized community from a city in which there

is a population belonging to the Roma minority at risk of poverty and social exclusion.
The target group is numerous (600 people) and challenging. For 3 years, there are
financed social, educational, medical, juridical services and even activities to fight the
discrimination. This project will be labeled as project E.
Another project selected is in the higher education system and research area. The target
group has different particularities compared to the previous ones. The general objective
is to ensure the quality of training of 100 future researchers - Ph.D. students and
postdoctoral researchers - in terms of facilitating the transition of business education,
through access to entrepreneurship training and partnership with employees in the
fields of smart specialization. In the next sections, this project will be mentioned as
project E.
Another two projects are implemented in the urban area and the main activities are
training and insertion on the labor market. The process of selection of the target group
was easier and faster. Also, another strong point is the presence of a large number of
economic actors willing to hire qualified people.
The last project has the main goal to train a large number of employees from a big
company in Romania. The selection of the target group it is an easy one because the
persons are selected directly from high positions (decision-makers) in the company. The
main goal is to improve employee abilities to maintain the company on the market
(lately the company registered constant losses) and to develop it after reaching the
stability point.
Implementation status when the COVID-19 pandemic was declared. The impact of
the decision
At the moment of the World’s Health Organization announcement, projects A and B were
in their second year of implementation, with some delays in some activities. As the
respondent mentioned, the situation created organizational stress for each partner and
the entire partnership as well. First, there were a lot of decisions to be taken into
consideration related to the experts working on the projects. Projects A and B require
big teams of experts to support the activities and for a part of them, this job is their
unique source of income. Second, there was an urgent need for a strategy related to the
target group. On one hand, there was the pressure of completing the target group to
achieve the project indicator, on the other hand, there were taken into account all the
solutions to maintain the interest of the beneficiaries already entered in the activities.
The target groups of projects A and B are represented by people who confront severe
material deprivation. The people lack devices with an internet connection and even the
internet connection itself. In this context, the option to transfer the activity online was
excluded. Despite these factors, the projects were not suspended and most probably
they will be extended at the end. The conditions in which the activities were held will be
914 Strategica 2020
detailed later in this paper. Simultaneously, the manager of projects A and B was in the
incipient phase with projects C and D, promoting them, trying to gather the target group
and to select the beneficiaries. The process of adapting to online activity was fast and
without difficulties. The target group has access to the internet and experience in using
new technologies. The online events organized to attract beneficiaries had bigger
participation than the one expected.
Before the state of emergency was officially declared in Romania, project E was after
almost a year of implementation, according to the GANTT graphic, without any delay.
The management team and the responsibility for the project activities announced in an
official letter to the project officer that the activities that require physical contact with
the target group will be suspended for a week and until further instructions.
Project F was almost at the end, with half of the activities finalized. The establishment of
the state of emergency in Romania was previsioned by the project manager and the
Additional Act that requests a two months’ suspension and an extension of a month was
signed and approved on the day of the President’s official declaration. According to the
manager, there was no financial impact on the decision.
Project G was also almost at the end, with most of the activities finalized. This project
was one of the first financings at the beginning of the program and in COVID-19 crises
suspending it was not an option, the time pressure was too high and the management
team had to adjust. The manager developed a plan of action to move the activities online
and at the same time to make sure that each person from the target group has equal
chances in terms of access.
Project H is similar to project F regarding the decision to be suspended. The activities

were carried out according to the Gantt chart until the national lockdown.
Perceptions of authorities’ recommendation
The managers that we interviewed had very similar opinions on this topic considering
the communication with the authorities enough ambiguous. The measures were seen as
vague, unclear, and even misleading. The managers stated that the recommendations
were released too late considering the evolution of the events. They said that the
instructions did not serve as a guideline and the responsibility of either suspension or
continuation of the projects was assigned in totality in their obligation. The respondents
claimed that they needed more support and advice from the authorities while evaluating
the scenarios for their projects. They were consulting with other managers that were
taking risky decisions as them and this lack of a unitary approach intensified the
atmosphere of uncertainty.
Implementation during COVID-19 pandemic
Project F is the unique one that was suspended during the state of emergency in
Romania. This decision was chosen because the activities planned for that period
(training courses) could be postponed. The target group of the project is stable and the
implementation team of experts too. Also, the manager considered that were unclear the
conditions of conducting the courses online and that it is a risk that can have negative
consequences on time.
Projects A and B continued with consistent efforts from the core of the expert team that
remained functional. From their funds, the partners purchased electronic tablets with
internet subscription for the beneficiaries to continue the training courses started
before the pandemic was declared. The experts communicated constantly with the
target group that helped in recruitment – relatives that were living abroad decided to
return to their community to isolate with the family during the state of emergency, as
no one could predict precisely how much would last. All the papers that were filled
offline were transformed into an online format, accessible, and user friendly. The
manager and the project officer agreed on a package of justifying documents needed for
the technical report. Meanwhile, the management team is working on a sustainable
Action Plan for the next period.
As we mentioned in section 2, projects C and D were implemented online with good

results. As an impact on the long period, there are some reserves. Even if the people
participated in the online conferences, they did not take the next step, the one of
inscribing in the target group. We have to take into consideration the general context;
the potential beneficiaries started to have doubts related to the idea of opening a
business even with the attractive solution as a grant of 100.000 euros. National and
international instability lead to bigger caution. The deadline for registration in the target
group was extended and there are discussions about complementary methods to attract
future entrepreneurs in the social economy.
Project E had difficulties in moving the activity online under other aspects. Fortunately,
the target group is a young one, that has access to the internet and the competencies
needed. The existent online platform was moved on a safer server. This decision
involved an average cost and was possible in a short time thanks to the experts already
working on the project. They instructed the trainers on how to use the platform for the
online courses and assured the role of an intermediate actor between the trainer and
the students. The platform was allowing the students that have a job to participate in a
very flexible way – without video connection, being active on the forums even outside
the course hours, and so on. This project team tried to transform the discomfort created
by the COVID-19 pandemic into an advantage for the target group.
Conclusions
The manager of projects A, B, C, and D states that is in the incapacity to estimate how the
projects will continue without clearer instructions from the authorities. He considers
that their declarations are even contradictory and the last instructions that extend the
period in which the project officer is obliged to process and to respond to the documents
is a measure that will create bigger delays. For example, he made a short budget
simulation to highlight the consequences of the present instability. A purchase of gloves,
masks, and disinfectants is a significant financial weight but seems an urgent need now.
But will this need still be a real one in a month or more? It is a risky decision and has to
be made putting as a priority the health and safety of the people involved in the projects.
For the manager of project E, the future of the activities is cleared because exists already
an online routine. There is no pressure to return to offline activities. It was
acknowledged the fact that the mobility activity planned for the target group has a small
probability to be implemented because even the universities abroad do not have the
916 Strategica 2020
tools yet to deal with the pandemic and so cannot receive guests. Reaching the project
indicators is a problematic matter in the present. Not only that the indicators depend on
the target group (to finish their Ph.D. program, to get a job, etc.), but now the external
factors have a bigger influence.
The manager of project F is prepared to implement the training either offline or online,
based on authorities’ restrictions and recommendations. The target group will be ready
at any moment to be gathered for the courses, considering that they are one of their job
obligations.
The instability and unpredictability caused by the COVID-19 pandemic deepened the
past problems in the implementation of the projects financed under OP Human Capital
2014-2020. Few managers were able to adapt and to see an opportunity in the multiple
challenges that occurred. To reduce the pressure and the burden on the project
managers would be recommended better communication between the teams that
implement projects and the authorities.
Between the project managers and authorities should be developed collaboration and
should be agreed on a set of institutional instruments and rules to be respected. The
managers that we interviewed took the responsibility to find viable solutions but are
fearful to put them into practice because they do not want to be suspected of doing
something illegal. Therefore, it must be adopted as a framework that should be enough
flexible, but also a firm to prevent cases of irregularities and fraud.
The objective for all the stakeholders should be in this period to cooperate for achieving
the results that Romania as a beneficiary of the European funds took a strong
commitment to accomplishing. We have to remember the targets that we have set.
Should be identified as the ones that are not relevant anymore and the ones that
represent a priority and deserve a collective effort.
References
Bârgaoanu, A. (2009). European Funds. Strategies prevention and application,

Bucharest, RO: Tritonic.
Butler, A. (1973). Project Management: A Study in Organizational Conflict, The
Academy of Management Journal16(1), 84-101.
https://doi.org/10.2307/255045
Chelcea, S. (2001). Metodologia cercetării sociologice. Metode cantitative și calitative
[Sociological research methodology. Quantitative and qualitative methods],
Bucharest, RO: Economic Publiahing House.
Instrucțiunea nr.4/12.03.2020 privind stabilirea unor măsuri referitoare la
implementarea proiectelor finanțate POCU 2014 – 2020, [Instruction no. 4/
12.03.2020 on establishing measures for the implementation of the financial
project POCU 2014 – 2020], Ministry of European Funds. Retrieved from
http://mfe.gov.ro/wp-
content/uploads/2020/03/f8da78ff490c3b3c262e8311aff7fe61-1.pdf .

content/uploads/2020/03/007c8a96c29629da850f2f0500edd3fa.pdf.
content/uploads/2020/05/8c6eb368af767722528a9cdf197bbe02.pdf.
Nagy, H. (2000), Implementation Challenges and Promising Approaches for the
Comprehensive Development Framework, OED Working Paper Series No. 13.
Retrieved from
http://documents1.worldbank.org/curated/en/294911468761428989/pdf/
multi0page.pdf.
Perminova, O., Gustafsson, M., & Wikstrom, K. (2008). Defining uncertainty in projects
– a new perspective. International Journal of Project Management 26(1), 73-79.
Saunders, F.C, Gale, A. W., & Sherry, A.H. (2015). Conceptualising uncertainty in safety-
critical projects: A practitioner perspective, International Journal of Project
Management 33(2), 467–478.
Winch, G.M., & Maytorena, E. (2011). Managing risk and uncertainty on projects: a
cognitive approach. In Morris, P.W.G, Pinto, J.K., & Soderland, J., (Eds.), The
Oxford Handbook of Project Management, Oxford, UK: Oxford University Press.
https://doi.org/ 10.1093/oxfordhb/9780199563142.003.0015
Online resources
http://mfe.gov.ro/covid-19/
918 Strategica 2020
ORGANIZATION OF MONITORING OF FINANCIAL FLOWS

OF A FRANCHISEE TRANSPORTATION COMPANY TO MINIMIZE RISK
Elena GAVRICHENKO
79, Gorkogo St., 600000 Vladimir, RU
vlandlenav@rambler.ru
Olga LUSKATOVA
Vladimir Branch of
the Russian Presidential Academy of National Economy
and Public Administration
59A, Gorkogo St., 600017 Vladimir, RU
oluskatova@mail.ru
Marina ROBERTS
79, Gorkogo St., 600000 Vladimir, RU
marinaroberts@rambler.ru
Elena BELOUSOVA
Norilsk State Industrial Institute
7, 50 Years of October St., 663310, Norilsk, RU
jacha3@jandex.ru
Abstract
The article examines the situation in the franchising market in Russia. The authors emphasize
peculiarities in establishing relations on a franchise basis in the transport industry; give instances of
the most successful franchise networks. The paper reveals the problems of optimizing the structure
of financial flows of franchisees in the field of express delivery of goods on the example of a specific
organization. The authors state that there is always a conflict of interests between the franchisor
and the franchisee, which manifests itself in financial risks. The company that implements the
franchise is focused on maximizing sales. The financial condition of the receiving party depends most
of all on the prompt payments from customers, which is possible due to the terms of the contract, the
solvency of firms provided transport services. The result of this kind of relationship is the presence of
stable accounts receivable from the franchisee and the risk of accumulation of overdue obligations.
The authors examine the ways of reducing accounts receivable in transportation companies and
propose a step-by-step algorithm for creating a service to monitor liabilities of the company’s
contractors to minimize legal and financial risks. The article looks upon the issue of a change in the
debtors’ contractual policy, subject of their financial stability and ranking.
Keywords
Franchise; franchisee; financial flows; accounts receivable; risk.
Introduction
The popularity of franchising forms of business has been gathering pace in Russia. Such
forms of business relationships are widely employed overseas which are considered to
be an important strategy for those firms that would like to expand their business
(Rajagopal, 2007). Franchising as an organizational form is used in many industries

(Felício et al., 2014b; Michael, 2009), especially in retail and service chains (Gillis et al.,
2014; Gorovaia and Windsperger, 2013; Asgharian, 2015). Franchising forms create a
favorable environment for small, medium, and large businesses under the leadership of
the International Franchising Association (IFA). “Currently, there are 16,500 franchisors
and over 1.2 million franchisees across the world; the sales volume of the franchise
networks totals almost 1.5 billion USD, the employment nearing 12 million people.
Franchise firms create some 13 percent of gross domestic product (GDP). A few large
franchise firms have a thousand or more franchisee partners each”, the association says
(Russian Franchising Association, 2020).
The use of franchising reduces a significant number of risks when starting a business,
increases the level of management, provides high-quality marketing and franchiser
support. The relationship in franchising is built based on the franchisor’s granting the
right to the franchisee to conduct special commercial activities on the franchisor’s behalf
for a certain fee (franchise) (Katkova, 2017). Such a system of relationship will involve
training in business technologies and established standards for its conduct, advertising
and marketing strategy, supervision over the activities of the franchisee (as protection),
the supply of goods and equipment, and the protection of the “area” within the franchise.
However, the franchising system is not free from internal contradictions that affect the
increase in financial risks that the franchisee must take into account (Asgharian, 2015).
The profitability of the franchisor depends on the expansion of the network scale, on the
increase in revenue received by the franchisee in the chosen type of business activity
(Senatorov & Kuskov, 2020). The focus on maximizing the volume of work has led to the
fact that the largest number of successful franchise networks are developing in the
service sector. As an object of research on the problems of financial flows, we considered
road transport that provides the delivery of oversized cargo. In our opinion, the
formation of a system of relationship with customers arouses the particular interest and
concern for franchisees. Providing services allows expanding the client base when using
the payment that follows the realization of the transport service, which leads to the
formation of accounts receivable. The stability of the franchisee's financial position
depends on timely payments and quality control of overdue obligations. Monitoring
financial flows is becoming the most important tool for reducing financial risks.
The article proposes a project containing a mechanism for monitoring the state of
accounts receivable of franchisees. In the course of its implementation, a working group
is created with the authority to monitor the timeliness of payments, which ranks
contractors by the level of their payment discipline. A system for motivating staff
members of the group to minimize overdue accounts receivable of franchisees has been
developed.
The prospects for the franchising development are based on the use of new information
technologies, subject to the territory scale of the the Russian Federation, the need for
online interaction between contractors. Examples of the most successfully developing
franchisors are organizations that use their own websites and software to remotely
attract a client, describe their own advantages, and familiarize themselves with the
initial conditions for obtaining a franchise. Consulting and training services offered by
the franchisor are perfectly combined with supervision over financial flows in the event
920 Strategica 2020
of the introduction of digitalization elements and the use of big data when expanding
the franchise network.
Peculiarities of the situation on the franchising market in Russia
Currently, the Russian legislation lacks the concept of “franchising” which creates
certain difficulties in building networks. Business entities have to use agency and
licensing agreements, conclude contracts of supply. Legally, the closest to the franchise
agreement is a commercial concession agreement (CCA). It fully regulates relations
when shaping a franchise network and allows the protection of the interests of all
parties involved. CCA provides for the transfer of a set of exclusive rights, allows to
establish certain restrictions, especially in the field of pricing and competition.
The Russian franchising market has been on the rise: of 2,600 franchises available in the
country in 2019, no more than 30 percent are active. “Last year’s figure is quite high for
the Russian market, despite the economic situation in the country and business
behavior. On average, from 10 to 12 percent of growth is considered as standard, as
compared to the results shown in previous years,” Nina Semina says (RBC Pro, 2020).
The franchising market grew by 16 percent in 2019, rose by 19 percent in 2018, and up
by as much as only 5 percent in 2017.
Figure 1 shows the ranking of the most popular franchises in Russia in 2019 according
to the information obtained from the Federal Service for Intellectual Property
(Rospatent). (TopFranchise.ru, 2019)
2 Gemotest
4 Piv&Ко
6 FIT SERVICE
8 Invinto
10 Remit
-200 0 200 400 600 800
Contracts terminated in 2019 Contracts concluded in 2019
Figure 1. List of the top 10 most popular franchise networks in Russia in 2019
(TopFranchise.ru, 2019)
The 1C company stays the most popular and rapidly growing franchisor which provides
software services in the field of financial reporting and consulting. The number of
franchise agreements concluded by the company hiked by 8 percent in 2019 (Figure 1).
The top ten list also involves organizations that provide medical laboratory services
(Invitro, Gemotest, Helix), repair services for various equipment (FIT SERVICE,
Pedant.ru), food industry enterprises (Piv&Co, Remit), and organizations offering
teaching services to children (AMAKids, SunSchool). The list of the top 10 most popular
franchises is unstable, being subject to significant changes. It depends on the volatility
of business environment conditions.
Let us now pass on to the positive aspects of starting a franchise business. They are as
follows: a strong brand, a ready-made business model, the provision of goods for sale,
an active advertising campaign from the franchisor, etc. As to negative aspects of
franchising, there is a risk to acquire a non-working business model, serious competition
in the industry, dependence on the franchisor’s reputation, adherence to franchisor
standards, monthly payments (royalties).
To shape the company’s financial flows, franchisees adhere to payments to the

franchisor. Such payments are reflected in the franchise agreement (Patrusheva, 2016),
namely:
- a lump-sum payment, i.e. payment for the right to use a brand name including
consultations on doing business and monitor the business activities;
- a royalty, i.e. monthly payments made for the right to use the franchise. The royalty is
determined by the franchisor independently and it involves the costs of training of
employees, analyzing the franchisee’s performance rate and the franchisor’s profit;
˗ an advertising payment - payment to the franchisor company for advertising, creating
a brand image, developing a marketing strategy and tactics, etc.
In addition to the aforementioned franchise payments, the franchisee will pay the
equipment supplied (if provided for by the contract), the supply of goods for sale, the
loan repayment amount (funds borrowed by the franchisee), rental and lease payments
(if any), payments related to the outlet buy-out, payments for additional services offered
by the franchisor (assistance in personnel recruiting, consulting services), etc.
Franchising is accompanied by several risks to be taken into account when choosing this
form of business. In the case of acquiring a franchise, choosing a franchisor, it is
necessary to preliminary analyze information about possible risk situations:
- to determine the sector for the company activity: one needs to choose a business sector
in accordance with his interests, skills, and knowledge, and never getting down to the
business of “someone else’s success”;
- to assess the reliability of the franchisor: one should check the information with the
existing franchisees and turn to clarify it with the franchisor;
- expectations of “elusive profits”: one needs to make his effort and not evade the control
of the franchisor who is interested in providing the franchisee with support and
protection;
- identification of legal errors: each clause of the franchise agreement must be carefully
studied and checked; all disputed points require additional approval;
- human factor: any company head must be responsible for checking all documents and
steps of the contractors; consultations with professionals; “double-check” his own
opinions (TopFranchise.ru, 2019).
The process of looking for a franchisor is linked with shaping the financial flows of future
activities (ATI.SU, 2018). They are aimed at ensuring a sufficient amount of financial
resources in accordance with the selected sector (determination of own and borrowed
financial resources), optimization of the distribution of the volume of financial resources
shaped, ensuring synchronization of the volumes of receipts and expenditures made
within separate periods (Grisko, 2018), maximization of the franchisee’s profit at a
922 Strategica 2020
specified level of financial risk (subject to inflation, economic sanctions, quarantine

measures to prevent COVID-19, etc.), the constant financial balance of the company, etc.
As soon as the franchisee selected the franchisor and reached a decision on whether to
enter into a franchise agreement, it is necessary to analyze again: the financial history of
the franchisor company; volatility of its profit; reputation among franchisees,
competitors, and customers; company history as an independent business organization
and its experience in franchising; the number of founders of the franchisor company;
legal restrictions and trials; reasonableness of the franchise fee.
The practice of minimizing the risk of franchising payment arrears in the field of
transportation services
When choosing a franchise, we took into account the proposals in the field of road
haulage which the company under consideration was engaged in. The features of a
transport franchise include both virtues and shortcomings. As regards the advantages,
they involve the ability to call a toll-free courier, ease of placing an order thanks to the
company’s ergonomic website, a favorable price-to-delivery ratio. The website provides
a quick calculation of the delivery fee depending on distance, weight, size, and other
characteristics; offers flexible pick-up and delivery conditions (door-to-door,
warehouse-door, door-warehouse); the ability to track the order on the site by the
invoice number. To maximize the dispatch speed, the courier’s work is fully focused on
the customer’s convenience. Among the shortcomings, it is important to note the
violation of delivery times, the issuance of additional invoices due to the overweight of
the goods in the warehouse, the non-refund of insurance in case of damage to the goods,
if the client minimized transportation costs due to inappropriate packaging.
The following companies are the leaders of transport franchisors:

- Sampost. Depending on the set of services, it requires from 145,000 to 245,000 RUB of
the initial investment. The payback period is from six months to a year and a half;
- SDEK. The cost of acquiring a franchise is 150,000 RUB; the amount of investments is
from 450,000 RUB. The maximum payback period is 6 months;
- «Express Tochka Ru». The minimum investment amount is from 450,000 RUB; the
payback period is 14 months (TopFranchise.ru, 2020).
Let us consider the financial flows of the Reliable Contract express delivery company
which acts on a franchise from the SDEK limited liability company (Express-Courier
Delivery Service). The Reliable Contract LLC has been operating on the Russian market
of courier services since 2000. It deals with the express delivery of goods and documents
across the city, Russia, as well as other countries. The company provides high-quality
service to customers. By combining different types of transportation, as well as tracking
them, the company ensures the speed of delivery. The SDEK courier service company
has been offering franchises since 2009. The business has 27 branches. As many as 231
divisions opened by the company make services available throughout the country.
When buying a franchise from SDEK, the following conditions are implemented:
1. It is allowed to open an office in a city with a population of fewer than 50,000
inhabitants.
2. Mandatory initial payment of 150,000 RUB.
3. Start-up budget is from 300,000 to 800,000 RUB.

4. SDEK does not require royalty payments from 1 to 6 months, thereby allowing
independent entrepreneurs (franchisees) to understand the whole process of activities
and raise their businesses. Starting from the seventh month, the royalty is 10 percent of
the receipts.
5. The payback period is about three to six months.
6. Areas of the franchise distribution are Russia, Kazakhstan, Belarus (FRmall.ru, 2020).
Upon the acquisition of a franchise, the Reliable Contract company received the
following bonuses from the franchisor, namely consultations on all the issues related to
the activities of the branch both before and after the launch of the project; support at all
stages of cooperation; the ability to work with the entire network to attract customers;
the ERP and CRM system; free training for franchisee employees; advertising campaign
support; comprehensive assistance of the company’s specialists (Finance-EXP.ru, 2020).
The Reliable Contract company uses its vehicles for cargo transportation. Maintenance
of the rolling stock is carried out promptly which allows us to avoid malfunctions and
breakdowns. It minimizes the cost of vehicle repair. The economic state of the company
directly depends on sales managers who increase the number of contracts with
corporate clients, as well as managers of the customer services department who support
the work with the company’s current order portfolio. The structure of the financial
records by Reliable Contract shows a very high degree of dependence on the company’s
solvency on the timeliness of receipts and payments. The share of the accounts
receivable in the company assets exceeds 97 percent, the ratio of accounts receivable to
accounts payable is 1.33. The latter indicates the urgent need to handle relations with
contractors. The search for optimal methods to reduce the risks of payment arrears is
topical for the enterprise. A regards the structure of accounts receivable, the main share
falls on the accounts receivable from buyers and customers totaling 88 percent. It again
proves the dependence of the franchisee’s activities on revenues.
While investigating the problems of organizations operating under franchising

conditions, we identified the main type of risk that accompanies the production process
- financial risk. To clarify the risk category, we should talk about the risk of untimely
payments by counterparties, which affects the organization's liquidity indicators and
indicators of its financial stability (Lyani, 2017). As a methodological tool for reducing
this type of risk, we implemented a project to improve the organization of financial flows
for the franchisee transport company. The essence of the proposed project is to organize
a group of control over the customer payment system, clarify the powers of group
members, and encourage staff to reduce overdue receivables of contractors.
The Reliable Contract limited liability company introduced a quarterly payment scheme
for the rendered services in contracts concluded with legal entities. Therefore, any delay
in payments creates a risk of insolvency of the franchisee itself. Since the relationship in
franchising is subject to agreement, the risks of contracting parties can be partially
foreseen and minimized legally. There is a conflict of interest. The franchisor is focused
on maximizing its revenues due to an increase in sales. The financial position of the
franchisee requires additional analysis of the clients’ solvency to regulate the timeliness
of financial receipts from clientele, to change the terms of contracts subject to the
observance of the financial discipline by the contractors (Nihtiy, Shalova & Luskatova,
2018).
924 Strategica 2020
The assessment of the most significant financial and legal risks in franchising is
stipulated by the use of compensation methods of risk management, namely monitoring
of work with receivables of the franchisee as a company. An algorithm of actions to
minimize overdue accounts receivable makes the basis for monitoring, allocation of the
department responsible for this activity, and the incentives paid to the staff on their
work results. To increase the efficiency of accounts receivable management, the
franchisee needs to take the following steps:
1) create a working group for the operational management of accounts receivable in the
company;
2) improve the estimation procedure for assessing the reliability of the debtor;
3) create an incentive scheme for employees involved in the accounts receivable
management.
The sales director, sales managers, and the loan supervisor work with customers who
require special attention. Debts are distributed among contractors and managers
responsible. The actions of sales managers are regulated based on the following
algorithm:
- the sales manager is to inform the debtor about the due date and amount 2 days before
the time of maturity;
- the sales manager reminds the contractor of the due date and receives confirmation of
the intention to fulfill the contractual obligations on the day of payment;
- if the debt is not paid off within 2 days after the due date, the sales manager is obliged
to take the following steps to return the receivable: to negotiate it with the debtor; to
send an official letter to agree on the payment schedule;
- should the debtor’s overdue debt reaches 30 calendar days, the loan supervisor and
the sales director decide to terminate the provision of services;
- if the receivable is not paid off within 60 days, the loan supervisor takes steps to clarify
the reason, analyzes the current solvency of the debtor, sends a claim for payment for
services;
- if the debt is not paid off within 90 days, the company is liable to sue the debtor;
- if the court rejects the claim for the collection of receivables, the debt is considered bad
and is to be written off.
The company works with receivables only if the due date is nearing or has already
arrived. The group responsible for work with accounts receivable must have an
accountant whose job duties are as follows: keeping and verification of the register of
primary accounting documents, inventory of accounts receivable, bad debt expense
documents, filing of uncoordinated payment applications for explanatory purposes. The
loan supervisor is not an active participant in the process for the return of receivables,
but he is entrusted with the duties of a timely analysis of the reliability of a potential
debtor and ranking of all debtors. Being part of the group, specialists of the sales
department encourage a contracting party with a deteriorating performance to timely
payment by introducing additional incentives (discounts, mutual settlements). They use
the restructuring or prolongation of debt for partners who have violated the payment
terms for reasons beyond control, taking into account the results of prospective
solvency analysis; reduce payment terms (not once a quarter, but once a month), for
violations previously committed by the contractors.
In addition to monitoring the actions taken by the group members, the sales director is
responsible for establishing individual payment terms for clients, subject to their
ranking; deciding to suspend the provision of services; choice of a possible option for
interaction with a client from debt refinancing to suing. Decision making on the
assignment of accounts receivable to specialized organizations is within the competence
of the managing director. Completing the first stage of the receivables management
algorithm is to clarify the responsibility of all group members for their functional
assignment to controlled financial flows. The second stage of the project is to identify
the level of payment discipline of the counterparty. When assessing the reliability of
potential debtors for each contractor, before drawing up an agreement, it is required to
calculate the following indicators of the client’s company (Kasacheva & Udod, 2018,
p.257):
- quick liquidity;
- ratio of receivables and payables;
- turnover of accounts receivable;
- financial leverage.
Based on the obtained values, a rating is scored. Thus, the company is put into one of the
five groups:
I - a financially stable enterprise, the return of borrowed funds is guaranteed;
II - enterprises with some degree of debt risk;
III - financially unstable enterprises;
IV - enterprises with a high degree of risk, a chance of losing the funds is high;
V - prospective insolvents.
Based on the analysis of the debtor reliability, the loan supervisor assigns it to one of the
groups. On the ground of the reliability group, the sales manager draws up a quarterly
payment scheme for customers in Groups I - III. The commercial terms are set by the
sales director for Group IV. As for the clients of Group V - the manager sets payments
after the rendered services. The following structure of clients was identified for Reliable
contract LLC: class I – III – 55%, class IV-V-45%. There is a large proportion of customers
with a high risk of non-payment which explains the significant indicators of overdue
receivables, up to 32% of its total value. Even though the responsibility for control over
the flow of funds is distributed among the employees of the sales department, their
remuneration is not related to the amount of overdue receivables. Employees are
motivated only to increase sales proceeds which results in an increase in overdue
receivables due to the provision of services to companies whose reputation is
unverified. As for the Reliable Contract limited liability company, there is no system of
motivation for those involved in working with accounts receivable which formalizes the
performance of these duties. Therefore, it is necessary to introduce an appropriate
incentive system for the additional workload and increased responsibility of employees.
This corresponds to the third stage of the project on managing the financial flows of the
franchisee.
The bonuses paid to managers of the sales department are subject to both the total
revenue received from the services rendered and to the increase of the amount of repaid
receivables. If the controlled overdue receivables drop by less than 20 percent of the
total amount of debtors’ liabilities, the number of bonuses paid increases by 20 percent.
As the share of overdue accounts receivable increases to 40 percent, the amount of
bonuses is not to go up by more than 5 percent. If the regulations in dealing with the
contractors’ obligations are violated, the incentives paid can be reduced by a quarter.
The sales director, accountant, and loan supervisor are entitled to a 10-per-cent rise in
the incentive if they show an overall decrease in the amount of overdue receivables.
926 Strategica 2020
Incentives paid to the employees of the group liable for accounts receivable are to be
linked with the efficiency and quality of their duties performance, subject to the
amended regulations on accounts receivable.
The implementation of the proposed project to improve the efficiency of financial flow
management of The Reliable Contract limited liability company contributed to the
improvement of the financial performance of the enterprise in a short period (6
months). The share of overdue accounts receivable was decreased by 25%. The total
amount of accounts receivable is reduced. As a result, the ratio of accounts receivable to
accounts payable has become 1.09 and the indicator of the company’s financial stability
increased by 11%. Thus, improving the financial condition of the transport company
stimulated the reduction of the risk of untimely payments of contractors. The study
confirmed that the objective criterion for risk minimization was the indicator of
reducing the amount of overdue receivables of the franchisee company.
Conclusions
The main purpose of the paper was to study the problems of optimizing the structure of
financial flows of franchisees to prevent a conflict of interests between the franchisor
and the franchisee, which manifests itself in financial risks. In this respect, we have
analyzed the situation in the franchising market in Russia. The results confirm the fact
that franchising is a prospective form of business administration, an effective way of
increasing the sales of goods and services. Many franchisees have achieved high-profit
margins by understanding the business fundamentals in their respective field of activity,
under the close guidance from the franchisor’s company. However, we focused on the
legal and financial risks the transport companies faced and studied the ways to minimize
them and to reduce receivables. We proposed a step-by-step algorithm for creating a
service for monitoring the state of debt obligations of the company's counterparties. For
the efficient work with debtors, we offer a gradation of them into five classes, taking into
account the risks of late payments, and a rating of franchisee clients based on this
method. We suggest the personnel involved in the operational management of accounts
receivable of the organization should be stimulated not only to increase sales volumes
but also to minimize overdue payments of contractors. The competent formation of
financial flows and timely identification of non-payment problems will allow businesses
in the form of franchise networks to take a competitive position among individual
commercial enterprises and significantly increase the growth of business activity in the
field of transport services.
In conclusion, we consider that the competent formation of financial flows and timely
identification of non-payment problems with the help of monitoring will allow
businesses in the form of franchise networks to minimize risks, take a competitive
position among individual commercial enterprises and significantly increase the growth
of business activity in the field of transport services. The developed algorithm of actions
to minimize overdue accounts receivable can be used by any organization irrespective
of size and organizational-legal form, and also in case of necessity, it can be adapted and
automated in various business processes.
References
Asgharian, E. (2015). Performance in franchise systems: The Franchisee Perspective

(Publication No. 1727) [Doctoral dissertation, Linköpings universitet]
Linköping Studies in Science and Technology, Dissertations. Retrieved from
https://www.diva-portal.org/smash/get/diva2:868056/FULLTEXT01.pdf.
ATI.SU (2018, March 26). Franshiza ot transportnoj kompanii «TLK-grupp»:
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ISBN: 978-606-749-508-9
ISSN: 2734 - 746X ISSN-L 2734 – 746X

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International Academic Conference

Preparing for Tomorrow, Today

SNSPA, Faculty of Management

Tritonic Publishing House

Preparing for Tomorrow, Today

Analysis of Economic Protectionism from the Perspective of Constructal Theory / 14

Statistical Insights on Capital Markets in Central and Eastern Europe – A Comparative

Strategic Cultural Valences of Corruption Behavior in Romania. A European Approach / 65

China’s Urban Development. A Regression Analysis Before and After 1990 / 92

The Impact of Environmental Protection Expenditure on Environmental Protection in Romania.

The Impact of a Multigenerational Workforce on Human Resources Practices / 152

Assurance of Business Continuity Towards Uncertainity-Based Thinking / 175

Strengthening the Competitive Position of High-Tech Enterprises / 186

Leadership in the Artificial Intelligence Era / 224

The Influence of Organizational Culture on Types of Innovation / 252

Preparing Today’s Leaders for VUCA Environments / 263

Section 3. Marketing and Consumer Behavior

Markets on Trade Show Platform: Aspects of Business Communications and Transactions

The Augmented Reality as a Sales Promotion Tool / 362

Section 4. Finance and Banking

Imраct of Sociаl Security Exрenses on the Economic-Sociаl Life / 412

Flexible Adaptation of Innovative Investment Funds Architectures Dedicated for Technological

Venture Capital and Public Policy / 433

Section 5. Towards Sustainable and Digital Organizations and Communities

Barriers to Digital Transformation in SMEs: A Qualitative Exploration of Factors Affecting ERP

Modelling the Implementation of HR Business Processes to Achieve Sustainable Development in a

Sustainability Reporting in Universities. Comparison Between Two European Universities / 473

Internet of Things and Employee Happiness in the Digital Era / 486

Digital Talent in a Learning European Union / 495

Digitalization. Global Challenges and Economic Prosperity. Example: Romania / 520

Changing Public Organizations Through Information Technology / 550

Driving Smart Cities and Projects in Romania / 565

Smart Leadership – Examples of Best Practices in Governing Smart Cities / 579

Towards Inclusive Cities Meeting Immigrants / 591

Section 6. Sustainable Human Resource Management and Employee Wellbeing

Principal of Equal Opportunities as an Implication for Sustainable Human Resources Management:

Geographical Mobility Barriers Identification for Persons to Become Active / 631

Motivation of Academic Staff: Internal Marketing Concept / 645

Section 7. Crisis and Risk Management

The Impact of the COVID-19 Pandemic on Business. A Preliminary Overview / 721

Decisions Under Uncertainty in the COVID-19 Era / 731

Section 8. Knowledge Economy

Mapping Key Components of Entrepreneurial University Models / 744

Artificial Intelligence and the Ethical Use of Knowledge / 773

The Impact of a Country’s Reputation in the Economic Development of a Nation / 785

Integrating Intellectual Capital and SMEs Internationalization Into a Common Conceptual

The Importance of Emotional Intelligence in the Time of the Coronavirus / 806

Emotional Intelligence and Entrepreneurial Skills / 815

Section 9. Challenges and Opportunities in the Social Economy

Section 10. Challenges of Project Management

Challenges in Project Management During COVID-19 Crisis / 909

Organization of Monitoring of Financial Flows of a Franchisee Transportation Company to

ANALYSIS OF ECONOMIC PROTECTIONISM FROM THE

certain proportions. Flow systems formed in disparate areas by development connect

Nothing can be thought of outside a pre-existing system of conceptions within a

The desire of an isolated individual is to be included in a certain flow system, depending

The state, as already mentioned, can be thought of as an independent vascular system.

a system are limited. The attempt at strong artificial vascularization (forced

We can subsume some of the effects of protectionism: forced consumption of resources,

We want to discuss artificial hyper vascularization. In which direction do we overstate

Development of the analysis

In the discussion of protectionism (through the eyes of C.T.) an aspect to be achieved is

potentially be filtered? Or should only certain categories of goods be excluded from

I see an example of aberrant protectionism in the communist economy in Romania.