MANAGING SERVICE, EDUCATION AND KNOWLEDGE MANAGEMENT

IN THE KNOWLEDGE ECONOMIC ERA

PROCEEDINGS OF THE 2016 INTERNATIONAL CONGRESS ON MANAGEMENT AND
TECHNOLOGY IN KNOWLEDGE, SERVICE, TOURISM & HOSPITALITY (SERVE 2016), JAKARTA,
INDONESIA & VLADIMIR STATE UNIVERSITY, VLADIMIR, RUSSIA, 8–9 OCTOBER 2016

Managing Service, Education and

Knowledge Management in the
Knowledge Economic Era

Editors
Ford Lumban Gaol
Bina Nusantara University, Jakarta, Indonesia

Natalia Filimonova
Vladimir State University, Russia

Fonny Hutagalung
University of Malaya, Malaysia
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Table of contents

Preface ix

Management of innovative development (on the example of tourism in the Pskov region) 1
L.P. Goncharenko, S.A. Sybachin, S.V. Valeeva & S.V. Horshikyan
Assessment of immaterial resources as an innovation tool of long-term social and economic
regional development 7
A.A. Yussuf, R.N. Fedosova & T.V. Starikova
Development of regional forest potential of Russia in the context of bio-economic trend 13
S.V. Makar & A.V. Yarasheva
Practical tools for the assessment of strategic risk factors of entrepreneurial activity 19
Y.V. Kuznetsov, N.V. Kapustina & E.V. Maslova
The impact of human resource management on customer loyalty in the hotel industry
in Russia 23
U.V. Kuznetsov, E.V. Melyakova & N.G. Kizyan
Conformity assessment of concession agreements model to parameters of investment projects
in transport infrastructure area 29
P.N. Zakharov, J.A. Zakharova & K.V. Nazvanova
Instruments for the implementation of import substitution strategy in the agro-industrial complex 33
V.P. Tretyak, O.A. Anichkina & K.G. Abazieva
Enterprise integration in the network electronic market: Choice of the Internet-project
implementation directions 37
N.M. Fomenko
Philosophy of ancient towns’ economy development evidence from Suzdal, a Russian town 41
N.V. Rodionova & A.D. Shapovalova
Dynamic model of the economic and social system control 47
V.E. Krylov
Factors determining whether industrial parks are successful or not 53
S.N. Kuznetsova, E.V. Romanovskaya, Y.S. Potashnik, N.E. Grechkina & A.P. Garin
Methodological solutions for the production of a new product 59
V.P. Kuznetsov, E.P. Garina, N.S. Andriashina, E.P. Kozlova & S.N. Yashin
State instruments choice for strategic planning in Russian regions 65
A.N. Ryakhovskaya, D.I. Ryakhovsky & M.V. Erhov
Harmonization of the tax portfolio of an organization by means of situational
matrix modeling 69
I.V. Frolova, T.V. Matytsyna, T.G. Pogorelova & E.A. Likhatskaya
Assessment of business activity impact on national stock market indices 75
O. Loseva & M. Fedotova
Innovative development of a region: Growth pole approach 81
O. Goiher, A. Posazhennikov, A. Loginov, O. Arkadeva & A. Danilov

v
The methodical approach to the assessment of regional innovation and investment processes 87
O.A. Donichev, S.A. Grachev, D.Yu. Fraymovich & A.K. Kholodnaya
Development of public–private entrepreneurship projects 93
N.Y. Omarova, M.M. Omarov & V.A. Shultsev
Methodology of e-economy infrastructure research 99
T.N. Beliatskaya & V.S. Knyazkova
Assessment of factors influencing the quality of human resources 105
M.V. Rakhova, S.A. Grachev, M.A. Gundorova & M.I. Zakirova
Impact of industrial policy on the competiveness of high-technology businesses 111
N.N. Polzunova, N.M. Filimonova, M.Y. Malkerov, O.S. Starostina & I.S. Polzunov
Effectiveness of innovations in the process of complex industrial and domestic waste
utilization in Vladimir region as a source of raw materials for the modern construction sector 117
I.A. Gandelsman, L.V. Zakrevskaya & I.V. Kozlov
Values of modern youth and state youth policy 121
N.V. Morgunova, R.V. Morgunova & I.A. Zaytseva
Influence of the state support on the development of small and medium-size
entrepreneurship of the Vladimir region 127
T.N. Kashitsina, E.S. Lovkova & S.M. Basharina
Predictive analysis of the tourism hospitality development in Slovakia 131
A. Antonyová, P. Antony & B. Soewito
Urban areas as educational tourism destinations 137
A.R. Lebedev
Methodological aspects of forming a regional benchmarking partnership 141
A.E. Panyagina
Current barriers of innovation development of Russian entrepreneurship 145
I.B. Teslenko, A.G. Bezdudnaya & A.M. Gubernatorov
The role of innovations in the modern economy and their economic essence 151
L.I. Pugina, N.V. Chaikovskaya & D.V. Chaikovsky
Problems of establishment and development of start-ups in Russia 155
I.B. Teslenko & O.B. Digilina
Rise and development of the ecosystem of innovative entrepreneurship in Russia 161
O.A. Kornilova & N.V. Abdullayev
Exploring the appeals used in creative advertising: A conceptual theory 167
A.R. Rushdan, I. Zulkifli & F.D. Hutagalung
Innovative thinking as a factor in the establishment of an innovation-based economy in
Russia: Spiritual and moral aspects 173
N.V. Manuilov, S.Z. Mekhdiev, T.A. Iskyanderova & I.N. Novokupova
Contemporary regional planning in Russia: Systemic problems and development issues 177
I.I. Saveliyev & T.A. Iskyanderova
Employees’ personal potential as the main factor of the innovation activity
of a Russian organisation 181
R.N. Fedosova, Yu.I. Petrova, Ye.V. Rodionova & Yu.Ye. Galkina
Analysis of the current situation of the production structure of the dairy industry
of the Russian Federation regions: Optimization reserves 185
G.V. Jazev, J.F. Anoshina & V.P. Tretyak
Competitive differentiators of money-and-credit institutions of modern Russia 191
N.A. Amosova, A.Yu. Kosobutskaya, U.I. Treshevski & A.V. Lodyshkin

vi
Environmental activities in Indonesian Islamic commercial banks’ corporate social responsibility 199
Y. Andriansyah, A. Sugeng & M. Iqbal
Impact of small business sector on quality of life in Russian regions 207
D. Clark & N. Filimonova
Model of innovation activities situation in regions 215
S.V. Shtebner, Y.N. Kochetova, M.A. Shumilina & M.I. Lapshina
Factors reducing a company’s value in the system of internal financial control 221
S.R. Dreving & L.Y. Khrustova

Author index 227

vii
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Preface

Managing service, education and knowledge management in the Knowledge Economic Era are all impor-
tant factors. Managing service focuses on optimizing the service-intensive supply chains that are integrated
into supply chain management at the intersection between the actual sales and the customer using infor-
mation technology. Information technology is an important necessity in this era of globalization, when
any organization without IT is considered incomplete. Information management, service management
and web intelligence are important components of IT technology, which are now playing an increasingly
important role in modern society. In short, information management is the collection and management of
information from one or more sources and the distribution of that information to one or more audiences,
which control the planning, structure and organization, controlling, processing, evaluating and reporting
of information activities in order to meet client objectives and enable corporate functions in the delivery
of information. Especially in the field of education, IT systems are being used more and more frequently
in teaching and learning.
The SERVE conference and the resultant conference proceedings provide a platform for all research-
ers, enterprisers and students to exchange new ideas and application experiences face to face, to establish
business or research relations and to find global partners for future collaboration. The research topics
addressed cover every discipline in all fields of social science, economics and arts. The conference topic
areas especially focus on such disciplines as language, cultural studies, economics, behavior studies, politi-
cal sciences, media and communication, psychology and human development.
We do hope that this book will have a positive impact on the social sciences, including the disciplines
of education, psychology, tourism and knowledge management.

Best regards,

Ford Lumban Gaol

Bina Nusantara University, Indonesia
Natalia Filimonova
Vladimir State University, Russia
Fonny Hutagalung
University of Malaya, Malaysia

ix
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Management of innovative development (on the example of tourism

in the Pskov region)

L.P. Goncharenko, S.A. Sybachin, S.V. Valeeva & S.V. Horshikyan

Plekhanov Russian University of Economics, Moscow, Russia

ABSTRACT: This paper considers the problems of domestic and inbound tourism. The objective was
to identify the necessary conditions for the successful development of tourism and to estimate the role of
the cluster and technology platform as tools of innovative management for the development of tourism.
For the purposes of the development of proposals aimed at creating innovative approaches for the pro-
motion of tourism services, the experience of the Pskov region was studied, and the statistical data and
federal and regional legislation were analyzed.

1 INTRODUCTION of tourism can be an additional advantage of

Consumer demand in Russia increased significantly
in late 2015 because of the closure of the popular
outbound tourist destinations. Satisfaction of this
demand is a high-priority task for 2016 and sub-
sequent years. According to the Federal Tourism
Agency, data growth in demand for domestic tour-
ism is ahead of the development of infrastructure,
reception infrastructure, and competitive tourism
products that meet the world standards of quality.
The key condition for the implementation of the
tourist potential of Russia is the implementation
of modern tools of state support for the devel-
opment of domestic tourism in Russia. Russia
has huge natural and recreational, cultural, and
historical potentials. It is necessary to develop
mechanisms to convert the potential into a liquid
competitive product.
The Russian government has paid full atten-
tion to the development of domestic tourism
lately. It should be noted that the cluster approach
underlies the Russian state policy in the sphere of
tourism development for the period until 2020.
Clusters form a new mechanism for the coopera-
tion of entrepreneurship and the government. Cre-
ating a tourist or tourism and recreation cluster
actually determines the positioning of the territory
and influences the formation of the region’s image
[Bunakov, 2011].
Nowadays, security issues of tourism are
extremely important especially at the level of
research works dedicated to security issues.
We should note the research works of L.P.
Goncharenko on the security issues [Goncharenko,
1999]. According to Russians, high level of security
domestic tourism.
As a matter of necessity to develop domestic
tourism, it is necessary to take measures to ensure
the collection and analysis of statistics; compre-
hensive consideration of hazards, planning, and
forecasting of security threats; and the application
of innovative technical security systems.
Innovative development is a system of meas-
ures distinguished by novelty and lead to positive
changes in the development of branches of economy.
Separate issues of innovative development were
studied by many researchers such as E.V. Bochkova
[Bochkova, 2013], S.S. Eletskaya [Eletskaya,
2011], and Yu.A. Arutyunova [Arutyunov,
2013, Arutyunov & Bashkatov, 2009, Arutyunov &
Sharanin, 2011, Arutyunov et al., 2014]. Several
authors examined the ways of innovative develop-
ment in the field of tourism [Barzykin, 2013,
Grinenko, 2012, Kalinina, 2013, Matyukhina,
2013, Shepelev, 2012, Uvalov, 2009].
It should be noted that the innovative param-
eters information platform of different areas of the
service sector is not sufficiently developed. Service
industry includes sectors that have undoubtedly
high level of innovative development. These are
industries that have their own research base offer-
ing the market improvements and radical techno-
logies. However, the tourism industry is not among
these sectors [Carson, 2005].
On that basis, it is necessary to develop inno-
vative approaches to the organization and devel-
opment of the tourism sector at the federal and
regional levels and the management of the inno-
vative development of tourism. The cluster app-
roach and the application of technology platform

1
mechanism are the important approaches in
modern science and practice.
2 METHODS AND THE RESEARCH BASE
Development and promotion of inter-regional
routes, «The Golden Ring of Russia», «The
Russian Estate», «The Great Volga», «The Silver
Ring of Russia», «The Great Tea Road», «The
Great Silk Road», and «Semiprecious Ring of the
Urals», are conducted for the strategy implementa-
tion of tourist potential promotion of Russia at the
state level. However, at the same time, these routes
are poorly developed, which prevents cultural
enrichment and health recovery of the population.
The Coordinating Council on the implementa-
tion of inter-regional and historical-cultural pro-
ject, «The Silver Ring of Russia», which brings
together 11 entities of the Russian Federation
forming part of the North-West Federal District,
was formed in December 2015. The project was
initiated and supported by the Ministry of Culture
and the Federal Agency for Tourism. «The Silver
Ring of Russia» includes the Pskov region.
Analysis of the current state of tourism in the
Pskov region shows that this area has been devel-
oped quite actively in recent years. One of the main
prerequisites for the development of tourism in the
Pskov region is the high historical and cultural
potential of the region. There are 537 units of fed-
eral significance and 3570 monuments of regional
significance, which affect the formation of the
tourism product in this region.
There are 17 museums (including branches),
3 theaters, and 414 institutions of cultural and
leisure type (361 of them located in rural areas)
in the region. The detail of number of visitors to
museums is shown on Table 1.
In total, there are 74 accommodation facilities in
the Pskov region, of which 51 are hotels and simi-
lar accommodation facilities and 18 are specialized
accommodation facilities, including 6 sanatorium
organizations and 12 organizations of rest and tour-
ist bases [Pskov Statistical Yearbook, 2015]. The
capacity of the hotel is 3203 rooms, including 1,613
rooms in hotels and similar accommodation facili-
ties and 1410 rooms in specialized accommodation
facilities. According to the results of 2014, the utili-
zation of the types of rooms amounted to 0.29.

Table 1. Dynamics of the number of visitors to museums (1000 people).

Visits to Museums 2010 2011 2012 2013 2014 2015

State Memorial Historical-Literary and 275, 4 261,9 340, 9 382 445,5 −

Natural-Landscape Museum-Reserve of
A.S. Pushkin “Mikhailovskoye”. 286, 217
Pskov State Integrated Historical and 159,2 187,1 185,6 198,3 210 262,3
Architectural and Art Museum Reserve
State Historical-Architectural, Landscape 122,4 134,8 222,8 250,1 280,2 297,3
and Natural Museum-Preserve «Izborsk»
“Military-Historical Museum of Pskov region” 11,7 11,8 13,2 14,4 14,9 15,3
TOTAL 580,1 609,1 683,5 803,7 887,1 1020,4

Table 2. Dynamics of the number of spa facilities and leisure facilities in the Pskov region (number of units) [Pskov
Statistical Yearbook, 2015].

2010 2011 2012 2013 2014

The number of summer recreational facilities—in total: 253 255 236 227 223
Among them:
Country stationary 19 23 22 21 21
with day stay 227 229 211 203 199
The number of hotels and similar accommodation 40 50 43 39 43
facilities
One-time capacity of hotels and similar accommodation 2536 2876 2816 2731 3897
facilities, rooms
The number of institutions of cultural and leisure type 352 438 414 409 394
including:
in cities and urban-type settlements 35 50 53 53 67
In the countryside 317 388 361 356 327

2
 According to the results of 2014, tourists in Kess—employment rate in service sphere
the Pskov region are serviced by 50 tourist ser-
vice companies engaged in tour operation, travel K ees
number of people employed in the enterprises of the cluster
agency services, or sightseeing activities. =
numbe
b r of people employed in the tertiary industry of a region
According to expert estimates, the tourist traffic
in the Pskov region in 2015 amounted to 370,000 (1)
people (according to SBD “Information Tour-
ist Center”, with increasing number of foreign 1. The proportion of manufacturing activity of
tourists, the tourist traffic as a whole does not the cluster enterprises within the service sphere
reduce below the level of 300,000 people for the Kpass—rate of production activity of service
past several years) as stated in Table 2. sphere
The formation of tourist cluster core has not K pass
taken place in the Pskov region yet. The main fac- added value of the cluster ent-es related to the service sphere
tor impeding the development of the cluster is the =
added value of the service sector of a region
lack of integrated tourism products, the formation
of which is largely determined by the lack of coor- (2)
dination and interagency disunity of the infrastruc- 2. The proportion of investments directed to the
ture. Each subject of tourist sectors tries to create its cluster in the total mass of the investment in the
own product and sell it by itself. In addition, there region economy.
is a weak development of innovation, information, Kia—rate of investment attractiveness
and educational infrastructure in the region. It includes two subrates:
Furthermore, it is important to note the lack Kiia—rate of in-country investment
of methodology for calculating the efficiency of attractiveness
cluster—quantitative analysis of its activities. To Kfia—rate of foreign investment attraction
date, the effectiveness of the cluster has been evalu-
ated on a number of quantitative indicators: iia
V of in country inv s directed to the development of a cluster
− An increase in tourist traffic of the Pskov region; =
V of
o foreign inv. s directed to the development of a reg.economy
− An increase in the total area of the hotel
infrastructure; (3)
− The number of additional beds created in collec- K fia
tive accommodation facilities; =
volume of foreign inv.directed to the development of a cluster
− Investment in fixed capital of means of accom- vvolume of foreign inv.directed to the development of a reg.econom
o y
modation (hotels, places for temporary resi- (4)
dence), invited during the implementation of the
project; The integral rate of investment attractiveness is
− Number of created additional jobs, for example, calculated as:
through the creation of new or modernization
of old sanatoriums, organization of eco-farms, Kiia + Kfia
development of walking roots, and so on; K ia = (5)
2
Quantitative indicators are considered from the
perspective of compliance with indicators charac- 3. The proportion of the cluster costs on innova-
terizing the degree of achievement of the project tion and R&D in the total mass of such costs of
objectives defined in the federal and regional fore- a region.
cast programs of the socioeconomic development Ksra—rate of scientific research activity
in the Pskov region.
Thus, there is no quantitative analysis of the cluster costs on innovations and R & D
K sra = (6)
cluster by collecting documentary and statistical n and R & D
region costs on innovations
information, the statistical in-depth study using
specific statistical data. It is necessary to imple- 4. The proportion of tax revenues to the regional
ment such econometric approaches as data colla- budget from the cluster structure in the total
tion and statistical grouping. amount of tax revenues to the regional budget.
It is important to note the need to introduce a
system of indicators that would allow evaluating Ktk—rate of tax revenue
the contribution of the cluster in the social sphere
of the region [Bochkova, 2011]: K tr
The proportion of people employed in enter- tax revenues of a cluster to the regional budget
= (7)
prises cluster related to the service sphere general tax revenue
n s to the regional budget

3
 After calculating the above rates, we can calcu-
late the aggregate.
Pc—the aggregate, the socioeconomic efficiency
of the cluster, and its role in the territorial division
of labor (power of cluster)
This indicator is calculated as the average of the
sum of the five proposed rates, namely:
Ks+Kpa+Kia+Ksra+Ktr
Pc = (8)
5
By calculating the value of this indicator over
the years, it is possible to trace the dynamics of
the cluster and its impact on the economy of the
region. It is also advisable to track the dynamics
of each of the proposed indicators over a number
of years.
3 STUDY RESULTS
Unfortunately, at present, there is no common
statistical database of Russian clusters. Statistical
reports on cluster activities should be made avail-
able to the statistical authorities, on the basis of
which the information about a cluster should be
formed. There is no specialized regional structure,
which would monitor the activities of enterprises
and organizations belonging to the cluster, to sub-
mit the data in the form of relevant reports, which
should contain data on the statistical concentration
of firms in the cluster compared to the total num-
ber of sector companies in the region and the state.
This predetermines the need to use new manage-
ment tools, namely the technological platform—
the communication tool for accelerating efforts for
developing promising commercial technologies,
new products (services), mobilization of additional
resources for research and development with the
participation of all stakeholders (business, science,
government, civil society), and improvement of
the legal framework in the field of innovation
development.
Technology platforms were initially developed
in Europe in the 2000s. Within its framework, stud-
ies in the field of aviation were conducted, and by
the way, it is associated with almost all of the most
significant achievements of the EU in the aviation
industry in recent years.
Among the successful technology platforms,
we can note a number of European programs:
European Technology Platform on Nanoelectron-
ics ENIAC, the European Construction Techno-
logy Platform AETR), and others [Porter, 2006].
By the EU definition, the Technology Platform
is an association of the representatives of govern-
ment, science, education, and business around
4
a common vision of technological development
and common approaches to the development of
relevant technologies. Thus, business does not give
science a task to undertake any specific studies
within the Technology Platform, but arranges it on
the general prospects for the development of a par-
ticular sector of the economy. Their joint actions
should provide a breakthrough movement in this
direction.
The value of a technology platform in the inno-
vative development of the tourism sector in the
region consists in the following:
1. joining efforts of science, education, business,
government, and community organizations
to search new directions of development on
public–private partnership and the collection
and study of statistics;
2. creation of additional incentives to coordi-
nate public, private, and international research
programs;
3. provision of motivation for business, education,
and science to search mutually beneficial coop-
eration in investment in the priority areas of the
tourism industry;
4. improving the structure of the tourism econ-
omy and the entire national economy and the
development of innovative services.
The implementation of Technology Platforms
will enhance the influence of the business sector
(businesses) to identify and implement the most
important activities, identify new scientific and
technical capabilities of the upgrading of exist-
ing areas of tourist activity, create new areas to
expand the scientific and industrial cooperation,
and improve the scientific and technical potential
of the tourism industry to implement complex
innovation projects.
4 CONCLUSIONS AND SUGGESTIONS
An organizational model of the innovative devel-
opment of tourist cluster of the Pskov region is
proposed in Figure 1. The development of nowa-
days Pskov region is impossible without strong
innovation tourism cluster. The popularity of
internal tourism is increasing, and it is high time to
meet the demand. On the basis of the above equa-
tions, the monetary efficiency (primary evaluation)
is beating 0,5% of the Pskov region DGP that
definitely points out the importance of innovation
development.
Let us consider the role of each element of the
proposed model:
1. Association of tourist companies performs the
communication functions, both vertically and
 horizontally. It is especially important for the
tourism industry, as enterprises of the cluster
core and the infrastructure (accommodation,
transport, catering, etc.) are represented by
small and medium-sized businesses, which are in
essential need to be provided by centralized ser-
vices, which they are unable to provide on their
own (consulting, promotion of international
markets, training, innovation, information ser-
vices, etc.). Creation of a public organization
(association) would greatly facilitate the imple-
mentation of communications, interaction
with authorities, and companies’ access to the
resources necessary for their activities.
2. Technology Platform (Innovation Center) of
a cluster. The developed tourist cluster of the
Pskov region should include such an element as
the Innovation Center or Technology Platform,
which together with the Association of tourist
companies will take over the role of the cluster-
forming core. The main objective of the Innova-
tion Center or Technology Platform of a cluster
should be to ensure the shortest possible path
through the chain of creation and implementa-
tion of the tourism product, its substantive con-
tent, marketing, consulting, and other support
activities of the core and cluster infrastructure
and to support the informational and educa-
tional infrastructure.
Figure 1. Organizational model of the innovative devel-
opment of tourist cluster of the Pskov region [Eletskaya,
2011].
5
Figure 2 highlights the main activities that need
to be addressed by the Technology Platform (Inno-
vation Center) of a cluster in the Pskov region.
Thus, the Technology Platform of the tourist
cluster of the Pskov region shall assume the fol-
lowing functions: statistics monitoring; analyti-
cal and consulting support for all elements of the
cluster; market surveys, analysis, and forecast of its
development; generation of recommendations on
various aspects of the tourism product promotion;
monitoring of the state of the cluster and its com-
ponents; and providing access to new technologies
and products. It is here where specialized informa-
tion database may be concentrated; counseling and
support as the organization and content of small
and medium-sized companies, providing access
to various types of intellectual resources; and the
implementation of continuous training for all ele-
ments of the cluster on their profiles. Such training
should be carried out on the platform where the
specialized information is aggregated and processed
and the professional communication environment
is formed. Formal and informal events held within
the framework of a technology platform are a way
of technology transfer.
In order to promote domestic and inbound
tourism, it is necessary to implement innovation
policy through the coordination of efforts to
create an innovative infrastructure and develop
innovative businesses as well as improve the inter-
action between government, business, and public
organizations. This work analyzes the problems
hampering more intense development of tourism,
including tourism security issue and the lack of
uniform statistical basis and, accordingly, in-depth
statistical analysis. By the example of the tourism
Figure 2. Branch of activities of the Technology Plat-
form (Innovation Center) of the developed tourist cluster
of the Pskov region.
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in the social sphere of the region, and the model formation of technological platforms as an effec-
of a technology platform has been proposed in tive tool of innovative development of regions:
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and change the mentality for susceptibility to the odology of economic security of a personality:
innovations. monograph. Ivanovo.
[10] Kalinina, L.E. 2013. Tourism planning as part of
the program-target method of state governance
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6
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Assessment of immaterial resources as an innovation tool of long-term

social and economic regional development

A.A. Yussuf
Vladimir State University, Vladimir, Russian Federation

R.N. Fedosova
Financial University Under the Government of the Russian Federation, Moscow, Russian Federation

T.V. Starikova
The Russian Presidential Academy of National Economy and Public Administration, Vladimir,
Russian Federation

ABSTRACT: This paper underlines the important role of innovation-oriented development of regions
to improve the competitiveness of not only their territories but also the country as a whole. The influ-
ence of immaterial resources on the process of regional development was demonstrated. The proprietary
methodology of the assessment of immaterial resources of the region, including the quality of usage, was
represented and tested. The selection of priority directions for the development of immaterial resources
of specific regions that contribute to their improved innovation activity was justified.

1 INTRODUCTION • the availability of internal resources of regional

The activation of innovation processes plays an
important role in the renewal of the regional envi-
ronment. Innovation is the base of modern eco-
nomic growth and precondition for the successful
implementation of any programs and development
projects.
The current worldwide trend toward inno-
vative development and internal challenges of
Russia involves searching for additional com-
petitive advantages for improving the efficiency
and competitiveness of the national economy.
The immaterial resources of the region (informa-
tion, knowledge and skills of the region’s resi-
dents, brand and image of the region, software,
intellectual property, etc.) have a high competi-
tive potential in the knowledge economy. Infor-
mation and knowledge together with material
resources (natural, industrial, etc.) are the cru-
cial factors of development in the making of a
competitive economy. Experience of progres-
sive countries (Germany, Japan, and the United
States) has shown that the part of immaterial
resources of the region is a priority for ensuring
the improvement of quality and social and eco-
nomic development.
Accordingly, it is possible to determine the num-
ber of factors that improve the innovation activity
in the regions:
development in the form of material and imma-
terial resources;
• the acquisition by the prior material factors of
the development of the new “knowledge” nature
that causes the “adaptation” to the solution
of problems of creation and development of
regional innovation systems;
• the increase of budget component, which is
focused on the innovation development of the
region (Starikova 2014);
• the emergence of fundamentally new factors of
regional development that are directly related
to the new knowledge and innovation: the flow
of knowledge and technology transfer, creative
staff, etc. (Pelyasov 2012).
It should be noted that regional authorities pay
insufficient attention to the implementation of a
systematic and complex approach to the improve-
ment of innovation activity of the catchment areas
that allows focusing the attention of the widest
range of both internal and external resources on
the solution of problems of regional development.
At the same time, in the context of postindus-
trial society formation, involving global comput-
erization and activation of innovation processes,
the improvement of innovation activity of regional
economies should be considered in the context of
effective engagement in the regional development

7
process of all not only all types of materials but
also various types of immaterial resources. A well-
built regional development strategy is able to join
the efforts of all regional actors as well as to attract
external (including foreign) investors to provide
the efficient use of all resources taken together.
The studies of immaterial resources of the
region as an economic category are insufficient.
Studies conducted in this area are mainly focused
on the corporate level (Bulyga 2014, Gileva 2014,
Hussi 2004, Mokrova 2011, Sullivan 2000).
Unfortunately, the public does not pay attention
to the meaning of immaterial resources (brand of
the region, branding, strategy, etc.) in the regional
development.
The issues of regional development given the
importance of the immaterial component began
to attract increased attention of scientists and
experts with the development of ideas about inno-
vation processes in the regional economy and the
formation of the concept of Regional Innovation
Systems (RIS) from approximately the early 2000s.
Regional innovation systems, bringing together
organizations and institutions, private and public
interests, contribute to the accumulation, use, and
dissemination of knowledge (Doloreux 2003). The
emerging systemic effects encourage enterprises of
a certain region to develop specific forms of capi-
tal that are derived from social relations, norms,
values, and interactions within a society in order
to strengthen the innovative capacity and competi-
tiveness of the region (Asheim & Gertler 2006).
Currently, works on theoretical and applied
nature, devoted to the study of the regional imma-
terial resources formation and their role in ensur-
ing innovation development and competitiveness
of the region have become common (Brumshteyn
2014, Erohina 2015, Labra et al. 2016, Loseva et al.
2014, Yakushkina 2012).
However, there is virtually no work devoted to
the development of methods for the evaluation of
quality of structural components of immaterial
resources of the region, as the most important that
ensures the efficiency of regional innovation sys-
tem. Thus, the analysis of this problem becomes
apparent.
The purpose of the paper is to clarify the con-
tent of the “immaterial resources of the region”
category and the development of assessment meth-
ods to justify the selection of priority directions
of development that contribute to the increase of
innovation activity of regions.
2 RESEARCH METHODOLOGY
Because the “immaterial resources” category is
wide enough for further characteristics, evaluation,
8
and analysis of immaterial resources, it is necessary
to define its key components. It should be noted
that the systematization of the scattered informa-
tion about immaterial resources at the regional
level has not been carried out.
Some researchers distinguish human and social
capitals in the structure of immaterial resources
(Crescenzi et  al. 2013, Helliwell et  al. 2014, Popa
2010), as well as intellectual property and research
capacity (Bontis 2004, Loseva et  al. 2014). The
human capital is a central element of regional
development resources, and the social capital is
considered as a result of the interaction between
formal or informal institutions and labor processes
in a society (Popa 2010).
In some works, it is possible to find the notion
of “immaterial capital” as a combination of all
the knowledge included in the process of creating
economic value, which is regarded as the founda-
tion of economic development of the country
(Dumitrascu & Dumitrascu 2013).
The researchers also noted among the com-
ponents of sustainable long-term growth along
with material resources intangible factors such as
human development, country image, working con-
ditions, environmental situation, the level of inno-
vation development, public sector efficiency, and
national intellectual capital (Navarro et al. 2014).
The immaterial resources of the region can be
represented as an aggregate of the following com-
ponents: intellectual, human and educational pro-
vision, the labor potential of the territory; cultural
and historical heritage and resources of the region;
institutional capital, including high-quality legal
and legislative support of human activity; infor-
mation and consulting capabilities and resources;
political assets, their capacity and the perform-
ance of management; image, brand, reputation
of the region in the perception of public, the out-
side world, and the “allies and enemies” (Erohina
2015).
In our view, the immaterial resources of the
region are the resources used in material and imma-
terial production, which bring income exceeding
real costs on its usage and can participate in the
process of development in immaterial form. It
seems that immaterial resources of the region are
the result of interactions between immaterial and
material resources, economic agents operating in
its territory. The immaterial resources themselves
arise as a result of new and unique knowledge,
which allows not only to estimate the current
state of regional development, but also to deter-
mine the opportunities for economic growth. The
distinctive features of these resources are the lack
of material basis of income and the uncertainty
in the size of future profits and economic benefits
from their use. Therefore, the use of immaterial
resources provides their holder with significant
competitive advantages and additional develop-
ment opportunities.
Because of the information approach, which
has been used in the study, the information and
knowledge, the base of immaterial resources, have
become efficient power in the conditions of inno-
vative economy. The immaterial resources such as
information and knowledge have been classified
into three groups: strategic, administrative, and
intellectual resources of the region, as they are not
homogeneous and perform several functions in the
management of region development.
A strategic resource is defined as a set of nec-
essary tools, coordinated and interfaced with the
development strategy of economic entities of the
region, namely mission, goals, environment analy-
sis, strategic plan, and development scenario.
Administrative resource is a set of manage-
ment tools (e-government, civil servant code,
personnel reserve and vacancies, certification
and recertification of public employees, knowl-
edge management system, quality management
system) as well as the administrative staff with
innovative knowledge, professional competence,
and high moral characters. It is able to increase
the synergistic effect through the efficient use of
all resources (both material and immaterial) and
capabilities of the region that ensure the imple-
mentation of the development strategy of the
subject.
The intellectual resource is a characteristic of
the sustainable ability of the region to innovation-
oriented development. It is characterized by the
innovation activity of enterprises, the costs of
research and development, implementation and
use of the results of scientific and technological
activities in the region for several years.
The quality of immaterial resources that have
been allocated in the study is determined by the
level of susceptibility of the region to the use of
immaterial resources, as well as the degree of
regional activity in the process of their formation.
In accordance with this provision, a productivity-
evaluating indicator of immaterial resources in
the region (KIR) was formalized. The performance
evaluations of strategic, administrative, and intel-
lectual resources of the region were integrated with
the help of such indicator:
K IR = K A ∪ K S ∪ K I (1)
where KN = a coefficient that evaluates the imma-
terial resources of the region (A is administrative,
S is strategic, and I is intellectual).
The methodology of the evaluation of immate-
rial resources of the region (Figure 1), represented
in this study, includes the steps in the calculation of
9
Figure 1. Methodology of the evaluation of immaterial
resources.
the coefficient that assesses the structural elements
of the allocated system of immaterial resources,
integrating their values into a composite index and
interpreting the results.
Step  1. The coefficients that assess strategic (KS)
and administrative (KA) resources can be calcu-
lated by the following formula:
m
∑ m( + )
K in = 1
(2)
m
where n   =  a strategic or administrative resource
of the i-region (the subject of the Russian Federa-
tion); m = the number of estimated parameters;
and m (+)  =  the number of positively valued
parameters.
When calculating the coefficient that determines
the strategic resource, we have to evaluate the fol-
lowing parameters: mission, purpose, environment
analysis, strategic plan, implementation tools, and
development scenario.
For the administrative resources, this is an
e-government, civil servant code, personnel reserve
and vacancies, certification and re-certification of
civil servants, knowledge management system, and
quality management system.
Step 2. The assessment of the region’s intellectual
resource should be determined on the basis of
the comparison of actual values of indicators
with the highest possible value, using the fol-
lowing formula:
xij x j min
K ij = (3)
xj x j min
where xij   =  the actual value of j-index for the
i-region; xjmax =  the highest value for the j-index;
and xjmin = the lowest value of the j-index.
The following parameters should be consid-
ered as indicators of the assessment of intellectual
Table 1. Characteristic of values assessment of immate-
rial resources of the region.
Value of composite
coefficients Economic characteristics*
1,0 ≥ KIR ≥ 0,5 High level
0,5 > KIR ≥ 0,2 Middle level
0,2 > KIR ≥ 0,0 Low level
* Proposed by the authors.
property, innovation activity of the enterprises,
and costs of research and development.
The result is three indices that assess the intellec-
tual resource of the region. Each index can range
from 0 to 1, and the best results are characterized
by values close to 1. In order to get a composite
ratio, we should calculate the arithmetic mean of
all the obtained indices of intellectual resource of
the region.
Step 3. The integration into a consolidated indica-
tor of the performance of regional immaterial
resources (KIR) of all the calculated indicators.
The possibility of such integration is due to
bringing the values of the indicators in natural
and cost measurements to a single range:
K IR i K AAii wA K Si wS K Ii wI
where wN = the weight coefficient that reflects the
level of importance of each type of immaterial
resources.
The values of these coefficients characterize
opinions of state and municipal servants, as well
as scientists and business representatives about the
state, development and use of the outlined kinds
of immaterial resources (which can be defined
through the sociological survey data).
Step  4. Interpretation of the results. Because the
maximum value of each coefficient that assesses
the immaterial resources of the region is 1, the
composite indicator (the integrated coefficient)
of the performance of evaluation of immaterial
resources of the region will strive to 1.
Table 1 shows the variants of values assessment
of the region’s development.
On the basis of comparison of data received as
a result of calculations of values with normative
(Table 1), the conclusion about the degree of devel-
opment of any type of immaterial resources is built
up. In case of low and middle level of the immate-
rial resources development, the recommendations for
their improvement are elaborated.
3 METHODS OF TESTING AND ANALYSIS
OF RESULTS
The methodology represented in this paper was
approbated to determine its effectiveness in evaluat-
ing the immaterial resources of regions of the Cen-
tral Federal District of the Russian Federation.
Step 1. On the basis of the characteristics of the
strategic and administrative resources by using
formula (2), we may calculate the coefficient
values that evaluate strategic and administrative
resources of the Central Federal District (cal-
culation results in Table 3). We should use the
information and data published on the official
websites as the values of the estimated param-
eters of each resource.
Step  2. Using the values of parameters moni-
tored by the Federal Service of State Statistics
(Regions of the Russian Federation. Socio-
economic indicators 2015) and formula (3), we
can calculate the values of indices, which charac-
terize the state of the intellectual resource in the
regions of the Central Federal District (Table 2).
Table  2  reveals that the high level of the intel-
lectual resource development is typical for Moscow
and the middle for the Vladimir, Kaluga, Lipetsk,
Kursk, Moscow, Ryazan, and Yaroslavl regions.
About half of the surveyed regions are in the group
(4) of low level of intellectual resource development.
Step 3. We can calculate the values of composite
indicators of the evaluating performance of
immaterial resources of the regions of the Cen-
tral Federal District using formula (4).
In this paper, we use the assumption of the equiv-
alence of all directions in the evaluation of immate-
rial resources due to the possibility of introducing of
equal weighting coefficients using expert method in
the calculation formula. The calculation data are pre-
sented in Table 3 and shown graphically in Figure 2.
The data presented in Table 3 and Figure 2 indi-
cated that Moscow is an obvious leader of the
Central Federal Region in terms of the state of imma-
terial resources. It should be noted that the Belgorod,
Voronezh, Kaluga, Lipetsk, and Moscow regions
demonstrated the highest values. The Vladimir,
Ivanovo, Kursk, Orel, Ryazan, Tambov, Tver, Tula,
and Yaroslavl regions are at the same level with the
index of the integral coefficient close to the extreme
value in the high-level range. The Bryansk, Smolensk,
and Kostroma regions occupy middle positions due
to their low innovation activity. It is possible to raise
the level of these regions due to the development of
intellectual resources, increasing the investment in
scientific research and educational projects.
10
Table 2. Matrix of indices that characterize the state of the regions of the Central Federal District by the level of the
development of intellectual resource (2014).

Indices that assess the intellectual resource of the region

Regions of the
Central Innovation activity Costs of research Composite
Federal District Intellectual property of the enterprises and development coefficient (KI)

Belgorod region 0,096 0,429 0,046 0,190

Bryansk region 0,038 0,172 0,009 0,073
Vladimir region 0,166 0,516 0,115 0,266
Voronezh region 0,307 0,336 0,124 0,256
Ivanovo region 0,506 0,023 0,022 0,184
Kaluga region 0,108 0,289 0,452 0,283
Kostroma region 0,025 0,000 0,000 0,008
Kursk region 0,192 0,305 0,139 0,212
Lipetsk region 0,025 0,984 0,005 0,338
Moscow region 0,321 0,211 0,632 0,388
Orel region 0,147 0,188 0,018 0,118
Ryazan region 0,108 0,555 0,059 0,241
Smolensk region 0,000 0,047 0,041 0,029
Tambov region 0,083 0,242 0,098 0,141
Tver region 0,103 0,156 0,132 0,130
Tula region 0,141 0,578 0,085 0,268
Yaroslavl region 0,173 0,336 0,179 0,229
Moscow 1,000 1,000 1,000 1,000

Table  3. Results of the calculation of integral coef-

ficients of the immaterial resources evaluated in the
regions of the Central Federal District (2014).

Values of the
coefficients which Integral
evaluate strategic coefficient,
administrative and which
Regions of the intelligent resources evaluates
Central immaterial
Federal District KC KA KI resources

Belgorod region 1,000 0,833 0,190 0,674

Bryansk region 0,833 0,500 0,073 0,469 Figure  2. Evaluation of immaterial resources in the
Vladimir region 0,833 0,667 0,266 0,589 regions of the Central Federal District (2014).
Voronezh region 1,000 0,833 0,256 0,696
Ivanovo region 0,833 0,667 0,184 0,561
Kaluga region 1,000 0,833 0,283 0,705 In general, the Central Federal District is a
Kostroma region 0,667 0,500 0,008 0,392 leader in social and economic development in
Kursk region 0,833 0,667 0,212 0,571 Russia and also has high levels of the immaterial
Lipetsk region 1,000 0,833 0,338 0,724 resources development, which can be attributed to
Moscow region 1,000 0,833 0,338 0,740 the presence of regions with a high concentration
Orel region 0,833 0,667 0,118 0,539
of researchers and research organizations.
Ryazan region 0,833 0,667 0,241 0,580
Thus, the highest values of the integral coef-
Smolensk region 0,667 0,500 0,029 0,399
ficient, which evaluates the immaterial resources,
Tambov region 0,833 0,667 0,141 0,547
are typical for regions in which the administra-
Tver region 0,833 0,667 0,130 0,543
tion together with the local community pays great
Tula region 0,833 0,667 0,268 0,589
Yaroslavl region 0,833 0,667 0,229 0,576
attention to the development of a modern strategy
Moscow 1,000 0,833 1,000 0,944
of the balanced infrastructure development, pro-
viding conditions for the expanded reproduction

11
of human capital that is the main precondition
and condition for the development of national
innovation systems.
4 CONCLUSIONS
The evaluation technique of immaterial resources,
provided by the paper, has a high practical signifi-
cance as it enables regional authorities to deter-
mine the priority directions for the development
of immaterial resources. The proposed method of
immaterial resources assessment allows to deter-
mine the priorities for the development of immate-
rial resources. It seems that the development and
implementation of a regional development strat-
egy, taking into account the importance of imma-
terial resources in the the conditions of economy
based on knowledge and strategic competence,
is a vital component, which provides the basis of
self-development of the region. The regular evalu-
ation of immaterial resources gives the possibility
to check the correctness of the chosen strategy and
take corrective actions on time.
The results of the study can be the basis for fur-
ther research of actual problems in the evaluation
of immaterial resources of the regions and used in
the improvement of methods for the evaluation of
investment attractiveness and competitiveness of the
regions.
The quantitative evaluation of immaterial
resources of the region remains an open and con-
troversial topic. Supplementing the set of indica-
tors of assessment will provide for a more accurate
and complete description of immaterial resources
of the region for the development of measures for
the regulation of the innovation process.
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© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Development of regional forest potential of Russia in the context of

bio-economic trend

S.V. Makar & A.V. Yarasheva

Financial University, Moscow, Russia

ABSTRACT: In global transition to bio-economy, in addition to implementation of the sustainability

principle, principles of environmental friendliness and energy efficiency play a significant role. From these
positions the authors consider forest sector as a key part of the bio-economy formation in the context
of establishment and expansion of the biofuel market, where a significant place belongs to the market
of wood pellets. Despite the fact that according to public policy of the past two decades national for-
est management issues are given considerable attention, the leading position in current strategy for the
development of Russia’s forest complex until 2020 does not belong to the energy concept. In this regard,
the article highlights trends and processes of supranational (global and regional), national and subna-
tional (regional) level, which form, define and reflect the objective trend—transition to bioenergy, and in
this vector—creation the linkage between bio-economy and development of Russian forest potential. In
the research logical-substantive, statistical, regional, technological-economic, strategic, content analysis,
SWOT analysis, methods of empirical and theoretical generalization are used. Strategic factors of regional
forest potential realization in the context of bio-economy principles are indicated.

1 INTRODUCTION

One of the priority directions of the state and

society activities is nature conservation and envi-
ronmental improvement. According to the Eco-
logical Doctrine of the Russian Federation, the
natural environment should be included in the
system of socio-economic relations as the most
valuable component of the national wealth. The
strategic goal of state policy in the field of ecol-
ogy is preservation of natural systems, maintain-
ing their integrity and life-supporting functions
for sustainable development of society, improve-
ment of life quality, enhancement of population Figure 1. Research methods.
health and demographic situation, preserving
ecological security of the country. The Doctrine
indicates that to achieve this goal it is necessary to methods of logical-substantive, statistical, regional,
ensure rational use of natural resources, introduce technological-economic, strategic, content analysis,
resource-saving and waste-free technologies in all SWOT analysis, methods of empirical and theoreti-
spheres of economic activity, support eco-efficient cal generalization (Fig. 1).
energy production, including renewable sources.

3 RESULTS OF THE RESEARCH

2 RESEARCH METHODS
During the research, the authors used statisti-
cal data of the information-analytical system
Bloomberg Professional, legal sources of the
Russian legislation, as well as scientific findings
of Russian scientists, including copyright, to apply
Table  1 presents data on the contribution of
“green” energy production in the GDP of devel-
oped and developing countries, including coun-
tries of the BRICS group which Russia belongs to.
In European countries and in the U.S., biofuel is
one of the main sources of energy. It is considered

13
Table  1. The share of renewable energy sources in Table 2. CO2 emissions, g/kW/h.
countries GDP%.
Electricity 670
Country 2015 2014 2013 2012 2011 2010
Diesel 350
Brazil −3,48 0,14 3,02 1,91 3,94 7,58 Gas 225
Canada 1,18 2,47 2,22 1,75 3,14 3,08 Pellets 45
China 6,90 7,30 7,70 7,70 9,50 10,60
Eurozone 1,60 0,90 −0,30 −0,90 1,60 2,10 Source: News of gas science. Scientific
France 1,20 0,20 0,70 0,20 2,10 2,00 and technical collection. 2013. 2: 58.
Germany 1,70 1,60 0,30 0,40 3,70 4,10
Italy 0,80 −0,30 −1,70 −2,80 0,60 1,70
India 7,30 6,90 4,73 4,83 7,68 9,35 growth are expected. Foreign forecasts indicate that
Japan 0,53 −0,03 1,38 1,80 −0,45 4,75 by 2020 the annual demand for pellets in Europe
Spain 3,20 1,40 −1,70 −2,60 −1,00 0,00 will be in the range of 80 to 135 million tons. Eco-
United 2,30 2,90 2,20 1,20 2,00 1,50 nomic policy of the EU aims to support the use of
Kingdom biofuel through the mechanisms of subsidies and
United 2,40 2,40 1,50 2,20 1,60 2,50 grants, as well as investments in the construction
States of large power plants on biofuel. Despite the rapid
development of the pellet production the demand
Source: Information-analytical system Bloomberg Pro- in the next 15–20 years will exceed the supply that
fessional, date of reference 13.04.2016. opens well-defined capabilities for Russia.
In terms of Russian analysts [Sidorova, 2012],
according to the forecast of structure of primary
in recalculation of ethanol. World leader in ethanol energy consumption in the world by types of fuel,
production is the USA. Primary production prepared by ERI RAS and Analytical center under
accounts for 11 companies, two of which—Archer- the Government of the Russian Federation, in the
Daniels-Midland and POET Biorefining—have a long term perspective the share of bioenergy in
share in country’s production of more than 10% 2040 compared to 2010 remains without positive
each. In European coutries there are also powerful dynamics—10%, at that the contribution of other
producers of biofuels. Three companies—Abengoa forms of renewable energy is even decreasing (from
SA, Internasional Tereos SA and CropEnergies 32% in 2010 to 26% in 2040).
AG have a market share of over 20% each. At the national level, it should be noted that the
The dominance of renewable sources of energy decree of the President of the Russian Federation
is the attribute of now emerging paradigm of the “About some measures to improve energy and envi-
third industrial revolution, with which leading ronmental efficiency of Russian economy” [Decree
experts [Rifkin, 2014; Bobylev and others, 2014; of the President of the Russian Federation, 2008]
Tkachenko, 2014] link the move to a new bio- is among the most important modern documents
economical way. The reason for the growth of the defining the socio-economic development of the
economic interest to the pellets is that they are country. In addition we should also note the fol-
more environmentally friendly than traditional lowing public documents on energy efficiency and
fuel. Table 2 is a comparative chart of CO2 emis- biotechnology:
sions of various heating systems (electric, light
diesel, gas and pellet). Thus, the reduction of the − Directive of the Government of the Russian
greenhouse effect is apparent, because the wood Federation from May 3, 2013 No. 512-r “On
releases as much CO2, as it took during the growth approval of the state program “Energy effi-
(closed carbon exchange), whereas during the ciency and energy development”.
combustion of fossil fuel, by contrast, carbon acid − An integrated program of biotechnology devel-
collected for millions of years is freed, which leads opment in the Russian Federation for the period
to the increase of CO2 in the atmosphere and the up to 2020. No. 1853—P8 from April 24, 2012.
greenhouse effect. − Federal law from November 23, 2009 No. 261-
It is obvious that the growing popularity of FL “On energy saving and on increasing energy
pellets should be supported politically. Thus, the efficiency and on amendments to certain legisla-
EU Directive required EU countries to increase tive acts of the Russian Federation”.
the share of Renewable Energy Sources (RES) in − The resolution of the Government of the
electricity generation to 20% by 2020. According Russian Federation from December 31, 2009
to experts, the majority of these 20% will belong to No. 1225 “On requirements to regional and
the wood granules, and therefore major changes on municipal programs in the field of energy saving
the European pellet market in the direction of its and energy efficiency”.

14
− The resolution of the Government of the
Russian Federation from May 15, 2010 No. 340
“On the procedure of programs’ requirements
establishment in the field of energy saving and
increase of energy efficiency of organizations
conducting regulated types of activity”.
− The resolution of the Government of the
Russian Federation from October 17, 2009
No. 823 “On schemes and programs of perspec-
tive development of electric power industry”.
As a result of reforming the existing system of
forest Fund state management in accordance with
the Forest code (2006), the efficiency of the forest
industry complex and the viability of forestry are
among modern priorities of the Russian govern-
ment. These questions retain their relevance at the
national level, while regional (subnational) focus is
increasing due to the impact of the forest sector on
the regional situation and the socio-economic situ-
ation of most regions.
It should be emphasized that attention to
forest bioenergy [Kozhukhov and others, 2010;
Buldakov, 2008] opens new possibilities of for-
est potential development for Russia, which are
formed by regional (subnational) determinants:
proximity to markets, availability of free rental
of low-value timber base, the ability to attract
existing producers, increasing opportunities for
small and medium business, the availability of
suitable production sites. Biofuel production is
a promising direction of the national economy
and is scientifically proven as one of the direc-
tions of Russian European part regions forest
potential development [Makar, 2012]. In addi-
tion, forest bioenergy is a factor of spatial
organization of some regions’ regional econ-
omy [Makar, 2013] (in particular, in connection
with transfer of housing sector to wood pel-
lets). Selected variants of wood deep processing
(mechanical, chemical and energy)—as activities
for the production of forest products with high
added value can be the cores of allocated and
formed regional clusters.
The above-mentioned competitive advantages
for the development of energy sphere of wood
deep processing can allow the production of com-
posite materials for energy purposes (pellets) to
become the core of a regional cluster system in the
multi-forest timber and middle-forest developed
regions of the Russian European part [Makar,
2011]. Accommodation of innovative enterprises
for the production of wood fuel pellets in these
regions is linked with the presence of low-grade
wood reserves, wastes of already created timber
production, proximity to markets, opportunities
of domestic consumption. The location of new
production facilities of this profile will lead to
15
optimization of use of both forestry resources and
structure of regional space.
Concepts of domestic biofuel production on
the basis of the best available options of pyrolysis/
gasification of biomass illiquid positioned in
Russia should be mentioned.
At the regional (subnational) level, it is neces-
sary to allocate the basic stages of strategy of
regional forest potential development formation,
which should be specified and detailed with the
region’s peculiarities:
1. General assessment of region’s potential, includ-
ing the place of forest potential and the assess-
ment of the effectiveness of its implementation;
2. SWOT analysis to the strategic choice of prefer-
ences for the development of forest potential of
the region;
3. Analysis of prerequisites of region’s forest-
producing cluster formation;
4. Formation of structure and directions of devel-
opment of the specified cluster and regional
cluster system;
5. Determination of implementation challenges
for the strategy of regional forest potential
development.
Selection and formation of forest-producing
cluster as a spatial component of the regional clus-
ter system based on the energy benefits of wood
deep processing can be visualized from the exam-
ple of the Pskov region [Makar, 2015].
The forest fund of the Pskov region is formed
predominantly (over 60%) by deciduous spe-
cies that are not in demand on the market of
marketable timber. Comparison of the allow-
able volume of wood removal and the actual
workpiece within a region indicates significant
reserves.
To identify strategic preferences of Pskov
region, privileges and restrictions of the Pskov
region’s forest potential development the SWOT-
analysis was conducted. The following advantages
of the region should be mentioned:
1) the unique economic-geographical and geo-
political position (the Pskov region borders with
the Leningrad, Novgorod, Tver, Smolensk regions,
Estonia, Latvia and Belarus), which offers sig-
nificant opportunities for interregional and inter-
national relations; 2) large stocks of hardwood
timber, which are not in demand in the forestry
industry (estimated at 3.3  million m3 per year);
3) relatively developed transport infrastructure
of the region: the average density of the region’s
transport network of all technical categories is
quite high—7.7  km/1000 ha; for the purposes of
forest management all kinds of roads, available for
forest area are used.
 The internal weaknesses of the region include:
1. limited sources of energy—region is experi-
encing an acute shortage of electricity; policy of
the Pskov region in the field of energy supply is
developed and implemented in accordance with the
current Energy strategy of Russia for the period
up to 2030 where it is determined that the state
policy in the sphere of local fuels use will provide
for the restoration and support of local sources of
fuel production development, creation of thermal
power stations and boilers functioning on these
fuel sources (peat, wastes from forest and wood
processing industry). The administration of the
Pskov region adopted a resolution from 18.05.2010
No. 174 “On approval of the regional long-term
target program “Development of the use of peat
and other local fuel types in the Pskov region until
2015 (2010–2014)”; due to its implementation it is
planned to move away from imported fuel—fuel oil
and coal (because it is expensive and directly affects
tariff for the population) and to use local fuels: peat,
wood chips, wood fuel granules (pellets). The total
amount of program funding is 2  billion roubles;
2) depopulation—a demographic situation in the
region requires new ways of energy supply based
on local energy, so that not to spend large funds for
the maintenance of electric networks; this is due to
the fact that in 4,5 thousand out of 8,5 thousand
population centers of the Pskov region live from 3
to 10 people; 3) low level of forest resources usage
potential; 4) decline in investment activity—major
investment projects planned for implementation in
the region including implementation in the forestry
sector are frozen; 5) growth of unemployment and
decline in living standards of the population dur-
ing the late first—early second decades of the 21st
century; 6) decrease in revenues and a rising budget
deficit in the observed period.
Thus, the pursuit of realization of external
conditions for development can help to reduce
intraregional risk and to overcome development
constraints.
To external opportunities we include, first,
the increasing demand for biofuels in Western
European countries, while policy of the EU
favors import of solid biofuels, prices for solid
biofuels tend to increase. Second, the reduction
of employment in the megacities of Moscow and
St. Petersburg can be considered as a possibility
of returning active population to the region and
increasing the flow of qualified personnel. Third,
in the conditions of Federal target programs reali-
zation it is possible to attract additional financial
resources for the formation and development of
innovative industries of strategic regions’ econ-
omy. Thus, there is an opportunity to increase the
presence of the region on external markets.
External threats of region’s development,
which can be differentiated according to the level
16
(scale) as national and supranational, and by
genesis—natural and anthropogenic, include:
1. price growth for traditional energy sources
(natural gas)—in accordance with the plans of the
“Gazprom” concern and Federal Executive author-
ities in the coming years the price of natural gas
for Russian consumers will rise considerably. The
Russian Federation joining WTO will also facilitate
the alignment of internal and external energy prices;
by increasing the cost of gas by 2 times fuel compo-
nent of the heat cost produced by gas boiler will be
equal to the same indicator of boiler working on
fuel granules; 2) climate anomalies—fires, propaga-
tion and introduction of forest (insects) harmful
organisms-pests; 3) food problems related to forest
degradation; 4) risk of economic instability.
On the basis of external opportunities and inter-
nal advantages, in the Pskov region the priority
types of activities should become those associated
with deep processing of wood, which are primarily
determined by the following prerequisites:
− involvement of low-grade wood in processing;
− development of industries using hardwoods;
− feasibility of wood pellets production.
Mentioned conditions indicate the necessity
of attracting investments to create a large pellet
complex, including forest harvesting and deep pro-
cessing of wood raw material, waste logging and
wood processing which is not in demand. Fuel
wood pellets which are supposed to be produced
in the Pskov region, must comply with the require-
ments of the European market of biofuels, which
will increase export potential of the region. This
will make the regional economy more sustainable.
The production, located in the Pskov region, will
be able to compete with European producers due
to the scale of production, but also with large man-
ufacturers from North and South America and
Australia—thanks to lower cost of final products
shipping to customers.
External threats should be prevented, reduced,
neutralized in order to realize internal benefits.
So, with the price growth for traditional energy
sources and the preservation of the production
volumes of thermal energy, environmental indica-
tors of power facilities, working on biomass would
be significantly higher. In the future it will provide
additional increase in domestic demand for alter-
native fuels, primarily for wood pellets.
The establishment of a security management
system for the development of regional forest poten-
tial include prediction of climate processes, moni-
toring of threats, analysis of causes, definition of
temporal and spatial risks, formation (reformation)
of tools to counter threats, and raising social and
environmental responsibility, interdepartmental
and interregional interaction. For the Pskov region
we are talking about integrated use of local fuels
(advantage to environmentally friendly sources of
energy—bio-fuels), waste management of timber
cutting and wood processing (quality of environ-
ment), economic modernization and socio-cultural
spheres (quality of life).
The Pskov region is characterized by a relative
lack of energy resources. However, the presence of
free balances of low-grade wood here stimulates
deep processing of raw materials. The core of the
cluster should become a new production of deep
energy wood processing, that meets the needs of
internal and external wood markets. Thus, regional
project covers:
1) integrated development of timber indus-
try and the creation of bioenergy object; 2) the
development of advanced technologies to improve
performance of wood products, in terms of pro-
cessing low-grade wood, waste timber and wood
processing; 3) support of new markets and increase
of international competitiveness; 4) saving energy
resources and raw materials, complex utilization
of resources and regenerated resources, as well as
prevention of environmental pollution; 5) provi-
sion of employment in rural areas. Competitive
advantages generated in terms of plant project are
determined by large volumes of production, avail-
ability of own raw materials and efficient logistics.
Wood pellet production (as primary production)
will form the structure of the region’s timber cluster
core and will determine the composition of its shell,
proceeding from technological features of fuel pellets
production, consisting of several stages. The manu-
facturing process is designed to work with all types
of raw wood and includes three main phases: prepa-
ration of raw materials, drying of raw materials,
granulation. During preparation it is possible to use
various types of raw materials: round timber, waste
processing (slabs, rods), wood chips, sawdust, etc.
Feasibility of regional boiler-houses transfer to
wood fuel pellets is determined by the following
factors:
• possible saving of the fuel component of the
heat cost (compared to fuel oil and coal);
• savings of other components of the heat cost
price due to the increase of reliability of fuel
supply, automation of fuel burning processes
(compared to oil, charcoal, firewood);
• reduction of ecological load on the region’s
territory through the use of clean fuel and the
simultaneous disposal of wood waste (compared
to oil fuel and coal).
Raw material supply of cluster core in terms of
project is planned to be implemented through the
organization of own timber harvesting on the ter-
ritory of the Pskov region and use of unmarketable
wood as a raw material. Wastes from sawmills and
wood processing industries operating on the region’s
territory can be used as additional raw materials.
17
Non-commodity wood and waste from harvesting
fuelwood (mostly hardwood); pulpwood (coniferous
and deciduous); small timber (coniferous and decid-
uous), and additionally: wood chips, sawdust, slab
(own and third-party wastes from sawmills and wood
processing enterprises), etc. are assumed to be used
as a basic raw material for pellet production. With
total requirement of raw materials of approximately
385 thousand m3 of wood to produce 140 thousand
tons of pellets, from organizational and economic
points of view the volume of private timber harvest-
ing should be limited to 60–65% of total demand.
The remaining volume should be purchased as illiq-
uid at existing loggers. Such an approach will allow
to create illiquid market of wood in the region and
reduce their own costs for logging.
Research of project rationale for creation of
industrial complex for deep energy processing of
wood and for provision of solid biofuels issue on
the territory of the Pskov region, has shown that:
• there are all necessary preconditions and oppor-
tunities to create the complex;
• forest resources of the region fully satisfy the
needs of complex for raw material;
• existing infrastructure allows to organize effec-
tive logistic schemes for the supply of fin-
ished products on the European and domestic
markets;
• the plant’s products are in demand on the
European market, and markets have a steady
growth;
• production of large batches of pellets with a
guaranteed provision of forest has good com-
petitive advantages;
• the possibility of modern equipment applica-
tion in production allows to create the most per-
fect and highly efficient production of granular
biofuel;
• creation of production in the Pskov region will
contribute to solving region’s social and envi-
ronmental challenges, participation in programs
to improve energy efficiency and reduction of
greenhouse gas emissions.
In wood harvesting to produce pellets of hard-
wood it is planned to use 60% of the total volume,
of coniferous—40%. Own logging needs to provide
60% of wood pellet production, 40% of the required
volume of raw materials is planned to get as
wastes. Illiquid wood and logging waste (branches,
branches, tops) will be used for further processing
into fuel pellets or as fuel for the production process.
In addition to the pellet plant in the Pskov region,
it is advisable to organize several venues for recep-
tion and shipment (reboot) of illiquid wood com-
ing from tenants. Wastes, in this case, are assumed
to get at no charge. Considering possible seasonal
fluctuations in the supply of timber, associated with
the spring and autumn thaw at sites located on the
territory of the plant, the possibility of operational
timber reserves accumulation should be foreseen.
The implementation of the project considered
will contribute to:
• effective use of forest fund lands through putting
into operation not in demand plantings of decid-
uous species, died as a result of various reasons
(windfalls, fires, pests, diseases, etc.); rational use
of wood by processing logging wastes, sawmill
and woodworking;
• improvement of environmental situation in the
region through timely felling of over mature
stands, dead wood harvesting, fallen trees and
logging wastes;
• influence growth of the Russian Federation on
the world market of biofuels by substantially
increasing the supply of clean fuel to the EU
countries;
• creation of additional jobs at the manufacturing
complex, lumbering, transportation of wood,
waste and finished products;
• creation of conditions for transition of CHP
and boiler houses in the region on the environ-
mentally friendly fuel that is aimed at the imple-
mentation of the Energy strategy of Russia for
the period up to 2030;
• increase of tax revenues to the Federal and
regional budgets and creation of new jobs as
a result of placing and upgrading production
facilities for wood deep processing.
The ways of strategy of development of the Pskov
region forest potential realization should be repre-
sented in the developed documents of the regional
legislation, aimed at improving the investment cli-
mate, creating economic and legal mechanism of
combating corruption, streamlining of regional
space institutions, developing infrastructure.
It should be emphasized that the priority of the
energy vector of forest potential development is
closely connected with the environmental vector of
its development [Makar, Neshchadin, 2014] and in
each separate subject of the Federation can have
its own specific features [Tsyrenov, Yarasheva,
2012]. The analysis presented above is the proof
of objective need and possibility of changing the
current paradigm of forest management in Russia.
4 CONCLUSIONS
On the basis of conducted research the following
can be concluded:
1. the article reflects the interaction of the three
aspects of mainstreaming: (1) energy efficiency
and environmental friendliness of GDP; (2)
efficiency increase of forest management in the
Russian Federation; (3) opportunities for socio-
economic development of Russian regions;
18
2. the research presents three spatial levels of
economic development: global, national and
regional (subnational);
3. reflection of the world’s bioeconomical trend
through a national problem priorities and their
reflection in the regional context is shown, that
distinguishes the present study from the previ-
ous ones, predominantly “sectoral” by nature.
Discussion of the individual research posi-
tions in the context of condition analysis, capac-
ity assessment and refinement of policies of the
Northwestern Federal district regions’ develop-
ment was held at the session of the International
Academy of regional cooperation and develop-
ment (Pskov, 2015), the study of materials from
the standpoint of building innovative models
of regional cluster systems in the framework of
the scientific-practical conference “Innovative
economy and regional industrial policy” (Saint-
Petersburg, 2016) is planned to be considered.
REFERENCES
Bobylev, S. N., Mikhailov, S. Y., Kiryushin, P. A. 2014.
Bio-economy: problems of formation. Economics,
Taxes & Law. 6: 20–25.
Buldakov, V. F. 2008. Issues of state support of bioenergy
projects. Forest Bulletin. 5 (62): 67–69.
Kozhukhov, N. I. etc. 2010. Biofuel from wood raw mate-
rial. Moscow: SEI HPE at MSFU.
Makar, S. V. 2011. Cluster approach to the develop-
ment of regional forest potential: innovative features.
Exchange of intellectual property. 8: 41–47.
Makar, S. V. 2012. Application of spatial analysis method-
ology to the study of Russia’s forest potential. Moscow:
Economy.
Makar, S. V. 2013. To the development of the theory of
regional space organization. Economics, Taxes & Law.
6: 22–27.
Makar, S. V. 2015. Energy concept of Russian and its
regions forest potential development. Russia: tendencies
and prospects of development. Yearbook. Pivovarov
Y. S. (resp. ed.). Moscow: Institute of scientific infor-
mation on social sciences.
Makar, S. V., Neshchadin, A. A. 2014. Development
of Russian forest potential: environmental priorities.
Economics, Taxes & Law. 6: 42–48.
Rifkin, J. 2014. The third industrial revolution: How
horizontal interactions change energy, economy, and
the world. Transl. from English. Moscow: Alpina
non-fiction.
Sidorova, E. 2012. Biofuels and energy for the country’s
development. Science in Russia. 4 (190): 28–37.
The decree of the President of the Russian Federation
from June 4, 2008 No. 889 “On some measures of
energy and environmental efficiency improvement of
Russian economy”.
Tkachenko, A. A. 2014. Green economy and its future.
Economics, Taxes & Law. 6: 26–31.
Tsyrenov, D. Ts., Yarasheva, A.V. 2012. Problems of
regional nature potential preservation. Economics,
Taxes & Law. 3: 81–86.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Practical tools for the assessment of strategic risk factors of

entrepreneurial activity

Y.V. Kuznetsov
Saint-Petersburg State University, Saint Petersburg, Russian Federation

N.V. Kapustina
Moscow State Transport University of Emperor Nicholas II (Moscow Institute of Transport Engineers),
Moscow, Russian Federation
Moscow University named S. U. Vitte, Moscow, Russian Federation

E.V. Maslova
Saint-Petersburg State University, Saint Petersburg, Russian Federation

ABSTRACT: The environment of entrepreneurial activity is numerous and heterogeneous. It includes

a large number of components that influence the organization in a different extent, nature, and fre-
quency. The question of assessment methodology of the entrepreneurial activity strategic risk factors is
sufficiently important. The aim of this paper was to develop an assessment methodology model of the
strategic risk factors of entrepreneurial activity with the application of a scenario-based approach to
identify dependencies of the risk factors using statistical data for 10 years. Changes in the external com-
mon business environment mean strategic risk factors. The following methods were used in this study:
a) questionnaire of entrepreneurs and managers of small and medium enterprises, the Central Bank staff,
and scientists for the purpose of selection of indicators characterizing the external business environment;
b) correlation analysis; c) regression analysis; d) Delphi approach; and e) scenario analysis methods. As
a result of the conducted study, the main factors exerting the most significant influence on the entrepre-
neurial activity were identified Furthermore, a working hypothesis concerning the fact that an increase of
standalone strategic risk factors does not always exert negative influence on the entrepreneurial activity
was confirmed. The proposed tools of risk factors assessment and their influence on the entrepreneurial
activity may be used for the assessment of both the organization environment and various risk situations
aimed at further use of the obtained information in decision-making.

1 INTRODUCTION for many other civil and economic relations, which

Current business climate in Russia is determined
by the growing globalization, restriction on free-
dom of trade as a result of economic sanctions,
increased competition, intensification of invest-
ments, at both the regional and global level, the
weakening of state control in the key industries of
the Russian economy, the growth of technogenic
catastrophes, universal informatization, and rap-
idly developing technologies..
In the current development of national econ-
omy, the issues of formation and development of
the Russian entrepreneurship are highly important
and hence they have gained not only economic but
also social character.
Many modern researchers suggest that the risk
is always the cornerstone of business, but it is not
an entrepreneurship by itself because it is typical
cannot always be attributed to the business.
Entrepreneurial activities are initiative activities
that people carried out under their responsibility,
whose main purpose is to generate income.
Having studied the development of the essence
and the concept of entrepreneurship, it should be
noted that throughout the history of economics
the concept of “entrepreneurship” has been con-
stantly linked with the concept of “risk”.
All of this leads to an increase in the uncertainty
of the environment and the effects of multiple risk
factors on the entrepreneurship.
Therefore, the control and assessment of entre-
preneurial activity risk is a major challenge, for
both small and large businesses.
Risk management issues were considered
in various aspects in the works of researchers
worldwide.

19
 Among the researchers who have made a real
contribution to the development of the theory
and methodology of management and assess-
ment of risk factors, we can highlight the works
of V. Avdiysky (2012), V. Vyatkin, V. Gamza, Yu.
Ekaterynoslavsky, P. Ivanushko, (2002, 2003),
R. Kachalov (2012), M. Krui, D. Galai, R. Mark
(2011), A. Kryukova, R. Fedosova (2008), and
Nayt (2003).
The environment of entrepreneurial activity is
numerous and heterogeneous. It includes a large
number of components, which influence organi-
zation in a different extent, nature, and frequency.
The question of assessment methodology of the
entrepreneurial activity strategic risk factors is suf-
ficiently important.
The aim of this study is to develop an assess-
ment methodology model of the strategic risk
factors of entrepreneurial activity with the appli-
cation of a scenario-based approach to identify
dependencies of the risk factors using statistical
data for 10 years.
By strategic risk factors are understood changes
in the external common business environment:
political (11 factors), economic (9 factors), tech-
nological (7 factors), international (5 factors), and
social and demographic (8 factors).
2 METHODOLOGY
Methodological approaches to the assessment
of the macroenvironment (strategic risk factors),
meso-, micro-, and nano-medium, as well as the
internal environment of the organization (tactical
organization entourage risk factors) were devel-
oped in accordance with the systematic approach
in the course of the study.
The strategic factors in the course of the study
were assessed by quantitative methods. The analy-
sis includes political, economic, social and demo-
graphic, technological, and international aspects,
which influence organizations.
The strategic risk factors were assessed in sev-
eral stages:
1. determination of the strategic factors (by
expertise);
2. selection of indicators characterizing the stra-
tegic risk factors (defined by experts);
3. selection of resultant indicators;
4. gathering figures from reliable sources and
their primary processing;
5. constructing the correlation model of analysis
of the correlations;
6. identifying key risk factors that influence the
entrepreneurial activity of the organization;
7. developing the regression model and testing it
for the representativeness;
20
8. analyzing the regression model (when con-
structing the regression model, the ratio of
gazelle companies was chosen as a final indi-
cator in the total number of organizations);
9. selecting and developing scenarios of change
of actual strategic risk factors;
10. detecting changes in the ratio of gazelle com-
panies in the structure of the national econ-
omy according to the selected scenarios.
3 RESULTS
The correlation analysis was carried out, which
allowed identifying the main factors that affect the
growth of the “gazelle companies”.
The number of “gazelle companies” has been
chosen as an indicator of the business environment
for entrepreneurial activity.
Gazelle companies are fast-growing companies
that result in a revenue growth of 20% or higher
every year for at least 5 years continuously.
The analysis of simple correlation has shown
that the rate of the state and dynamics of gazelle
companies in Russia had a high level of relation to
the increase (decrease) in the following factors:
− frequency of changes in legislation (−0.9)
− state monetary policy (0.8)
− changes in USD exchange rate (−0.8).
On the basis of the results of correlation analy-
sis, it can be concluded that the current macroen-
vironment is characterized by the fact that the
growth of these factors has a negative effect on the
increase in the ratio of gazelle companies, and this
is evidenced by a trend that emerged after 2008.
However, the growth of the monetary policy index
of the state (dynamics of the money supply (M2))
in 2007 favorably affected the increase in the ratio
of gazelle companies.
As a result, a working hypothesis was put for-
ward, which meant that the growth of gazelle
companies was adversely affected by the increase
in the US dollar exchange rate and the increase in
frequency of changes in legislation; however, the
growth of the monetary policy of the state (the
growth of the M2 money supply) will have a posi-
tive impact.
In order to prove the proposed working hypoth-
esis, the regression model was suggested.
The analysis of risk factors for macroenviron-
ment of the organization in the resulting regres-
sion model allowed to reveal the current trends
of strategic risk factors and to build a real model
(using Microsoft Excel) according to formula (1):
Y = 17.64 – 0.23X1 + 0.00015X2 – 0.29X3, (1)
Where X1—frequency of changes in the legislative
field;
X2—monetary policy of the state;
X3—changes in the exchange rate of RUB to
USD.
The regression model characterizing the interac-
tion of risk factors outlined above includes only
three strategic risk factors that affect the dynamic
development of domestic organizations. At the
same time, the monetary policy of the state has a
beneficial effect, and the changes rate in the legisla-
tive field and the rise of the USD exchange rate is
negative, which substantiates the suggested work-
ing hypothesis.
The development strategy of the organization is
largely determined by changes in the general sce-
nario of the business environment. In the course
of this study, three options of scenarios have been
analyzed.
The values of the risk factors for a realistic sce-
nario were projected by constructing trend lines
using different methods (linear, logarithmic, and
polynomial) widely used in economic forecasts
(V.A. Sychev (2010), E.V. Puchkov (2011)). The
criterion for the result selection was the approxi-
mation coefficient R2 for each method.
For factor 1:
in the construction of the logarithmic trend
line
Χ1 = 16.261ln(n) + 3.7384 = 47.774
R2 = 0.7778;
in the construction of the linear trend line
Χ1 = 4.2727n + 4.8 = 68.89
R2 = 0.9161;
in the construction of the polynomial trend line
Χ1 = 0.0871n2+3.3144n+6.7167 = 76.03
R2 = 0.9185.
On the basis of the maximum value of the
approximation coefficient (0.9185), we should
choose the result obtained using a polynomial
trend line that equals X1 = 76.03.
A similar calculation for the other two factors
was conducted:
− By means of factor 2, the realistic forecast has
also been obtained using a polynomial trend line
X2 = 56131.45 (when R2 = 0.9903);
− By means of factor 3, the realistic forecast has
been obtained using the same polynomial trend
line X3 = 41.63 (when R2 = 0.6299).
21
To calculate the optimistic and pessimistic
scenarios, figures were obtained by expertise on
the basis of forecasts by the Ministry of Economic
Development and Ministry of Finance. The expert
group was composed of employees of the Central
Bank (3 persons), scientists—experts in this field
(7 persons), and representatives of the business
community (5 persons).
Indicator values for the first actual strategic risk
factor—frequency of changes in legislation—in
the optimistic scenario of development (increase
in the ratio of gazelle companies in the structure
of the national economy) should be reduced by
35%, whereas the pessimistic scenario calculations
suggests an increase by 11%. According to the sec-
ond risk factor in this group—the monetary policy
of the state—the importance of indicators in the
optimistic scenario should improve by 15% and
by 9% in the pessimistic scenario. The third risk
factor—changes in the exchange rate of RUB to
USD—should remain at the level of 2013 in the
optimistic scenario and increase twofold, compar-
ing with 2013 at the pessimistic one.
The projected data of changing the actual stra-
tegic risk factors (general business environment) by
types of scenarios are presented in Table  1. (The
value of the coefficients of a realistic scenario was
determined by the construction of the trend line
and the optimistic and pessimistic by expertise).
Table  1 also shows the weighting factors for
each actual strategic risk factor.
The prognostic values of the current strategic
risk factors under different scenarios allow deter-
mining the level of gazelle companies in such
scenarios. For this purpose, for the determina-
tion of changes in the ratio of gazelle companies
in the structure of the national economy, selected
Table 1. Scenarios of the current strategic risk factors
change.
Scenarios
Item
No. Risk factors Realistic Optimistic Pessimistic
1 Legislation 76.03* 49.42 84.39
field change 0.3** 0.3 0.3
frequency
2 Monetary 56131.45 64551.17 51079.62
policy of 0.3 0.3 0.3
the state
3 Change in the 41.63 32.6 65.2
ruble’s rate 0.4 0.4 0.4
to the US
dollar
* The values of the risk factors in the forecasting.
** The weighing coefficient of a factor (determined by
expertise).
indicators on scenarios were used substitutionally
in a real model (1).
According to the realistic forecast:
Υ = 17.64 – 0.23*76.03 + 0.00015*56131.45
–0.29*41.63 = – 3.5.
According to the optimistic forecast:
Υ = 17.64 – 0.23*49.42 + 0.00015*64551.17
–0.29*32.6 = 6.5.
According to the pessimistic scenario:
Υ = 17.64 – 0.23*84.39 + 0.00015*51079.62
–0.29*65.2 = –13.02.
As a result of calculations it should be concluded
that if the trend of development of the indicators
under review continues, the gazelle companies
ratio will be reduced to almost zero, and after
5 years, their ratio will be even below zero; however,
according to the optimistic forecast, the increase by
6.5% is expected, and a drop below zero is expected
according to the pessimistic forecast.
4 CONCLUSION
The proposed method of assessment of strategic
risk factors is based on an analysis of statistical
data for a period of 10 years and the forecast based
on these data, with the aid of scenario analysis
techniques.
The conducted study identified the main fac-
tors that exert the most significant influence on the
entrepreneurial activity, and a working hypothesis
that the increase in the rates of certain strategic
risk factors does not always exert a negative impact
on the entrepreneurial activity was confirmed. The
growth of the US dollar rate and frequency of
changes in legislation have a negative impact, but
the growth of the monetary policy of the state (the
growth of the M2 money supply) will have a posi-
tive impact.
The originality of the proposed method lies
in the fact that ration of gazelle companies was
selected as a resultant indicator in the total num-
ber of organizations. The number of gazelle com-
panies can only grow within a favorable external
environment and minimization of the actual stra-
tegic risk factors. Therefore, in this case, the num-
ber of gazelle companies is the indicator of the
22
state of the business environment; if their number
increases due to the influence of any factors, the
business environment is favorable, and if it is
reduced then the environment is unfavorable.
This technique includes a large number of com-
ponents, which have a different extent, nature,
and frequency of impact on the organization. The
question of the assessment methodology of the
entrepreneurial activity strategic risk factors is suf-
ficiently important.
Thus, the results of the study made it possible to
get the characteristics of external risk environment
in the current period for the entire Russian busi-
ness (current strategic risk factors). The proposed
risk factor assessment tools and their impact on the
entrepreneurial activity can be used to both assess
the environment of the organization and evaluate
various risk situations in order to further use the
obtained information for decision-making.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

The impact of human resource management on customer loyalty in the

hotel industry in Russia

U.V. Kuznetsov, E.V. Melyakova & N.G. Kizyan

St. Petersburg State University, St. Petersburg, Russia

ABSTRACT: This paper presents the findings of the study of HRM in the hospitality industry in
Russia. The study investigates the level of development of HRM system and its influence on the behavior
of consumers of hotel services. Quantitative data was collected from 112 hotels by polling their manag-
ers, employees and customers. The sample consists of various types of hotels located in various regions
of Russia. For data processing correlation analysis, regression analysis and aggregated indicators analysis
were used. The study shows that in the hotels with a high level of development of HRM system there is
a higher level of customer loyalty. According to the research results HRM has a positive influence on
customer loyalty only if it is implemented systematically and comprehensively. HRM system must comply
with the overall strategy of the organization, include a wide range of instruments and be flexible and
adaptive.

1 INTRODUCTION Albrecht et al. (2015) revealed a positive impact

Investigation of the link between organizations’
HRM practices and performance indicators is one
of the most urgent problems in the field of HRM.
Fisher (1989) emphasized the problem of find-
ing such a correlation. Schuler & Jackson (1987)
obtained statistically significant figures that show
correlation between human resource management
practices and labor productivity.
The first comprehensive research of the impact
of human resource management practices on turn-
over, productivity and corporate financial perform-
ance was made by Huselid (1995). This research
gave a stimulus to the variety of investigations in
this domain of study.
Patterson et al. (1997) assumed that human
resource management has an influence on enter-
prise performance.
Other researchers have focused on the impact
of HRM on the financial efficiency of organiza-
tions. Huselid et al. (1997) found a significant
link between HRM and productivity, cash flow
and the market value. Later it was confirmed by
the Human Capital Index Study (Watson Wyatt
2001), according to which strong HR prac-
tices are the main indicators of financial suc-
cess and they have a great influence on market
value.
Heynes & Fryer (2000) explored the general
hypothesis that the effectiveness of human resource
practices has a significant impact on quality of
service and organizational performance.
of HRM on competitiveness: technology and nat-
ural resources are valuable, but these sources are
becoming more affordable and easy to copy, as
opposed to an integrated HR system that is unique
and provides a competitive advantage.
Many recent studies have focused on the level of
influence of HR practices on organizational per-
formance (Boselie et al. 2005; Wright et al. 2005;
Rogg et al. 2001, Kehoe & Wright 2013). Schramm
(2012) discovered that “companies that are highly
skilled in core HR practices experience up to 3.5
times higher revenue growth and 2.1 times higher
profit margins than the less capable companies”.
However, there have been few studies that
disputed the link between HRM practices and
performance indicators. Kelley (1996) revealed
that HR practices do not affect the organization
activities. Butt (2004) has established that the
implementation of human resources management
system could not be possible in small organiza-
tions that operate in local markets. Capelli & New-
mark (2001) detected that the implementation
of human resource management practices may
slightly improve performance, but also increases
labor costs. Some researchers disputed the degree
of correlation between the development of human
resources and increasing productivity (for exam-
ple, Delaney & Huselid 1996).
In addition there are some open questions.
There is no consensus among the researches
about the question: “why human resource man-
agement activities are not always successful and

23
do not always entail an increase of productivity
and efficiency of the organization?”. For instance
Barney (1995), Capelli & Newmark (2001) tried to
investigate whether human resource management
and development system had ability to generate
competitive advantages by themselves or if they
had to acquire stability and had to be reinforced by
other organizational variables. The next question is
how to develop HRM system to gain the increase
of the performance of organization.
The set of researches has different objects.
Huselid undertook studies at corporate level. At
level of business unit it was done by Wright et al.
(2005). Research can cover several industries or
large amount of different enterprises (for exam-
ple Guthrie 2001, Waiganjo et al. 2012, Arshad et
al. 2014, Katou & Budhvar 2015). It can also be
devoted to one industry (for example, Sani 2012—
insurance industry, Ko & Smith-Walter 2013—
public sector, Abdalkrim 2012—banking sector,
Jain & Singh 2015—textile industry).
Though there is a number of foreign empirical
researches devoted to understanding the impact
of HRM on the performance of business organi-
zation, such kind of research of large number of
companies, especially in one sector of the econ-
omy are not widespread in Russia. Our research
of influence of HRM on the hotel performance is
aimed to fill this gap.
The role of the hotel industry in the Russian
economy and tourism industry is extremely impor-
tant. The current situation on the hotel market is
characterized by a growing demand for quality
services, while this quality service can be found
in foreign, rather than Russian hotels. It is neces-
sary to find new approaches, forms and methods
of effective management of hotel attractiveness
among the clients. Recent economic crises pro-
voked the decrease in consumer expenditure in
tourism and as a result the growth of competition
in the hotel market.
The authors of this paper suggest that HRM is
one of the main sources of sustainable competi-
tive advantage and high economic performance
in modern hotel business. From our point of view
a major source of economic efficiency in hotels
is customer loyalty. Loyal customer creates an
income to a hotel by himself as well as provides a
positive image to it.
The Copenhagen School of Marketing has cal-
culated that if customer loyalty has increased by
1%, the profit in the next quarter should grow by
0.885% (Gronholdt & Martensen 2001). Reichheld
(2003) discovered that firms with greater loyalty
experience higher rates of growth. Yee et al. (2010)
explored that “customer loyalty ultimately lead-
ing to firm profitability in high-contact service
industries”.
24
That is why the main purpose of our study is
to analyze the correlation between the HRM prac-
tices in hotels and the loyalty of their customers.
In contrast to other studies that had examined the
impact on productivity or profitability we selected
customer loyalty because it has a direct impact on
the formation of the cash flow (revenue, profit).
Thereafter the main hypothesis of our research
says that there is a positive correlation between
the level of development of HRM system and cus-
tomer loyalty in hotels. Taking into account the
large number of studies on the impact of HRM
on the performance and efficiency of the company
our paper will complement the existing knowledge
by adding the loyalty index to the analysis.
In addition, we can assume that our investiga-
tion will verify the existence of this link in the Rus-
sian context, establish the basis and determine the
direction for the potential application of acquired
knowledge hotels’ operation activities.
2 METHODOLOGY
The study was based on a survey of a number of
Russian hotel companies. According to the report
of Rosstat (2015) there were 9885 hotels in Russia
as of January 2015. The most capacious geo-
graphical segments of the Russian market of hotel
services are the Central (30.6%), the North-West
(16.6%), Privolgskiy (12.7%), the South (10.6%)
federal districts.
A sample of one hundred fifty (150) hotels from
these districts were selected using stratified random
sampling method. One hundred twenty one (121)
hotels responded to the questionnaire on HRM
practices. Out of 121 questionnaires received nine
(9) were removed as they were completed incor-
rectly. 112 hotels remained. Table  1 classifies the
respondents (hotels) according to the regions.
The sample consists of various types of hotels.
Table 2 classifies the respondents (hotels) accord-
ing to the hotel categories.
In our research we should analyze two com-
ponents: human resource management system of
hotels and customer loyalty. Selection of customer
Table 1. Regions of respondent hotels.
Region Frequency Percent
Central 39 34.8
North-West 35 31.3
South 24 21.4
Privolgskiy 11 9.8
Other 3 2.7
Total 112 100
Table 2. Types of respondent hotels.
Type of hotel Frequency Percent
Hotel without category 17 15.2
1–2 stars hotels 15 13.4
3 stars hotels 44 39.3
4 stars hotels 27 24.1
5 stars hotels 9 8.0
Total 112 100
loyalty index as an indicator of the efficiency of
the organization was stipulated by the fact that it
(as opposed to financial performance or operating
efficiency) is almost independent from such fac-
tors as the size of the company, financial report-
ing standards or the difference in the approaches
to operational efficiency assessment in different
companies.
To estimate the human resources management
system the following indicators were selected:
1. The correspondence between HR strategy and
organizational strategy (HRS);
2. The comprehension of use of various Human
Resource management Tools (HRT) (in our
research such kind of HRM tools were ana-
lyzed: personnel planning, employee recruit-
ment, employee adaptation, training and
development programs, compensation and
incentive practices, employee assessment, inter-
nal communication management);
3. The usage of IT in HRM (HRIT);
4. The usage of modern approaches to HRM,
flexibility and adaptability of the HRM system
(MAFA);
5. The amount of Staff Costs (SC).
In order to collect the data a questionnaire was
designed in a form of Likert scale.
To measure customer loyalty a Net Promoter
Score (NPS) index was selected. Hotel guests
were asked “How likely are you to recommend
(Hotel A) to a friend or colleague?” Responses to
this question were measured on an 11-point Lik-
ert scale, ranging from 0 to 10, where 0 is labelled
“Extremely Unlikely” and 10 “Extremely Likely”.
Guests that answer the above question were cat-
egorized based on their responses. Those who
respond 9 or 10 were named “Promoter”, 7 or 8
“Neutral or Passive”, and 6 or less “Detractor”.
Net Promoter Score is the percentage of promoters
minus the percentage of detractors.
According to the established methodology,
assessment of the impact of the level of develop-
ment of HRM on customer loyalty was performed
using correlation analysis and regression analysis.
25
The results show a direct correlation between all
selected indicators of development of HRM and
the indicator of customer loyalty (NPS).
Regression analysis based on a sample of 112
hotels. Based on the analysis of two regression
models for NPS (with permanent and random
effects), it was concluded that the model with ran-
dom effects has better characteristics. According
to the results of regression analysis, the regression
equation for NPS is the following (see Equation 1
below):
NPS 0 0 86 0 0088HRS
H + 0.0097 HRT 0.0099 HRI
H T
+ 0.0105 MAFA+ 0.0009
0 SC + ei (1)
The coefficients are significant at the 95% level,
and the model is also significant.
R-square for this regression is 0.6722, which
means that the factors, included in the research,
describe NPS of 0.6722. Results of the regression
analysis confirmed that all the analyzed factors
that characterize the level of HRM have a posi-
tive influence on the measure of customer loyalty
(NPS).
The overall performance based on multiple cri-
teria of the level of development of HRM in hotels
was counted. It was calculated as weighted average
value of factors which define the level of HRM.
The value of overall performance was used for
grouping of hotels in three groups.
3 RESULTS
The study identified three groups of hotels with
different levels of development of HRM system.
There are the results in Table  3 for three groups.
For each of three levels there are the number of
hotels, the range of HRD overall performance and
confidence interval of customer’s loyalty.
The first group has basic level of HRM. In these
hotels HRM is formal and is carried out within the
framework of minimum requirements. Informa-
tion technologies are not implemented in HRM
system. They do not use innovations in HRM, are
neither flexible nor adaptive. HR strategy is absent
or weakly correlated with the enterprise strat-
egy. Typically this group consists of mini-hotels,
departmental hotels and hotels with low category.
Table 3. Customer loyalty in groups of hotels.
Number of
HRD level hotels HRD Loyalty, %
Basic 23 0.41–1.97 −1.8–7.7
Traditional 72 2.04–3.92 5.4–12.4
Advanced 17 4.06–5.23 12.0–23.0
 The second group has traditional HRM level.
This type of hotels uses a wide range of human
resource management tools and implement a large
number of HR functions. However, information
technologies are used in a small volume, focus on
the strategy of the company and innovations in
HRM are not present. In this group we see small
and medium hotels (not above 3 stars) with the
Russian management. They are not included in the
hotel network.
The third group has advanced HRM level. These
hotels have the HRM strategy that focuses on the
strategy of the hotel. They also use different infor-
mation technologies in HRM. They implement
a complete set of tools and functions of HRM
and are constantly looking for new approaches to
HRM. This group consists of large 3–5 stars hotels
with a foreign management or franchise.
4 DISCUSSION
After completion of the research the following
conclusions and proposals for improving HRM in
Russian hotels were received.
Regression analysis showed that proposed indi-
cators of development of HRM in hotels explained
a significant part of differences in the level of cus-
tomer’s loyalty between varied hotels.
The specification of quantity describing the cor-
relation between the level of customer’s loyalty and
HRM indicators was defined.
HRM in hotels often involves implementa-
tion of the main functions of HRM, such as HR
records, HR recruitment, personnel rating.
The usage of HRM tools has a positive effect
on the hotels’ overall performance. Better motiva-
tion and skills of the employees allows achieving
a higher quality of service and, as a consequence,
greater satisfaction and higher customer loyalty.
The study confirmed that hotels with a high
level of HRM system development have a higher
level of customer loyalty. Therefore, hotels that set
an aim to improve their results (an increase in the
number of customers, an increase in the number
of repeated visits and an increase in profits) should
improve their HRM system.
In general the results of the research are con-
formed to the theory of human capital (Collins &
Clark, 2003) and other researches (Al-Refaie 2015,
Al-Rousan 2010, Yee et al. 2010). The develop-
ment of abilities, skills and motivation of staff and
an increase in the human capital of the organiza-
tion, which are achieved through implementation
of certain HRM practices have the potential to
influence performance indicators of the organi-
zation. However, this influence is indirect, medi-
ated. According to the research results HRM has
26
a positive influence on customer loyalty only if
it is implemented systematically and comprehen-
sively. HRM system must comply with the overall
strategy of the organization, include a wide range
of instruments and be flexible and adaptive. We
agree with the findings of other authors that the
development of “HR-competence” of functional
and top-managers is more important than the vol-
ume of investments in HR departments in gaining
the competitive advantage in hotels (Messersmith
& Guthrie 2010).
The main limitation of the study is the relatively
small number of observed enterprises. It was deter-
mined by the desire to carry out in-depth inter-
views and receive data not only from the managers
of the companies but also from the different levels
of employees for a more objective assessment of
the HRM system, as well as the need for a cus-
tomer survey to evaluate the level of their loyalty.
Because of the relatively small number of observed
organizations our sample does not pretend to give
a national or sectoral representativeness. The abil-
ity to replicate the study to a larger sample would
certainly increase the reliability of the results.
The same restrictions were specified in other
authoritative studies with similar or smaller ranges
(Gerhart et al. 2000; Wright et al. 2005, Paul &
Anantharaman 2003).
The novelty of the conclusions presented in the
article is the result of the implementation of multi-
level study combining multiple data sources at the
enterprises of one sector.
According to the results of the study it can be
stated that the construction of an integrated HRM
system in hotels through an increase in motivation
and service quality can improve customer satisfac-
tion and ensure loyalty and commitment of the
customers, which will provide an increase in the
company’s revenue.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Conformity assessment of concession agreements model to parameters

of investment projects in transport infrastructure area

P.N. Zakharov, J.A. Zakharova & K.V. Nazvanova

Vladimir State University named after Alexander and Nikolay Stoletovs, Vladimir, Russian Federation

ABSTRACT: Development of transport infrastructure is a powerful driver of national economy. In a

context of the state budget deficit private investors must be attracted through Public-Private Partnership
(PPP). One of the most effective forms of PPP is a concession. This article is devoted to the establishment
of relationship between exact project parameters and chosen model of implementation of concession
agreement in terms of investment projects in transport infrastructure area. By using the econometric
methods it was possible to test this hypothesis. This study introduces criteria to select organizational
scheme of investment projects implementation in the road sector. Basic schemes of concession agreements
used for construction of toll roads are described. As a result, an integral index for comparative assessment
of projects was formed including the normalized parameters for relevant project. To realize the project
according to the chosen concession agreement model to maximum effect it is necessary to make adjust-
ments to the parameters or change the form of the concession model.

Keywords: concession agreement model, investment project, transport infrastructure, Public Private
Partnership (PPP)

1 INTRODUCTION resources and private capital leads to interest

satisfaction of each subject of economic relations.
Modern transport infrastructure, the developed However almost every concession agreement has
road network in particular, appears to be a cata- its own resource combination that determines the
lyst for national economy development. An effectiveness of the agreement implementation.
important issue is to determine the ways to solve Application of roads construction concessions
problems affecting transport infrastructure devel- in Russia is essential and thus emphasized by such
opment. Based on international experience the objective factors as:
public private partnerships including its most
− low density of roads with hard covering;
effective form—concessions must be practiced
− low average speed (to compare in Europe the
(Zakharova, 2014). In terms of European prac-
average speed of goods transfer is 1000 km/day,
tice, the general issues of concession agreements
in Russia it is less than 300 km/day);
implementation are the subject of many scien-
− increase of the transport costs share in the eco-
tific studies (Auriol & Picard, 2013; Carbonara,
nomic turnover (for example, Russian poor road
Costantino & Pellegrino, 2014; Ferrari, Parola &
network makes the transport component of the
Tei, 2015; Kersten, Vahidov & Gimon, 2013; Ng,
product cost reach 20% on average, whereas in
Xie, Cheung & Jefferies, 2007), as well as various
developed countries it’s not more than 8%);
aspects of interest alignment of public and private
− environmental degradation in urban centers;
operators (Bray & Mulley, 2013; Platon, Fronea &
− increase of road accidents (for example, the acci-
Constantinescua, 2014; Singh & Kalidindi, 2006),
dent level on the M10 highway is almost three
including transportation (Xu, Sun, Skibniewski,
times as big as the average Russian normative
Chan, Yeung & Cheng, 2012; Zhang & Durango-
accident level value);
Cohen, 2012) and road infrastructure (Fayard,
− reduction of possible use of geographical
2005; Caicedo & Diaz, 2013).
advantages and transit potential of the Russian
We consider concession as the organizational-
regions.
economic form of the long-term cooperation
between the public and private capital on a con- In order to solve these problems a significant
tract basis, in which the combination of state number of projects of toll roads construction are

29
carried out under concession agreement (Western
High Speed ??Diameter in St. Petersburg, toll
roads in Pskov Region, M11 «Moscow-Saint-
Petersburg» highway, M4 «Don» highway,
Moscow circle-road, etc.).
The main Russian formal institution of the road
network development is the Federal Law of the
Russian Federation of November 08, 2007, No.
257-FZ «On the roads and road activities in the
Russian Federation», where various aspects of
construction and further operation of toll roads
are represented. Chapter Seven of the Act states
clearly when and by whom the decision of usage (or
termination) of a road or a road section is made.
Availability of free alternative roads for vehicles is
the main requirement for the use of toll roads.
In that case the choice of the organizational-
economic model of interaction between public and
private capital during toll road construction under
concession agreements is the main issue. Each
project carried out to the the concession model can
be characterized by quantitative parameters.
The main goal of the research is to determine the
relationship between specific parameters of the pro-
ject and the selected concession agreements model.
2 METHODS
To achieve this goal econometrics methods were
used. Present research is based on the scientific
methods of analysis, synthesis, induction, deduc-
tion, comparison and analogy.
Seven projects were analyzed. Projects at exploi-
tation stage are described using actual data, and
some projects at investment stage (stage of road
construction) are described using target values
specified in the tender documentation.
The study includes five steps (stages).
At the first stage the methodology analysis of
investment projects structuring was made. Accord-
ing to the results of the analysis the main criteria
for the organizational scheme selection to carry out
investment projects in the road sector were deter-
mined (use of analysis and synthesis method).
At the second stage five models of public private
partnership to carry out investment projects in the
road sector were chosen out of 13 possible. The
models can be used in terms of construction and
exploitation of toll road under concession agree-
ments (comparison and analogy method).
At the third stage the characteristics of models
were given (organizational schemes), which were cho-
sen at the previous stage (table presentation method).
At the forth stage the selection of exact invest-
ment projects in transport infrastructure area was
made forming an empirical research base (statisti-
cal methods).
30
At the fifth stage econometric methods were
applied allowing to form the integral resulting index.
3 RESULTS
Investment projects implementation in the road sector
as well as the use of public private partnership is
described in the «Methods of structuring of invest-
ment project for the opportunity of using of different
investment schemes» in details (hereinafter—the
Methodology (Order of the Federal Road Trans-
port Agency dated September 08, 2014, No. 1714-p).
According to the methodology the main criteria for
the organizational scheme selection to carry out invest-
ment projects in the road sector are the following:
a. role of the public partner in the investment pro-
ject realization that determines the use of budg-
etary funds for full or partial coverage of design
costs, construction, reconstruction and inte-
grated development of the investment object;
b. decisions to apply private investment for financ-
ing the capital costs of the project compensated
at the exploitation stage;
c. solutions against the schemes of investment
return during the exploitation stage, such as:
− consumer payments for the use of the invest-
ment object;
− transfer of tolls collected by the operator of the
investment object, in favor of the public partner;
− transfer of payments from the public partner to
the private partner in order to compensate capi-
tal and operating costs.
According to combination of the above men-
tioned parameters of the investment and organi-
zational schemes and to the Methodology, it is
recommended to use 13  models of public private
partnership to carry out investment projects in the
road sector, of which five can be used in case of the
construction and exploitation of toll road under
concession agreements. Basic concession agree-
ments schemes used for construction of toll roads
are represented in Table 1.
In terms of functional approach all discussed
projects have the following model: Design-Build-
Transfer-Operate (DBTO). Organizational-Economic
approach was used to identify the typology of
model concession considering the following types:
− Type no. 1—Concession with state funding of
capital investments, tolling in concession owner
favor and concession owner payment;
− Type no. 2—Concession with state funding of
capital investments, tolling in concession pro-
vider favor and concession provider payment;
− Type no. 3—Concession with tolling in conces-
sion owner favor and concession owner payment.
Table 1. Possible schemes (models) of the infrastructure projects implementation under concession agreements.

Capital investments
(investment stage) Exploitation stage

Private Private Concession

State partner Payment partner provider
Concession agreements schemes participation participation collection payment payment

Concession with state funding of capital + + + – –

investments, tolling in concession owner favor
Concession with state funding of capital + + + – +
investments, tolling in concession provider
favor and concession provider payment
Concession with tolling in concession owner – + + + –
favor and concession owner payment
Concession with state funding of capital + + + + –
investments, tolling in concession owner favor
and concession owner payment
Concession with tolling in concession provider – + + – +
favor and concession provider payment

We examined seven projects implemented with where pij = value of reconstructed parameter i for
these three models of concession agreements. The project j; xij  =  value of parameter i for project j;
following parameters were chosen as the numeri- ximax, ximin = max and min value of parameter i of
cal characteristics of each of them: the intensity all projects.
of traffic (amount of vehicles in one day), total The following formula is used to calculate the
funding and its structure (participation of the state integral index for each project:
and private investors) (in percent), design unit
1 n
cost, construction and exploitation of 1 km of the
route (in euro), the weighted average tariff for use
Ij = ∑ pij
n i =1
(2)

of 1 km of the route (in euro), concession payment

(in euro) as well as the rate of time to speed compa- where Ij = integral index for project j; pij = normal-
rability on a toll road and main road (or the value ized parameters for project j; n = total number of
of the planned speed to the actual speed) (relative parameters.
quantity). Received data is represented in the following
The calculations do not take into account the Table 2:
duration of the concession agreement as the pro- The chart shows the projects classification
vided time period for each project is identical. depending on the integral index value. Dotted lines
The total length of the road was not included, as limit identified project allocation zones depending
the value cannot affect the type of the model. The on the value of the calculated index. The relation-
length depends on the objective necessity of high- ship between the type of concession agreements
way construction and not on the type of conces- implementation model and the values of projects
sion agreements model. parameters is revealed.
For the comparative assessment of the projects
an integral index for each of them was provided
based on the eight identified characteristics for Table 2. Integral characteristics of the projects.
numeric calculations. To bring parameters to com-
parable values we used the method of linear scaling Concession agreement Index
to display the value of each indicator within the Project model (type) value
range from 0 to 1 while maintaining all the propor-
Project 1 type no.1 0,4529
tions between the individual values. Scaled value of
Project 2 type no.1 0,2382
each parameter is obtained by dividing the differ- Project 3 type no.2 0,2180
ence between the observed and the minimum value Project 4 type no.1 0,4051
of the parameter by its scope: Project 5 type no.2 0,1979
x xi min Project 6 type no.2 0,3677
pij = ij (1) Project 7 type no.3 0,5854
xi a x i min

31

Chart 1. Projects classification.
Projects of the second type are concentrated
within the first interval (up to 0.32); the projects of
the first type are concentrated in the range from 0.32
to 0.52, and the project of the third type falls within
the third interval (from 0.52). Including the projects
no.2 and no.6  into non-common for its conces-
sions models areas can be explained by overrated or
underrated value of one or several parameters dur-
ing initial calculations. Thus, we can conclude that in
order to achieve maximum effectiveness of the pro-
ject implementation according to the chosen conces-
sion agreement model, it is necessary to adjust the
setting or change the type of the concession model.
4 CONCLUSIONS
The study made it possible to form the approaches
that facilitate administrative decisions to select the
concession agreements model relevant to specific
parameters and conditions of investment projects
implementation in the transport infrastructure area.
These approaches can be used by both public author-
ities and private investors for optimal coordination
of economic interests of concession agreements
participants. The results of the study demonstrate
some problems in decision management which are
not justified by econometric methods.
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© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Instruments for the implementation of import substitution strategy in

the agro-industrial complex

V.P. Tretyak & O.A. Anichkina

Moscow State University of Technologies and Management, Moscow, Russian Federation

K.G. Abazieva
Rostov State University of Economics, Rostov-on-don, Russian Federation

ABSTRACT: A feature of this study is that the main idea is dealing with the problems of storage of
products, under the direction of import substitution products. The authors suggest to pay attention to the
relationship of advanced technologies corresponding to a higher technological paradigms, which should
lead to an increase in production volumes and a decrease in distribution costs on the basis of use.
The purpose of this study is to identify the problems and to develop effective instruments for the
import substitution in the agro-industrial complex using the analysis of production and consumption
relationship in terms of technological paradigms. Another direction is the necessity to show a direct rela-
tionship of technological structures and processing, with further direction in its possession.
The following methods were used in this study: a) statistical date collection of the Federal and branch
ministries on the level of agricultural self-sufficiency and the level of losses; b) Delphi approach; c) survey-
ing of experts and in-depth interviewing of the RF Ministry of Agriculture and Ministry of Economic
Development specialists. The study confirmed the hypothesis that technologies appropriate to lower tech-
nological paradigms are used in the Russian Federation for the storage of agricultural products as com-
pared with developed countries; it determines higher costs of production and circulation for domestic
potatoes and their lower consumer characteristics. The suggested instruments for the implementation of
import substitution strategy will enhance the competitiveness of domestic agricultural products, reduce
the costs of both production and distribution, and consequently, increase the producers’ income.

1 INTRODUCTION nomic measures in order to ensure the security of

Lately, import substitution became a widely used
term in our press. Leaders of the country speak
about it. The Prime Minister of Russia Dmitry
Medvedev believes that the import substitution is
effectively implemented in industry and agriculture.
The country’s leadership believes, due to deprecia-
tion of the ruble, products of Russian companies
became somewhat more competitive in domestic
and especially foreign markets. It should be maxi-
mally used through the import substitution support,
the effect of which is already noticeable in some sec-
tors, such as production of pipes, coal, steel, some
types of food. He has noted that there is no short-
age of products in the country despite the ban on
some goods from the West. (Astakhov  D., 2015).
It is even considered as a perspective strategy for
the country’s economic development. In Russia, the
import substitution in agriculture and food indus-
try is becoming the most popular topic regarding
the food embargo imposed by the Russian Fed-
eration President’s decree No. 560 dated August
6, 2014 “On the application of certain special eco-
the Russian Federation” (Turin S., 2014). However,
this phenomenon is not so new, it emerged not
only due to the recent sanctions, although some
authors note that “Today, the import substitution
is a matter of state policy. It is due to the require-
ments of the Russian market and national security”
(Vlasova I. G., Borovikov V. G., 2010).
In this statement, the attention is paid to the fact
that import substitution above all is a direction of
government economic policy. The question arises—is
it a constant state policy or a one-time forced act?
We believe that the import substitution policy is
an integral part of the state economic policy rather
than a response to something. The policy of import
substitution for the Russian Federation is currently
fundamental to the geopolitical situation. The Dec-
laration of food security was adopted which implies
self-sufficiency (import substitution) Without this
direction, the economic policy of any country is
unlikely to be comprehensive. Consequently, the
import substitution is not a one-time act, not just a
reaction to unjust sanctions, not deficit controlling,
but one of the economic policy components, which

33
is carried out continuously, regardless of the global
market situation and political acts. In other words,
if state economic policy is used import substitution
activities are always paid attention to. Another thing
is that the import substitution may be of different
extent and involve different groups of products;
its share is different depending on the dynamics of
world markets and political situation.
The import substitution is termination or reduc-
tion of import for certain goods by their displace-
ment (replacement) in the domestic market of
the country with similar domestic goods having
a higher level of consumer properties and the
cost, which does not exceed the imported goods
cost (Agapova T. A., 2013). According to the first
statement by T. A. Agapova, it is the termination
or reduction of import for certain goods, i.e. their
replacement with domestic analogues (substi-
tutes). Consequently, the import substitution is
the replacement of imported products (goods and
services) by their competitive domestic substitutes.
2 METHODOLOGY
On the potato market situation is largely under the
influence of cultural production on private land, it
dominates the provision of potatoes, a significant
part of the population, which significantly affects
the level of prices during the implementation period
regardless of the seasonal fluctuations in sales. Mod-
ern domestic potatoes market is significantly diverse.
As a rule, about 30 million tons are collected per year
in Russia; about 100 thousand tons are exported
abroad. Potatoes are not a deficient product and its
production meets the population needs in accord-
ance with the RF food security requirements. The
conducted studies reveal that the level of basic agri-
cultural products provision in Russia is growing for
some products, for some ones it is decreasing, and
for some ones (e.g. potatoes) it exceeds the demand
(Table 1). Despite this, 30% of potatoes are imported
from other countries. The data shows large losses of
agricultural products in the process of their move-
ment and large distribution costs, consequently.
Potatoes—this is an illustration of the study may
be used for other types of agricultural products.
Table  1. The level of self-sufficiency for the main
agricultural products in the Russian Federation (%).
2010 2011 2012 2013 2014
Meat 72,2 74,0 76,1 78,5 82,8
Milk 80,5 81,5 80,2 77,5 78,6
Eggs 98,3 98,0 98,0 98,0 97,6
Potatoes 75,9 113,0 97,5 99,4 101,1
Vegetables and melons 80,5 93,2 88,7 88,2 90,2
34
Table  1 based on data from Federal state
statistics service.
The problem lies in the fact that an important
feature of agricultural production in Russia is its
highly seasoned nature, which demands a greater
volume of product storage capacity than in most
European countries. As a result, imported prod-
ucts are rhythmically supplied to the Russian
market through a well-established logistic chain
in a package that provides maximum safety, in
large amounts being more attractive for retailers
(Rykova I. N., Smirnov M. A.).
The share of products placed in specialized
storage facilities is extremely low—less than 20%
of the production volume; besides, 80–90% of
the specialized storage objects have small capacity
(through the example of potato—not more than
3 000 tons). Medium and large farms try to solve
these problems and invest in non-profile logistics
business to ensure the stability of their agricultural
production. However, the storage construction
makes it necessary to purchase lines for washing,
sorting and packaging of the products for their
delivery to retailers. Without these investments, the
product sales remain highly unstable and potato
losses (both during harvesting and as unsold prod-
ucts) are up to 40% according to expert estimates.
However, such industrial complex becomes a big
problem for agricultural producer due to large cost
of production. Here is the official statistics.
Table 2 based on data from Federal state statis-
tics service.
The represented data from Table 2 shows that
the losses are comparable with the import and
many times higher than the export. Even a brief
review of problems related to losses of agricul-
tural products leads to the conclusion that we
need rather drastic and radical measures aimed at
minimizing the losses at each stage of production
and consumption. During the study, the relation-
ship of potatoes production and consumption in
Russia and correspondence of this process to tech-
nological paradigms is analyzed. The term techno-
logical paradigm is not always clearly perceived in
the literature. The technological development of
economy has a form of technological paradigms
sequential change (Raizberg B. A., Lozovskiy
L. S., Starodubtseva E.  B.). According to some
Table 2. Production, storage and losses in the domestic
potato market.
2010 2011 2012 2013 2014
Production 21140,5 32681,3 29532,4 30199,1 31501,5
Import 1121,8 1538,6 735,2 748,6 1045,2
Losses 1298,7 1469,2 1751,7 1983,9 2066,3
Export 85,0 48,9 48,1 74,1 69,1
authors, the history of technological paradigm
development has a form of certain steps (Malinet-
skiy G. G., Glazyev S. Y., Lvov D. S.).
The authors offer a concise, but a more consist-
ent classification of technological modes. Gross
domestic product is calculated in such a way that the
product is manufactured within the country should
be realized there as well. Its creation is carried out
on the basis of technologies that can be attributed
to the pre-industrial, industrial and postindustrial
paradigms. The evolutionary character of the tech-
nological paradigms development has the follow-
ing trend: from the cottage industry with almost all
unique products created in accordance with the cus-
tomer’s individual needs; through the machine stage
of production providing massive supply of similar
products; to the individualized mass production able
to create mass scale products and meet the custom-
ers’ individual demands. Simple cooperation and
division of labor inherent to pre-industrial or arti-
sanal technological paradigm are losing the domi-
nant position in the industrial society. Here are the
most common way of production organization and,
later, mass production, corresponding to the third
and fourth technological modes. The latter create
the basis for postindustrial technological paradigms
using hard (machines) and flexible automated mod-
ules based on the use of standardized components
and expensive creative work of few employees.
Technological modes:
1,2,3–Growing and harvesting;
3,4,5 technological structures—post-harvest han-
dling, product delivery, delivery to retail outlets;
5,6,7 processing, storage.
The seventh technological paradigm is related
to communication between the human speech and
machines.
3 RESULTS
Let us consider the proposed methodology regard-
ing the potato storage system in the RF. Based on
the results of potato storage systems analysis in the
Central Federal district (CFR) of Russia, it was found
that their vast majority is simple objects (piles and so
on) corresponding to the 1st TP and stationary repos-
itories (of bulk or container type) with natural cool-
ing, natural general mechanical ventilation or active
ventilation corresponding to the 2nd TP. If we try to
assess the TP proportion in the field of storage, all the
harvested potatoes are stored according to technolo-
gies corresponding to different TP. According to the
CFR of Russia workers survey, 44% of potatoes are
stored in the simplest systems (piles and so on) cor-
responding to the 1st Technological Paradigm (TP).
In the stationary repositories (of bulk or container
35
type) with natural cooling, natural general mechani-
cal ventilation or active ventilation corresponding
to the 2nd TP, approximately 42% of the crop are
stored. In the container storages with artificial cool-
ing (refrigeration), natural general mechanical ventila-
tion or active ventilation corresponding to the 3rd TP,
about 13% are stored. The same paradigm includes
refrigerators with controlled atmosphere created by
artificial means, as well as repositories with combined
cooling—natural and artificial of old construction.
The 4th TP repositories are almost absent in the CFR.
In the repositories of the 5th and 6th TP, no more
than 1% is stored as an experimental option (in pilot
productions). The 7th TP, which is post-industrial, i.e.
a potato storage system with voice setting elements, is
represented only by experimental instances.
Based on this data, it is possible to visualize the state
of the domestic potatoes storage. The economy of any
country operates on the basis of selected technological
paradigms. Consequently, the generated gross domes-
tic product is the result of technological paradigms
functioning. Some part of the gross domestic prod-
uct is produced on the basis of handicraft paradigms,
some part is based on the industrial TP, some part is
created according to the postindustrial paradigms.
Schematically, it can be represented as a pyramid. The
higher technological paradigm results in lower con-
sumption of resources and lower costs.
Figures 1 and 2 were the result of in-depth study
of the problem of storage of agricultural products
that when a large amount of the material studied,
including the wishes of the producers and gave us
the opportunity to assume these results.
Regarding the storage, it is necessary to focus
on the development of storage technologies of
5-6-7th postindustrial paradigms in the process
of import substitution. It means that the RF
Rosagroleasing needs to focus its efforts on the
acquisition of experimental “cubes”, autonomous
air-tight containers for the potatoes storage corre-
sponding to 5-6-7th postindustrial paradigms, and
Figure  1. Current state of technology in the field of
storage of potatoes.

Figure  2. Proposed changes in the development of a
network of storage potatoes.
to encourage their use in practice. In addition, an
order for the local industry must be formulated to
produce domestic analogues of such containers.
The solution may include the creation of reposi-
tories network maximally close to the place of pro-
duction, which will include the functions of products
storing and primary processing. The products will
be demanded by large and medium-sized wholesal-
ers, regional retail chains, social feeding system. As
for the technical equipment of the storage systems, it
is necessary to focus on the development of storage
technologies corresponding to the 5-6-7th postindus-
trial paradigms in the process of import substitution.
An essential element of the proposed import substi-
tution instruments implementation should be the state
support carried out through the Rosagroleasing JSC.
In order to strengthen the relationship of production
and consumption, Rosagroleasing JSC should focus
its policies on procurement of storage lines corre-
sponding to postindustrial technological paradigms.
4 CONCLUSION
The proposed method of evaluation of the pro-
duced agricultural product through the use of
the classification of technological modes allow to
distinguish, first, the proportion of progressive
technological structures for agricultural product,
and secondly study to become a visual indicator
of the policy of import substitution. The result of
in-depth study of the problems of storage of agri-
cultural products that when a large amount of the
material studied, including the wishes of the pro-
ducers and gave us the opportunity to assume these
results. The proposed measures to improve the rela-
tionship of production and consumption focused
on the development of storage systems corre-
sponding to the 5-6-7th postindustrial paradigms
will contribute to the effective implementation of
the import substitution strategy in the RF.
36
Usage of the import substitution strategy pro-
posed directions will allow to:
− for agricultural producers, implement long-term
storage and primary processing of products directly
at their location and sell their products throughout
the calendar year increasing the competitiveness;
− for the state, increase the budget revenues due to
increase in production and sales of agricultural
products and newly created jobs;
− for the consumer, receive high-quality products due to
excluding a number of intermediaries from the prod-
uct supply chain and reduce the distribution costs.
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tion processes: Mansfield E. Economics of scientific
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Perez-Perez, C. (1983). Structural Change and Assimila-
tion of New Technologies in the Economic and Social
System. Long Waves in the World Economy. L.
Rykova, I. N., Smirnov M. A. (2014). Problems and prospects
of wholesale and distribution centers development for agri-
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Schumpeter, J. (1982). The theory of economic develop-
ment. M.: Progress. Business Cycles. N.–Y.
Tretyak, V. P. (2015). Import substitution as an integral
component of economic policy. Question mark, 5, 16–26.
Turin, S. Ideology of import substitution in the agro-
industrial complex // Commerce and Industry News.
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Vlasova, I. G., Borovikov V. G. (2010). Import substitution
and food security. Russian Entrepreneurship., 5. p. 2. p. 150.
Yakovets, Yu. V. (1996). The history of civilizations. 2nd
ed.—M.: Vlados.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Enterprise integration in the network electronic market: Choice

of the Internet-project implementation directions

Natalia M. Fomenko
Volgodonsk Technical Institute, National Research Nuclear University MEPhI, Volgodonsk, Russian Federation

ABSTRACT: The beginning of the 21st century is characterized by essential changes in the traditional
understanding of the economic relation organization and public reproduction process management.
At present, an increasing number of countries are involved in the globalization process. In these condi-
tions, society development will depend on the basic long-term trends of public progress and impact of
the new phenomena causing multidimensional changes, shifts in economy, and changes in development
dynamics.
The organization management is faced by adaptation objectives of business processes, management,
and technologies to innovations. In the conditions of new economy, qualitatively new rules and mecha-
nisms of managing a little other than the classical principles of market economy are created. Therefore,
questions of enterprise integration in the network electronic market are rather actual. The objective of
this paper was to develop the decision-making model at the choice of the directions of enterprise Internet-
project implementation. In this study, the different methods used are: a) decision tree, b) scenario analysis,
and c) expert evaluations. The content analysis of selection problem of enterprise Internet-project imple-
mentation options allowed determining the decision tree model as the best method of its representation
and decision. The best alternative bringing in the greatest income in case of organization management is
the development of corporate information system with Intranet and Extranet components as the base,
which allows the enterprise to use further all opportunities and benefits of integration into the network
electronic environment.

1 INTRODUCTION the organization even if there is a development

In general, processes of new information
technology implementation have an impact on all
fields of some organizations’ activity and econ-
omy. The new economic space or the Internet
market is created as a system of new economic
relations. A number of scientists worldwide stud-
ied the problems of the influence of information
and communication technology on the organiza-
tion activity and information commerce in particu-
lar. The methodological base for these studies are
the following works: D. Bella (1973), V. Gritsenko
(2010), D.  Ivanova  (2000), M.  Kastelsa  (2000),
U. Martin (1988), Y. Masoud (1980), A. Rakitova
(2006), E. Toffler (2003), and so on. It should be
noted that in these studies, the attention was paid
mainly to information technologies.
Today despite difficulties and problems, the
increasing number of enterprises worldwide real-
izes new opportunities of business in the Internet
space. The question of integration of entity busi-
ness processes in the network market is key for
the achievement of real effective management of
problem only at the website level containing
information on goods, the seller, and allowing the
choice or purchase of goods, that is, the so-called
online store.
2 METHODOLOGY
System approach, which allows considering object
as system of a complete complex of interconnected
components, was allocated as the methodology of
the research. According to the system approach, it
was found that:
1. The enterprise needs at least two components
for the effective and full-fledged organization of
information communication activities:
a. Corporate Information System (CIS) based
on the Local Computer Network (LCN) and
having a lock in Internet;
b. professional corporate website, depending
on integration extent into the Internet envi-
ronment, carries out functions related to

37
Table 1. Version of the plan of entity Internet-project implementation.

Stages Stage description Possible costs

1. Preparatory integration stage
2. Information and
economic space
creation of the enterprise
3. Entering the network market
4. Improving the structure
of the organization and
production management
5. Creating of a virtual
enterprise and participate in
the virtual community
Development of enterprise output concept of the The cost, depending
network market. on the decisions taken,
Creation (acquisition) and implementation of CIS. may be significant.
Creation of corporate website.
Creation of security system.
Development and introduction of internal
corporate regulations on Internet work.
Administration of Internet work and differentiation
of user powers.
LCN connection to Internet.
CIS transfer to the Intranet system.
The output of corporate site into the Internet. The costs can be significant;
Optimization of the corporate website. in addition, we need a
Creating (acquisition) and the introduction of certain time to test user’s
Extranet systems. discretion.
Testing solutions by corporate users.
Creating a (rental) corporate e-trading platform for The main costs associated
the enterprise. Connecting of trading platform with the creation of a
to a system of electronic financial settlement. trading platform and its
Expansion of options for the use of electronic subsequent connection
business—models in the enterprise, for example, to the of electronic pay-
by consulting, electronic auctions and others. ment system.
The transformation of quantitative changes into The costs are low, but the
a new quality by improving organizational and business structure change
functional structure of the enterprise. leads to painful person-
Improving of enterprise competitiveness through nel decisions.
innovative solutions.
Conclusion of agreements on the establishment of The costs are negligible,
(or participation) virtual corporation and then in but there is an increase
the virtual community. in the status of the
Participation in the solution of corporate, sectoral, subjects of eco-
regional, social, and other problems. nomic activity and
the expansion of
cooperation forms.

information, image, advertising, trade, trans-
actional, intercorporate, and others.
2. Methodical approaches to plan the development
of enterprise Internet-project implementation
that includes the stages provided in Table 1 are
developed in the course of the research on the
basis of the method of expert estimations and
obtained results.
3. The decision-making model at the choice of the
directions of the Internet-project implementa-
tion is developed.
3 RESULTS
The analysis of subject showed that it is best to
present the choice of the directions of enterprise
Internet-project implementation in the form of
a decision tree, which is a graphic representation
of the decision-making process, where alternative
solutions, alternative conditions of the environ-
ment, the corresponding probabilities and prizes
for any combinations of alternatives and condi-
tions of the environment are reflected. Decision
tree is an explicit representation of all the scenarios
perhaps resulting from this decision. The top of the
tree represents the initial situation while every way,
proceeding from a root, corresponds to one possi-
ble scenario. The scenario includes the sequence of
actions and supervision chosen by the active agent
and the supervision made by the agent, events
which can appear in the agent’s environment. The
sequence of tops expresses a quantitative measure
of situation usefulness created in all way. Decision
problem explications in the form of a tree are facili-
tated by search of the optimum plan as instructions
of reactions to possible values of the observed data.
The basic data obtained in the expert way are
given in Table 2 (alternative) and Table 3 (possible
scenarios).

38
Table 2. Alternatives of the Internet-project implementation solutions.

Estimates of income values from alternative

implementation, thousand monetary units

Difficult market Favorable market

Variables Alternative content environment environment

a0 No choice 0 0
a1 Creation of the corporate website 15 30
a2 Creation of electronic trading platform 35 70
a3 Participation in work (partner) of the virtual entity 65 130
a4 Participation in work of virtual community 15 30
a5 Development of corporate information system 150 300
a6 Development of corporate information system with 300 600
Intranet and Extranet components

Table 3. Description of scenarios.

Probabilities of made decision consequences

Symbols of Favorable market Probable market environment— Difficult market

probabilities environment—scenario 1 (C1) scenario 2 (C2) environment—scenario 3 (C3)

r1 0,7 0,5 0,3

r2 0,3 0,5 0,7

Table  4. Implementation of the main alternatives

according to scenarios.

Alternative
implementation Scenario Scenario Scenario
assessment C1 C2 C3

Assessment value 79,6 54,4 34,9

EMV (A)
Assessment value 309,1 256,9 209,4
EMV (B)
Assessment value 613 502,5 415,35
EMV (C)

Estimates of the expected monetary value

of EMV 1 were determined for each node of a
tree. This indicator is calculated as the amount
of probability works and a quantitative (cash)
assessment on each of the possible consequences.
Three scenarios are considered, and EMV for
three outcomes of A, B, and C are determined
for the alternatives and data determined above.
The results of calculation are given in Table 4 and Figure 1. Decision tree at the choice of the directions
Figure 1. of enterprise Internet-project implementation.
Symbols: places where decisions are made - , places of
outcome emergence - , possible decisions -------, possi-
1
Expected monetary value. ble outcomes — —.

39
4 CONCLUSION
As a result of the study, the decision-making
model at the choice of the directions of enterprise
Internet-project implementation is developed and
the objectives are solved. It is possible to draw the
following conclusions:
First, the analysis of problem maintenance of
the choice of enterprise Internet-project imple-
mentation options revealed that the best way of
its representation and decision is the decision tree
model.
Second, the best alternative bringing in the
greatest income at various scenarios is the devel-
opment of a corporate intelligence system with
Intranet and Extranet components.
Third, the creation of a corporate intelligence
system with Intranet and Extranet components
is the basis for allowing the enterprise to use all
opportunities and advantages of integration in the
network environment.
REFERENCES
Bell D. The Coming of Post-Industrial Society, 1973.
40
Fomenko N. M. Informational and communication
technologies in management of the organization—
Rostov–on-Don: Structural division of the public sci-
entific institution “North Caucasian Scientific Center
of The Higher School”—“Actual Problems of The
Modern Science” publishing house, 2015.
Gritsenko V. S. “Cyber Marx: cycles and circulations of
fight in hi-tech capitalism”/ V. S. Gritsenko // Bulletin
of the Perm university. –2010. –No.2 (2).
Ivanov D. V. Virtualization of society / D. V. Ivanov—
SPb. “The St. Petersburg oriental studies”, 2000.
Katels M. Informational era: economy, society and cul-
ture: translated from English, edited by O. I. Shkaratan.
Moscow, Higher School of Economics, 2000.
Martin U. Informational society.—Moscow: Progress,
1988.
Masuda Y. The information society as post-industrial
society. Tokyo, 1980.
Rakitov A.I. Philosophy of computer revolution/A. I.
Rakitov—Moscow, 2006.
Shulgin See, Lakunin V. Yu., Matveeva L.G. Manage-
ment of the economic capacity of the enterprise in the
conditions of market transformations. Rostov–on-
Don: Structural division of the public scientific insti-
tution Higher School, 2003.
Toffler E. Metamorphoses of the power: Knowledge,
wealth and force on a threshold of the 21st century—
Moscow: AST, 2003.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Philosophy of ancient towns’ economy development evidence from

Suzdal, a Russian town

N.V. Rodionova
Doctor in Economic Sciences, Professor at the Chair of “Management and Marketing”, Vladimir State
University named after Alexander and Nikolay Stoletovs, Vladimir, Russia

A.D. Shapovalova
Vladimir State University Named After Alexander and Nikolay Stoletovs, Vladimir, Russia

ABSTRACT: This paper deals with the issue of indifference to Russian legacy and mental traditions of
profit-oriented strategies applied for area development. For solving this issue, a concept of philosophy
of developing an ancient town on the basis of the value system, which comprises Russian historical and
mental potential, is offered. This philosophy shall allow creating a moral capital of the ancient town and
using it for increasing the town economy efficiency, improving the life quality of its citizens, and increas-
ing the spiritual and moral potential and cultural look of the Russian society.

1 INTRODUCTION In this sphere of science (Antonov &

1.1 Timeliness of the topic and subject of the
research
Harmony of business, authorities, and society
interests can be reached due to values. Scientists
actively search for tools of supporting economic
balance with common ideas and values (Rodionova
2012). Thus, in light of the sustainable develop-
ment concept, an ideology of ethically reasonable
and eco-friendly market system of economic rela-
tions is created. For developing this ideology, a
common shared value system, which shall act as
economic relations’ system staples, is needed.
New values are conceived, and the forgotten soci-
ety development values (including religious) are
restored worldwide.
Together with this innovation, cult prevails in
contemporary economics. Following this cult, the
economic relations’ system became rather percep-
tive to all innovation trends, which earn additional
profit. Innovations are implemented in not only
material but also social spheres (including mental
sphere). For example, innovative products created
within the CSR concept are popular in manage-
ment theory and practice. The most widespread
innovations are value management system, man-
agement philosophy function, internal motivation
function, social entrepreneurship, social mar-
keting, social audit, fundraising, philanthropy,
social partnership system, and so on (Gorfinkel &
Rodionova 2014).
Alexandrova & Korotkov 2013), the least studied
issue is social responsibility of town rulers for sin-
cerity and results of:
− implementation of their pre-election promises;
− exercising the management right delegated by
the citizens of the town;
− implementation of the pursued social policy;
− improvement of life quality of citizens;
− development of town history, and so on.
Activity of town rulers is obvious and transpar-
ent enough for the evaluation of its efficiency by
citizens. However, the necessary evaluation crite-
ria are absent. The perception of the subject of
evaluation is questionable. There are not enough
mechanisms to identify the probity of civil serv-
ants’ activity. The applied macroeconomic man-
agement tools, although being efficient, are not
perceptive to ethical values and may serve both
positive and negative purposes. Therefore, prac-
tically, it is very difficult to evaluate the social
responsibility of town rulers, despite he/she exe-
cutes all necessary reports on municipal activity. It
is impossible to audit such reports. This leads to
corruption, pilferage, inappropriate use of funds,
wastefulness, and so on. The high authorities of
the town administration who shape the future of
the town come and go without taking any respon-
sibility for the pursued policy before the elector-
ate. Consequently, the citizens do not believe
politicians. This leads to low elective activity and

41
aggravation of social issues of town economy
management.
Integration of social responsibility of town rul-
ers into municipal management system structures
is considered to be a solution for many issues. For
efficient functioning of such mechanisms, the sub-
ject and object of social responsibility (for precise-
ness) shall be clearly determined and tied with the
town development philosophy. This category is
chosen and justified as the subject of research.
This concept is based on understanding of phi-
losophy matter in management theory. It is a new
sphere of philosophy, which is in its development
stage yet. “Management philosophy shall serve as
a common visionary and interdisciplinary basis
providing an aggregate perception and under-
standing of management phenomenon” (Diev
2012). On the basis of the created ethical approach
to management, town development philosophy
should be understood to mean a general sense
of activity of citizens implementing the values
agreed with them, which enrich moral capital and
form the vector of town development history due
to events organized in the town. It is considered
that town development philosophy could serve
as an ethical context of the development strategy
of its economy and a critical tool of evaluation
of social responsibility or irresponsibility of the
town rulers.
1.2 Research issue and approach to its solution
This paper deals with a timely but poorly studied
issue of indifference to Russian legacy and men-
tal traditions of profit-oriented strategies offered
for area development. As a result of implementa-
tion of universal “opportunistic Eurostrategies”
of town life quality (Grant 2012) consumer soci-
ety was formed in Russia. People pull efforts to
improve their material life conditions. It is rightful
if it supports their spiritual and moral develop-
ment. However, against the backdrop of material
wealth growth, many people lapse morally and
spiritually. Consumer society either destroys or
mindlessly squanders the moral capital acquired
during the centuries-long history of Russia and
preserved by our ancestors for us.
Russian legacy and mental traditions shall be
deemed as rich moral capital, which can strongly
influence Russian economy synergistically, give
it a powerful boost, show its strategic course the
right vector, and strengthen Russia’s look as a
well-doing and strong sway. However, this special
capital, which is already possessed by the Russian
society but not put to good use shall receive a value
dimension and frame for its introduction into
societal life. The main reserves of this capital are
concentrated in ancient towns; most of them are
42
in poor condition now and are not considered as
socially important.
It is considered that granting a formal status to
an ancient town and introducing a mechanism of
calling the town executive for responsibility for jus-
tifying such status shall draw attention of potential
citizens (migrants) who would be able to implement
the values declared by its status and angel inves-
tors who are interested in preserving and enriching
valuable legacy and cultural heritage of such town.
Meanwhile, the use of moral capital could increase
the efficiency of the town economy and improve
the quality of life of its citizens.
To solve this issue, a concept of philosophy of
developing an ancient town, which allows to create
a system of values that comprise Russian historical
and mental potential, a system of macro-regulators
of practical implementation of these values, and
a set of appraisal criteria for the level of social
responsibility of the town executive were imple-
mented for the agreed philosophy. This visionary
design is intended to motivate citizens to create the
future of their town lead by the ruler esteemed by
them considering the agreed values. Besides that,
this concept can be applied for substantiation of
the ethical context of the planned town socio-
economic strategy due to which the town economy
and the events held there shall receive ethical sub-
stantiation of their utility, which is as important as
economic efficiency indicators.
1.3 Goal and object (indoor proving ground)
of the research
The goal of our study is to reveal legitimate values,
which may serve as basis for designing the philoso-
phy of developing an ancient town.
Suzdal, an ancient town in the Vladimir region,
was chosen as an object of the research. By right
of history and Divine fate, it is the spiritual center
of Orthodox culture, but this status is informal.
Because of the socially irresponsible socioeco-
nomic policy, the town lost its historical heritage
and Orthodox values (Ilyin & Carmine & Nosovich
2006). The implemented strategy of developing the
town as an entertainment center is not legitimate
because it does not consider the opinion of all
social groups and the Russian Orthodox Church.
2 METHODS
The following scientific methods were used for the
research: induction, literature review, examination
of documents, comparison, analogy, generaliza-
tion, intuition, sociological survey, expert assess-
ment, empirical observations, descriptive method,
and visualization.
 Our study is empirically based. The findings are
justified by the interview data and online survey
performed by the authors in September–October
of 2013–2014. A total of 100 representatives of
various social groups of Suzdal were surveyed.
Besides that, documents (published papers, pre-
recorded films, and paintings) with opinions of
experts shall be deemed as experts by their prowess
as they understand Suzdal mission and its future.
A. I. Aksyonova, Y. Belov, A. D. Varganov, V. A.
Kolobanov, A. Osetrov, A. Fyodorov, and I. S.
Sbitneva participated in the correspondence docu-
mental conversation. Also the paper “The Saints
of Suzdal” was used (Aksyonova 2004, Belov
2014, Varganov 1972, Kolobanov 1982, Osetrov
2005–2006 2009, Fyodorov 1765, Sbitneva 2015,
The Saints of Suzdal 2004).
3 RESEARCH FINDINGS
3.1 Philosophy of economy development
and mechanism of controlling the social
responsibility of town ruler for its
implementation
All experts, all interviewees, and 77% of respond-
ents replied that they want to see Suzdal as an
Orthodox town in the future.
It is proposed to create a management mecha-
nism of controlling social responsibility of town
ruler, which shall be used for evaluating the follow-
ing citizens’ demands:
− social demands related with provision of
expected life quality;
− moral demands for counterweighting interests
of different social groups;
− economical, for example, creation of workplaces
with decent salary.
It is proposed to implement social reporting
by the town rulers before the citizens. This will
increase the credit of trust of the citizens to the
authorities and give a grounding for developing a
dialog and social partnership between them.
3.2 Substantiation of recommendation efficiency
It is considered that practical implementation of
the proposed concept would enrich Russian moral
capital, which would cause measurable synergetic
effects in Russian economics. Mass spiritual and
moral reboot of Russians can give a powerful
boost to economic development. Moral effects can
appear in change of human mental state of mind,
that is, a desire to improve one’s personal malice
and lead a healthy lifestyle; demonstration of dili-
gence, sincerity, and tolerance; improvement of
43
attitude toward people, increasing the cultural level
and nurturing love for mankind; insight of intel-
lectual, aesthetical, and spiritual needs; and aspir-
ing for making creations of high art, inducement
for good deeds, charity, creativity, etc. Effects of
spiritual activity are known from the Gospels. This
means receiving cargos: God’s grace, mental piece,
humility, innocence of thoughts, chastity, benevo-
lence, meek disposition, pardoning heart, discern-
ment, and so on. Our contemporaries need this.
Besides that, use of moral capital can increase
the efficiency of the town economy and improve
the quality of life of its citizens. The following
effects can be achieved: increase of the level of
town corporation social policy and elective activ-
ity of the citizens, increase of morality level of
citizens, and decrease of crime rate. The declared
town development philosophy can make the
problem of searching the sense of life actual for
the society and inspire people for reframing their
deeds and reformation.
4 DISCUSSIONS
4.1 General characterization of the research
object status and issue
Since ancient times, Suzdal has been famous for
its fertile lands, picturesque landscapes, splendid
nature, and lavishness of Divine grace. The town is
peculiar for a great number of churches built dur-
ing the 12–19 centuries. Their wooden and stone
buildings remain even today. Many of them were
built and painted by amen Orthodox artificers and
icon painters on the account of benefactors. It is
an evidence of foundation and prosperity of the
Motherland of Orthodoxy. Churches and monas-
teries protected Sushdal capital, which in ancient
time was nearly as significant as Kyiv. The town
suffered a lot of fires, invasions, and plagues. It was
destroyed down to rock bottom many times but
was reconstructed and developed. New churches
were built for lifting and strengthening the Ortho-
dox spirit not only of Suzdal citizens, but also of
all Russians.
Currently, 5 monasteries, 30 suburban churches,
14 bell towers, and acropolis group are located in
the central town with 4 km2 area (Lapshina 1989).
The town is bestrewed by various domes and golden
crosses, which overlook the Suzdal buildings.
However, according to the 18th-century museum
lithography of Suzdal, this opulence looks rather
meager compared to that in the pre-revolutionary
period. However, this small provincial town sur-
vived from devastation and is still saturated with
Orthodox spirit despite the age-long persecution
of faith. It is beautiful and unique. It seems that
Suzdal belongs to another world devoid of modern
realia. Having never rivaled with contemporary
towns, it always had some advantages known only
to its citizens. That is why they love their small and
cozy town.
However, despite the importance and unique-
ness of historical and spiritual values preserved
in this town it successively loses its Orthodox
traditions and develops as a modern tourist
and entertainment center. Pagan feasts such as
Maslenitsa, Midsummer Night, Cucumber day,
and Bast shoe day are held in the nurse of Ortho-
dox culture.
Some churches are abandoned and the others
are being repaired for a long time. New houses
and buildings are becoming higher, covering the
splendid faces of sacred buildings. It is not the
town executive who is to blame for irresponsibil-
ity because there are not statutory items of budget
of the local administration of church and listed
building maintenance and repair. The only source
of financing church and monument repair is char-
ity and sponsor funds.
The main objective of town economy manage-
ment is attracting tourists, creating comfortable
conditions for their staying at the town, and enter-
tainment. Specifically, neither interests of citizens
of Suzdal nor interests of the Russian Orthodox
Church are taken into consideration, so the policy
of the town executive is not legitimate. The main
target of the town authorities and entrepreneurs
is gaining profit. Orthodox values and traditions
of Suzdal often become subject of fun and enter-
tainment. Short-sighted monetarist policy destroys
everything that formerly saved this noble town and
country. The town depleted its moral capital, loses
its spiritual culture, and belittles Orthodox values
in return of up-to-the-minute profit.
The monetarist policy of town development
does not salvage its economy. Lack of workplaces
with decent salary is the vexed problem of Suzdal.
The citizens have to settle for the small list of
jobs with a hand-to-mouth salary offered by local
employers. Therefore, they have to move to nearby
towns to earn keep while as their work shall be use-
ful for their native town.
4.2 Expert’s opinions about Suzdal
Suzdal is the nurse of Orthodox culture and a holy
land. Unfortunately, many sanctuaries are gone
and only a few names and hagiographies of saints
remained until now (The Saints of Suzdal 2004). The
redemptive mission of Suzdal as a blessed town was
predicted in the Writings “On the blessed Suzhdal
town” by priest Ananiy Fyodorov (Fyodorov 1765).
A. D. Varganov, an art critic and restorer,
architect, and museum trustee, in the 1970s
44
wrote about the quick growth of interest
toward ancient monuments of Suzdal: “The
town attracts many sightseers and tourists,
both Soviet and foreign”. For preservation of
historical and cultural monuments and further
development of Soviet and foreign tourism, in
August 1967, the Council of Ministers of the
Soviet Union adopted decision “About crea-
tion of the tourist center in Suzdal”. The Coun-
cil of Ministers of the RSFSR was assigned
to provide historical and cultural monument
repair, construction of trading and catering
facilities and hotels, housing, construction of
cultural and household and utility facilities in
1968–1971 (Varganov 1972).
Aksyonova A. I., a Soviet and Russian museum
trustee and social activist, candidate of histori-
cal sciences (2003), Honoured Cultural Worker
of RSFSR (1980), and hero of labor of Russia,
underlines the importance of the spiritual aspect
of the town, monument value, and the whole his-
torical and cultural legacy (Aksyonova 2004).
Priest A. Osetrov shot a series of films about
Suzdal and wrote poems about it (Osetrov
2005–2006, 2009).
Here is the opinion of N. A. Ionina, a citizen
of Suzdal: “Suzdal is rightly considered to be one
of the richest thesauri of national and global cul-
ture due to the lavishness and diversity of historic
buildings and religious sanctities which attracted
thousands of pilgrims at all times. The master-
pieces of Suzdal architecture...are inherent in the
hills and valleys of this land, its rivers, forests and
the sky. They comprise not only a colorific land-
scape and life with its routine, but also eternal
people’s existence. They are full of the strongest
sense because deeds and creations of our ances-
tors were determined by their own worldview, but
not by our current feelings and demands which are
often too earthly!’’ (Ionina 2009).
The following popular films were shot in
Suzdal: “Balzaminov’s Marriage” (1964), “The
Blizzard” (1964), “The Tsar’s Bride” (1964), “The
Bell” (1966), “The Darling’’ (1966), “A Hunting
Accident’’ (1978), and so on.
Therefore, specialists concluded that everybody
needs Suzdal and it should be developed as a center
of Orthodoxy. At the same time, it is the best place
for preserving relics of the past, churches, and the
legacy of Ancient Rus.
4.3 Results of sociological research of the issue
During the sociological online survey, the opin-
ions of citizens of Suzdal about the legitimacy
of holding pagan festive events and develop-
ment of their town as a tourist and entertain-
ment center were studied. According to the online
survey, only 26% respondents support Orthodox Table  1. Opinions of the priest and employee of the
holidays, 27% consider that it is inexcusable to town administration about the philosophy of develop-
celebrate pagan holidays in an Orthodox town, ment of Suzdal.
31% stand against developing secular tourist busi-
Opinion of the
ness in their town; and 38% stand against turning administrative
an Orthodox town into a tourist and entertain- Topic Opinion of the priest employee
ment center. However, 62% of respondents sup-
port tourist business explaining this by the fact Attitude Pagan traditions Pagan feasts are
that it is very profitable. Businessmen spend toward are completely organized in
money on neither monument reconstruction nor pagan feasts unwarranted in Suzdal due to
organization of Orthodox holidays. A propor- organized in the town. They their advertising
tion of 31% of respondents consider that devel- Suzdal are harmful for and attracting
both the town tourists who
opment of tourist business negatively influences
and citizens. earn additional
the spiritual and moral conditions of the youth, Suzdal is famous profit for the
17% think vice versa, and 52% think that tourist worldwide as a town.
business does not influence the youth. Despite the spiritual and
polemic, 77% of respondents answered that they Orthodox center
want Suzdal to become an Orthodox holiday. of Ancient Rus
Representatives of different social groups of the and due to the
town (respectable citizens, administrative employ- heroic deed of
ees, priests, businessmen, and museum employees) faithful prince
Dmitry Pozharsky
were interviewed to reveal the reasons of the con-
who was buried in
troversy and define the ways of solving the stud- Saviour Monastery
ied issue. The readers are referred to the opinion of St. Euthymius.
map in Figure  1 for the results. The employee of Interest to pagan
the town administration and the priest had sharply rituals in the
different opinions (Table 1). contemporary
To generalize the opinions of experts and Russian society
respondents, it is viable to set a philosophy is an evidence of
of developing Suzdal as an Orthodox town. spiritual decline
and destruction
Although there are some opinions, which accept
of the cultural
a non-Orthodox philosophy of its developing if code of the
it was necessary to earn profit. The total load of Russians.
solving this moral dilemma is laid on the public
Mission of I would like Suzdal Suzdal shall
referendum and social responsibility of the town Suzdal to become a become an
executive. Russian provincial Orthodox
town, which keeps center, but
its cultural and with a
spiritual developed i
uniqueness. nfrastructure
and
sufficient
number of
workplaces.
Ethically Many tourist- Small
reasonable attractive manufacturing
sources of European and agricultural
income into countries have enterprises may
the town environmental fee, be developed
budget which tourists pay for supporting
for visiting the the town
town and using its economy with-
infrastructure. out breaking
Such fee may be Orthodox
introduced in practice.
Suzdal for those
who come here
Figure  1. Opinion map for choosing the philosophy on private
of development of Suzdal constructed according to the vehicles.
results of the survey.

45
5 CONCLUSIONS
Suzdal shall be developed as an Orthodox town,
which is significant not only for Russia, but for the
whole Christian world. However, values of spirit-
ual culture of small ancient towns, such as Suzdal,
need financial support and hence it is beyond the
scope of its citizens. If the responsibility for pre-
serving the spiritual potential of the country is laid
on a small town, the efficiency of its economy and
the prosperity of its citizens shall become issues of
national significance. Besides that, active ministers,
business leaders, representatives of charity funds,
religious leaders, and activists shall be engaged in
solving this problem.
The establishment of private-state funds of sup-
port for ancient Russian towns would be in order.
It is very important to make this fund attractive
for investors. This is possible with help of the Law
of RF “On the status of ancient towns of the
Russian Federation”, which could determine the
general vector of development philosophy. Thus,
Suzdal can receive a status of an empyreal town
or town of prayers. In such case, the mission of
the town may be set as follows: enliven the spiritual
roots and revive Christian values in the people’s
conscience.
The status policy together with learning spir-
itual values shall develop the economy of the
ancient town and improvement of the life quality
of its citizens. However, it is necessary to develop
its industrial composition of its economy in com-
pliance with the town philosophy. For example, it
is viable to develop cultural tourism together with
pilgrimage, craftsmanship, fare business, socially
responsible business, and small agricultural
processing enterprises for producing eco-friendly
food. Such activity does not contradict with the
town philosophy and allows increasing the number
of workplaces.
It is also viable to revise the topics of festive
events: holidays shall preserve and reinforce
the unique Christian spirit of the town and its
citizens.
46
REFERENCES
Aksyonova A.I. 2004. Suzdal. 20th century. From the
history of the museum town and open-air museum:
Monograph. Vladimir. 208 p.
Antonov S.A., Alexandrova O.N., Korotkov E.M. 2013.
Corporate social responsibility. Moscow: Yurayt-
Izdat. 445 p.
Belov Y.A. 2014. Publications. URL: http://www.
suzdalonline.ru/people/belov/ (date accessed 08/10/14).
Diev V.S. 2012. Management Philosophy: realm of
research and subject // Bulletin of Tomsk State
University. Philosophy. Sociology. Political science.
No. 2. URL: http://cyberleninka.ru/article/n/filosofiya-
upravleniya-oblast-issledovaniy-i-uchebnaya-
distsiplina (date accessed 09/29/14).
Fyodorov Ananiy. 1765. Set of Historical Works On the
Blessed Suzhdal Town. Suzdal.
Gorfinkel V.J. 2014. Corporate social responsibility.
Textbook and manual for academic Bachelor’s pro-
gramme/ Ed. V.J. Gorfinkel & N.V. Rodionova.
Moscow: Yurayt. 576 p.
Grant R. 2012. Contemporary strategy analysis. 7th edi-
tion. Saint Petersburg: Piter. 544 p.
Ilyin V., Carmine A., Nosovich N.V. 2006. Religious
studies. Saint Petersburg: Piter. 234 p.
Ionina N.A. 2009. Suzdal. History. Legends. Tales.
Moscow: Veche. 304 p.
Kolobanov V.A. 1982. Vladimir-Suzdalian accounts
of 14–16 centuries: Instructional medium. Moscow:
Moscow State Pedagogical Institute named after V.I.
Lenin.
Lapshina T.I. 1989. Suzdal. Moscow: Planeta.
Osetrov A. 2005, 2006 The guide to the most beauti-
ful town in the world.—In 2 copies. [Video]. Suzdal:
Suzdalskaya zemlya Charity Fund.
Osetrov A. 2009. Poetry to Suzdal. URL: http://www.
stihi.ru/2009/03/23/482 (date accessed 10/08/14).
Rodionova N.V. 2012. Axiological dimensions of busi-
ness and labor activity. Russian modernization. Inter-
disciplinary approach. Multi-author monograph/Ed.
N.V. Rodionova Moscow: YUNITY-DANA. 344 p.
Sbitneva I.S. 2015. Suzdal. Historical walks through the
ancient town. Vladimir: Trunzit-Ix. 266 p.
The Saints of Suzdal. 2004. Suzdal: The Convent of the
Patronage of the Mother of God.
Varganov A.D. 1972. Suzdal. Moscow: Sovetskaya
Russiya. 182 p.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Dynamic model of the economic and social system control

V.E. Krylov
Federal State Institution of Higher Education, “Vladimir State University named after Alexander and
Nikolay Stoletovs”, Vladimir, Russia

ABSTRACT: In this paper, we describe the method of control modeling of economic and social sys-
tems. The principles considered in the paper make it possible to denote the strategy of control with regard
to factors of external environment, choose the optimal control, and predict the behavior of competitive
systems.

1 INTRODUCTION Thus, the economic and social system is char-

One of the high-priority problems of the control
theory is the way to work out the best possible
development strategy of the economic and social
system.
There are a lot of methods to settle the task. They
can be relatively divided into two groups. The first
one is the group of the empiric methods (Delphi
technique, expert evaluation method, brainstorm-
ing technique, etc.). They are quite easy to apply.
However, the data accuracy of these methods will
be low. Moreover, the empiric methods fail to give
a relevant description of the empiric data. The sec-
ond group of methods appeals to the mathematical
techniques. Of these, there are mathematical and
imitation methods. They provide accurate and rel-
evant models, though complicated to interpret the
data. Besides, the imitation models are rather dif-
ficult to apply in field testing.
The suggested model of control is an attempt to
strike a balance between the empirical and math-
ematical methods. On the one hand, it is easy to
build and calculate. On the other hand, the model
makes it possible to draw unusual conclusions
about the system control, predict the development
of the system, and evaluate the possible conflicts
with the competitive systems.
acterized by two properties of state and time.
It means that it can be represented in Cartesian
coordinate system as a point with the coordinates
(ti; Si). Figure 1 shows some initial state of the sys-
tem, that is, a point with the coordinates.
The development of any system has an objec-
tive. The scholastic process of development does
not allow us to denote the finite state as a point. It
would be more logical to view the goal objective as
the complex of states, which can be reached within
the time limit:
T {S t} .
Let us model the finite state of the system as a
closed domain of the finite area T. Figure 1 indi-
cates the goal objective as a rectangle.
We will call the diagram represented in Figure 1
the Space–Time Diagram (STD).
The change of the system state is performed by
means of control U, which corresponds to a certain

2 STATEMENT

Let us denote integral index S for system state,

that is, the complex of all states (factors, indica-
tors), which characterize this economic and social
system.
The development feature of any system is not
only state but also time. Let us denote ti as a time Figure  1. Strategy for the achievement of the goal
point that corresponds to state Si. objective.

47
strategy. In general, the strategy of the system shift
from one state to another is seen as a directed line
imaged in Cartesian coordinate system. It con-
nects the points with coordinates (t0; S0) and (t1;
S1), which correspond to the initial S0 and finite S1
states of the system at the corresponding initial t0
and finite t1 time points, respectively (Fig. 1).
We must admit that the success of the STD
strategy depends on the time of its realization and
the scope of resources used in the process of reali-
zation. These characteristics determine the speed
of the strategy realization.
It can be medium (difference quotient ΔS = S1 –
S0 of the finite and initiate states of the system to
the time Δt = t1 – t0):
interval (t1; t2), the system development was with
the positive acceleration, but on the interval (t2; t3),
the system development slowed down.
Let us set the acceleration to zero for the rela-
tively small time limits. It means that the process
keeps going with a constant speed:
v const.
In this case, STD of this process is seen as a
directed line segment (Fig. 4). The speed is calcu-
lated as a slope of STD toward the time axis:
v ttgα . (2)

ΔS
v= ,
Δt

or instantaneous, equal to the first-order derivative

of the state function

s s (t ) , (1)

in time,

v s′ (t ) .

If the system gets or loses some additional

resource, we may speak about the speed change of the
strategy realization, that is, acceleration, equal to the
second-order derivative of the function (1) in time:
Figure 3. Strategy of the system development with vari-
a s′′ (t ) . able speed.

Figure 2 shows the strategy, which has a constant

instantaneous speed. In this case, it has the value
of the slope of the strategy line toward the positive
time axis. In this case, the acceleration is set to zero.
Figure  3 is seen as an example of the strategy
model with the variable instantaneous speed. It
has the value of the slope of the tangent to line (1)
toward the time axis. The picture shows that on the

Figure 2. Strategy of the system development with con- Figure  4. Comparison of speeds of the system
stant speed. development.

48
 In Fig.  4, the directed line segment AC shows
the strategy of the system shift from state S0 to
state S1. The speed of this shift is calculated using
formula (2).
Let AB be the same strategy of the system shift
from S0 to S1. The shift is performed with the
speed:

v1 t α 1.
tg (3)

We compare (2) and (3) and obtain the speed:

v1 > v.

It means that in the second case the system will

achieve the finite state faster. Figure 5. Absorption (radiation) of energy.
To learn how fast strategy AB as compared to
strategy AC will bring us to the goal state, we have
to calculate the difference as:

Δt t2t0 t1t0 .

Let us calculate time t necessary for the strat-

egy realization. If v is the speed of the system shift
from state S0 to state S1, then:

ΔS S1 − S0

is the difference between the initiate and finite

states. Then:

ΔS ΔS
t= = .
tgα v
The process of the state change goes aside with
the energy absorption and radiation. Material
resources or investments may serve as an economic
equivalent of this process. To get accelerated,
the system has to absorb energy (get it from the
outside); to get decelerated, it has to radiate the
energy. Figure  5 shows the function that corre-
sponds to the process above. The system gets the
energy at point A (indicated by a dotted arrow) so
that its speed increases, whereas, at point B, the
speed becomes low after the system has the energy
radiated.
There might be much more complicated vari-
ations of the absorption–radiation process. For
example, Figure  6 shows the process when the
energy is transferred to be “kept at no interest” (the
radiated energy is equal to the absorbed energy).
In Figure  7, the radiated energy is less than the
absorbed energy (“keeping with interest”).
We may consider that the function from point
( )
(t0; S0) to point tN2 SN1 indicates the worst
sequence of events. Let us denote the correspond-
ing control as extremely pessimistic. The function
Figure  6. “Transfer” of energy for “keeping at no
interest”.
corresponding to this control is called extremely
pessimistic as well. Let the function connecting the
( )
points (t0; S0) and tN1 SN2 be seen as extremely
optimistic control. The function in this case is called
extremely optimistic. In Figure 5, the function of
extreme pessimism corresponds to the directed line
segment AB, whereas the function of extreme opti-
mism corresponds to the segment AC. It should be
noted that the functions might be indicated by not
only line segments but also curves.
Let us denote the figure drawn by the functions
of extreme pessimism and optimism, as well as
by the polyhedron of finite states, as a field of
strategies. All variations of control (strategies)
lie inside the field of strategies. In Figure  8, the
field of strategies is indicated by a cross-hatched
figure.
We are to indicate several methods to set up the
function of extreme optimism. They evidently refer
to the optimality criterion adopted in the task.

49
 The first variant. We may build a stepwise, itera-
tive strategy using the maximal value of the energy
at our disposal.
We may consider the following variant, as
well. The speed of shift from the initial to finite
states may serve as one of the optimality crite-
ria. Then, the function, which corresponds to the
maximal speed, will indicate the control of extreme
optimism.
The third variant. The minimal time limit may
serve as the optimality criterion. Then, the strategy
corresponding to the function of the system shift
( )
from point (t0;S0) to point tN1 SN2 at the shortest
time limit will be called extremely optimistic.
Let us consider one more variant. It is possible
to set up the function so that the area of the curvi-
linear trapezoid is maximal.
Figure  7. “Transfer” of energy for “keeping with
interest”.
Figure 8. Field of strategies.
50
Now we are to indicate the methods to set up
functions of pessimistic control. The easiest is the
method to form the function that is symmetric to
the optimism function. It is also possible to assume
the above mentioned variants. The second variant:
we may build up the function using the minimal
value of the energy at our disposal. Another vari-
ant is the function that transfers the system from
the initial to finite status at a minimal speed. Alter-
natively, we may denote the function that meets
the requirement of the maximal time limit. Finally,
it is possible to take a geometrical approach: the
strategy that corresponds to the curvilinear trap-
ezoid with the maximal area is called extremely
pessimistic.
We are to consider the methods to set up an
arbitrary strategy.
Let us have some certain amount of energy W.
The task is to build a function starting at point
(t0; S0) and coming to one of the points of the poly-
hedron of finite states.
We are to divide the time segment t0 tN2 into finite
segments or stages of strategy realization. The seg-
ments might be reasonably accepted unequal in
length. The most appropriate is the division of the
whole time interval into Δt-fold segments. Then,
control U of the whole process can be divided into
the finite number of subcontrols U1, U2,…,UN,
each of them defining the shift strategy from step
i to step i+1.
It should be noted that the task can be consid-
ered with regard to not only time but also states. In
this case, we have to divide the segment S0SN2 into
finite segments (stages of the strategy realization).
Thus, if we take energy W1 with speed vAB, we
can shift to point B(t1;S1). If necessary, we can
return to the initial point and increase (decrease)
the value W1. We can similarly proceed in other
stages of the strategy realization. While absorbing
(radiating) energy Wi, we move from one stage to
another and denote temporary strategies. As noted
above, it is possible not only to absorb or radiate
the energy, but also “to lend” it. It is one of the
potential strategies. In Figure 6, it is indicated by
line DE.
Thus, step by step, we go through the temporary
control stages. When combined, they give us the
strategy of the system shift from the initial state
to the finite one. In Figure 9, such strategy is indi-
cated by a thick arrow.
Let us denote the criterion to set up the best
possible function.
We consider the system at time point ti (Fig. 10;
we reverse the axes as a matter of convenience).
The point (Si1 ti ) corresponds to the extremely
pessimistic state of the system, whereas the point
(Si2 ti ) marks the extremely optimistic one. The
segment
ΔS
Si OSi2 OS
OS Si1 In much the same way, at time point ti+1, we can
denote the points (Si ti + ) and (Si ti + ) , the seg-
stands for the “thickness of layer” of the field of ment length:
strategies at time point ti.
Likewise, let point A correspond to the point at ΔS
Si Si2+1 OS
OS Si1+1,
the best possible temporary function and denote
the shift: as well as point B.
Si Si . Let

0 αi 1

be a number greater than zero but less than one.

We will call it optimism coefficient. It characterizes
the risk level at stage i. The researcher denotes the
optimism coefficient with regard to a certain situa-
tion and his subjective concern of risk.
Hence, the optimal control, which shifts the sys-
tem from state Si to state Si+1, corresponds to the
function calculated using the formula:

Si1 1 +
OS i ⋅ ΔSi +1. (4)

It should be noted that if α i = 0, then the end of

the function will cross the function of the extreme
pessimism at point (Si ti + ). If α i = 1, then the
function will cross the function of the extreme
optimism at point (Si ti + ).
Let us consider the following example (Fig. 10).
Suppose at time point ti it is settled to assume the
value of the optimism coefficient equal to:

α i = 0, 8.

Applying criterion (1) for time point ti+1 we can

calculate point B:

Figure 9. Setting up the strategy. OB = OS

Si1 + 0 8 ⋅ ΔSi +1.

We connect points A and B by the directed line

segment. Then, the optimal control U i∗ , which
shifts the system from state Si to state Si+1, corre-
sponds to the directed line segment AB.
The competitive advantage of criterion (4) is
the fact that it enables to change the value of the
optimism coefficient in time and with regard to the
situation.
Thus, if we use criterion (4), we can provide the
optimal control (Fig. 9).
To summarize, we can define the method to con-
sider the best possible strategy.
1. We determine the earliest time point tN1 and the
latest time point tN2 to shift the system to the
finite state. We calculate the values for the finite
states of the system ranging from SN1 to SN2 . As
Figure  10. Setting up the best possible strategy by a result, we get the polyhedron of finite states.
means of the optimism coefficient. Now we represent it on the space–time diagram.

51
2. We divide the time interval, necessary to shift
the system from the initial state to the finite
one, into N finite time segments Δti. It should
be remembered that in general they can be dif-
ferent in length. It is convenient if the segment
length is multiple:
Δt tN2 − tN1 .
3. We use one of the above mentioned methods to
set up the function of extreme optimism. Then,
we build up the function of extreme pessimism
on the space–time diagram. This is how we indi-
cate the field of strategies.
4. With regard to the selected value of the opti-
mism coefficient α i , we set up the function,
which corresponds to the optimal control U i∗ at
each temporary stage.
5. All the above mentioned variants of control U i∗
together denote the optimal control U ∗ for the
whole task:
U = U1∗ ∪ U 2 ∪ ∪ U N∗ .
6. Using the value of change speed of temporary
state of the system, which corresponds to con-
trol U i∗ , we can calculate the value W (U i∗ ) of the
criterion of the strategy efficiency. Then, the
total effect after applying the optimal control
will be as follows:
N [7] Krylov V.E. Space—time diagrams: Calculation bypass
W W (U ) ∑W (U i∗ ).
i =1
52
Thus, we believe that the considered dynamic
model can accurately and adequately simulate the
management processes of socioeconomic systems.
REFERENCES
[1] Krylov V.E. Space-time diagrams in strategic control
of economic and social systems/V.E. Krylov//Dynam-
ics of complex systems – 2012. – V. 6, No.4. – P. 36–42.
[2] Dynamics of economic and social systems: regional
aspect: monograph/ed. by I.B. Teslenko; Vladimir
State University named after Alexnder and Nikolay
Stoletovs. – Vladimir: VlSU, 2013. – P. 318.
[3] Krylov V.E. Modeling of socio—economic system
based environmental impact//International Con-
ference «economy modernization: new challenges
and innovative practice» October 20, 2013, Sheffield,
UK. Conference Proceedings. – Sheffield, 2013.
– P. 147–151.
[4] Krylov V.E. Zum problem der Modellierung der opti-
mal Verwaltung der socialen—Wirtschafts systemmit
hilfe von Raum—Zeit—Diagramme//Proc. jf the
Seventh International Conference on Economic Sci-
ences 12th June 2015. – Vienna, 2015. – P. 68–74.
[5] Krylov V.E. Space-time diagrams: Modelling of
the strategy change with regard to insurmount-
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[6] Krylov V.E. Space—time diagrams: Change in strat-
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Factors determining whether industrial parks are successful or not

S.N. Kuznetsova, E.V. Romanovskaya, Y.S. Potashnik, N.E. Grechkina & A.P. Garin
Kozma Minin Nizhny Novgorod State Pedagogical University, Nizhny Novgorod, Russia

ABSTRACT: It is possible to make an industrial enterprise successful by creating special industrial

parks. Industrial parks are industrially sued sides located on a restricted area at which mostly legally
independent enterprises have established close cooperation in terms of goods and services, and the users
of the park typically share different infrastructural facilities, such as sewage system, wastewater treatment
plants, pipeline network, roads, site security, canteen, and so on, on the basis of private sector agreements.
The organization entity is usually formed by large enterprises (integrator) that develop and produce the
final product. In this paper, we analyze the factors that make industrial parks successful, giving residen-
tial status only to the companies or projects that demonstrate high potential, the existence of the expert
board and participation of the members in problem-solving and determining the criteria for choosing the
projects as the residents and other strategic ant tactic tasks; and a wide range of the services, including the
services that are difficult or impossible to complete using only the team that works at the site.

1 INTRODUCTION account the necessity of the emerging role of

Industrial park should be considered as an effective
tool to develop business and Russian production
that gives an opportunity to localize mass serial
production of the high technological products in
Russia.
At the same time, methodological base of the
quick and efficient development of the production
sector should be improved. Therefore, the critical
problem is how to improve business mechanisms
of the industrial parks, which is one of the tools
of the business development in Russia. It devotes
to competitive recovery and import-substituting
products [1].
Industrial parks have to provide educational
service using only their own stuff, which do not
have enough experience in business.
Because of the lack of education and experi-
ence, entrepreneurs have serious difficulties with
international communication.
Compared with vertically integrated organi-
zation, intercompany factory area network
is created on the basis of industrial parks and
supposed to use contractual arrangements per-
forming operating activities between component
suppliers and system integrator that produces
the final output and manages all processor
chains. From the system perspective, subject of
the industrial park is the enterprise–system inte-
grator, around which the structure of the indus-
trial park is created by the residents. Functions
of the subject are implemented in with the help
of a special managing company. Taking into
the state in the sphere of developing and imple-
mentation new industrial policy, the bodies of
the executive power can be the initiators to crate
industrial parks.
At the same time, studying the approaches of
operating activities at the Russian enterprises let us
to conclude that competitiveness of the enterprises
will be connected with creating intercompany fac-
tory area networks.
Building of integrated intercompany network
for such enterprises is possible at the base of
industrial parks and huge auto-making enterprises.
Industrial parks create the conditions for increas-
ing the effectiveness of small and medium-size
enterprises.
2 THEORETICAL BASIS OF THE
RESEARCH
Problems of industrial growth and development
of the industrial enterprise and their accom-
modation to the socioeconomic transformation
are highlighted in the works of L.I. Abalkin,
V.N. Voitolovsky, D.S. Lvov, B.Z. Milner, V.M.
Proskuriakova, A.G. Poshneva, Z.P. Rumiantseva,
and others. Questions that are devoted to integra-
tion at the enterprise were enlightened in the works
of J. Ivanova, E. Dunaeva, and E. Torkanovskogo.
Questions of the development at domestic indus-
trial enterprises are highlighted by O.I. Botkin,
V.N. Eremin, V.I. Nekrasov, K.M. Pirogov, A.N.
Pitkin, A.I. Tatarkin, and others.

53
 We assess the works of these authors quite high,
but we notice that theoretical questions are studied
quite well. However, methodologically and practi-
cally, the problems are not studied deeply. It makes
us choose this subject of research [2].
3 METHODOLOGY
For the research, we use general scientific meth-
ods: the method of analysis, synthesis, and
classification.
We have developed a methodological approach
to create industrial parks, which is based on the
implementation of regional investment projects in
the frameworks of state–private partnership. We
also determine the role of regional authorities as
the initiator and the main ordering customer.
Because of the necessity to make big investments
in industrial parks, we determine the necessity of
existence of private–state partnership
We develop a methodological approach for the
selection of anchor residents for industrial parks.
This approach is based on building the analytical
matrix share of production supply of the resident
integrator and the level of technical collaboration
between them. Getting the statuses of top-priority
resident and anchor rentier in industrial park, let
us make a claim for promotional rates, informa-
tional and consultant support from integrators
and authorities [3].
Methodological approach for the creation of
industrial park is the timeline and array of using
tools that are used to implement investment
projects.
To implement one of the most important prin-
ciples to create industrial parks—industrial priori-
ties as the initiator of such projects—we consider
authorities. It lets us to take into account goals and
interests that are connected with the development
of the economics of the subordinate entity of the
federation. For making decisions and determining
industrial parks’ goal, we have to take into account
factors of external and internal environment. As
the key decision to create industrial park, we con-
sider the determination of pool companies and
integrators. As the applicant for such status, we
consider large, city-forming industrial enterprises
that need to form the net of suppliers of competi-
tive components that are necessary for producing
the final output.
Industrial parks demand big investments,
and such projects should be implemented in
the frameworks of private–state partnership
with the help of long-term bank loans. As for
regional authorities they invest in land parcels,
we work out planning documentation and pro-
vide engineering and transport infrastructures
54
in the territory of the industrial parks. We
consider industrial enterprise as private investor
integrators. Managerial functions for industrial
parks should be delegated to a special manag-
ing company that must be created by regional
authorities. The effectiveness of the industrial
park should be determined by continuous moni-
toring [4].
4 ANALYSIS OF THE RESULTS
The absence of laboratories and storage buildings
and poor equipment hinder the development of
the residents. Entrepreneurs have to buy expensive
equipment, look for the opportunities to rent the
building and equipment out of the industrial parks
and move to industrial parks where the problem is
solved. All these take time and money from com-
pleting the main tasks.
Another serious problem is systematic unuti-
lized capacity of the equipment and buildings. The
tasks that demand using the equipment do not last
long, and the equipment is not used a lot during
the day.
Given the infrastructure does not help to cre-
ate the ecosystem in order to communicate
and exchange information between residents,
there is no special space for events and informal
communication.
Besides, some industrial parks still do not pro-
vide residents with basic office machines. Some
office machines do not have sufficient quality for
solving modern problems (Kuznetsov V.P. and
others, 2015) [5].
The authors suggest some ideas:
− Permanent personnel development, using exist-
ing educational programs and international
experience;
− Conducting private courses in order to prepare
technical specialists;
− Creating the frameworks of the industrial park
centers of youth innovations;
− Forming federal centers to exchange interna-
tional experience;
− Conducting federal events in the regions using
the best Russian and international experts. It is
recommended to establish such enterprises on
the basis of the best industrial parks, which lets
positioning these centers as innovative.
We suggest the following ideas to improve the
situation:
− Industrial parks should actively participate in
Federal and regional programs. It helps to buy
equipment collaborating with private partners;
− Collaborate with major software makers. They
can help using the business supporting programs
and provide software with a significant discount;
− Create informational system if the high techno-
logical infrastructure that let the entrepreneurs
find and use necessary equipment and building
with minimum expense;
− Form the program of work for every enterprise,
it gives an opportunity to monitor prognoses
and satisfy payable demand for different types
and volumes of the industrial areas. Also, such
programs let allocate resources of the industrial
park efficiently;
− Creating (desirable in the industrial parks) pri-
vate engineering centers (or centers that are
based on private–national agreement) that pro-
vide the equipment and high technological serv-
ices to start up project and outside users;
− Organize a comfortable and cozy space for
informal communication [6].
Because of some reasons, the demand level for
innovative decisions from medium-size and large
Russian enterprises is quite low. The absence of the
customer who is interested in new, more effective
decisions is the main problem for the residents of
the industrial parks.
Managers of the regions do not support the res-
idents and do not motivate big potential customers
to collaborate with the managers of the industrial
parks in order to choose the perspective project.
Entrepreneurs concentrate efforts on complet-
ing popular, widely discussed tasks and do not
pay attention to the problems that really should
be solved, because there is demand for them. Sell-
ing decisions in the concrete branch demands not
only experience and understand how it works,
which can be achieved with a mentor as well as a
license or international certificate. For example,
some licenses can be given only if the company has
accredited specialists. This fact becomes a signifi-
cant obstacle for selling decisions by the residents.
Big potential customers do not consider the fact
of being a resident of the industrial park as a ben-
efit of the potential supplier.
Most industrial parks do not support interna-
tional contracts and do not collaborate with for-
eign analogies and business representatives. These
facts restrict the opportunities at the international
market [7].
We suggest the following:
− Organize events for communication of the entre-
preneurs with the potential customers;
− Create the system that monitors and formulates
latest tasks in different production sectors. The
system must be based on monitoring of not
only Russian but also world tendencies in order
55
to boost start up projects with international
potential;
− Form a qualified expert board, the members
of which should have a strive to help residents
permanently;
− Promote the benefits of working with the resi-
dents of the industrial parks among big compa-
nies. We compare these benefits to those of small
enterprises, which do not support the ecosystem,
and need to work out special metrics that show
how collaboration with the residents decrease
risks;
− Systematic solution for the licenses. Some
licenses and certificates can be obtained by the
entrepreneurs with the help of governmental
programs. In some cases, to get international
certificate, the business must be registered out-
side Russian Federation;
− Partnership with foreign objects of the innova-
tive infrastructure and enjoyment to the inter-
national nets and associations. It may increase
the chances of the residents for successful busi-
ness development at the international markets
(Kuznetsova, 2013) [8].
The lack of funding at the last stage is the key
factor that stops development, especially if the
project is high technological and not IT start-up.
In order to decrease risks, there are VC funds
and some business angles. They usually invest
money at the late stages or fund IT start-ups. For
many entrepreneurs, the problem is not the absence
of money but the absence of an experienced inves-
tor who actively supports the team using knowl-
edge and business contacts. Misunderstanding of
the young enterprises and their specific functions
leads to demands from the potential investors to
guarantee profit.
Activity of the national institutes that can partly
compensate restrictions of the beginning funding
is not coordinated. Also, there is no information
in mass media about such activity. The standards
are quite variable and depend on a region. All the
processes are pressed with bureaucratic acrimony,
as a significant time is wasted in getting funds.
Residents of the industrial parks are often per-
ceived by the investors as weak companies that
cannot earn and completely depend on support
and grants. Investors think that it is connected
with business incubator to set business goals and
cannot provide high-quality service. Also, they do
not have necessary experience and cannot attract
experts (Kuznetsova, 2014) [9].
We suggest the following ideas:
− Create a regional fond on the basis of the indus-
trial park using the governmental funding. Such
fond should be devoted to fund projects at early
stages;
− Educate private investors. It is good to con-
centrate on introducing the peculiarities of the
innovative business to private investors. Give
them an opportunity to study necessary subjects
in the sphere of science and technique;
− Systematize resources that are necessary for
financial support of the innovative projects,
form convenient informational systems that
integrate all programs that work on Federal and
regional levels;
− Implement key showings system that measure
effectiveness and not based on formal showing
but on success showings. It helps to stimulate
top management to choose projects carefully
and attract necessary experts to find opportuni-
ties for providing good service.
At present, there is no unified well-built system
of the key showings that measure the effectiveness
of industrial parks. The existing system functions
only with the help of national funding [10].
The disadvantages of the situation:
− It does not let to asses working results and
determines the most successful and rejects weak
projects;
− Create obstacles for negotiations with funding
and control organizations, with investors and
partners;
− Disturbs from setting goals;
− Development of the effective system must be
based on existed international analogies and
experience of the successful Russian enterprises.
An effective system must be created with taking
into account the differences between different roles
of the objects.
− Industrial parks as a tool for start-up with the
potential for the hasty growth must be oriented
to create huge international brands with risk
capital;
− Industrial parks as a tool to support innovative
companies with the potential for stable growth,
which later will integrate to the existed chains of
the added value creation [11, 12].
In 2016, the volume of production is forecasted
to be at least as that in the previous year and all
tax investments to the budget will be 60 milliard
rubles.
Support for industrial park is run at all levels.
As an example, we introduce industrial park
Zavolzh’e in the Ulyanovsk region for one ruble
that is invested in the infrastructure that attracts
22 rubles from private investments to the produc-
tion and more than eight rubles of the annual tax
payments. We also take into account start of the
machine-tool factory DMG MORI. Also, the
company Jokey Plastic was planned to be opened.
56
Modern infrastructure of the industrial parks in
Russia attracts more than 200 foreign companies
from 25 countries. A total of 30 foreign enterprises
were placed at different markets only recently. In
Kaluga, a new insulin factory was opened—Novo
Nordisk, in Samara region in industrial park Pre-
obrazhenka—auto detail factory, Bosch. However,
most of the residents are local enterprises, with 250
residents and 1680 companies [13, 14].
5 CONCLUSIONS
At present, there are 16 industrial parks in Russia,
where 930 companies are situated that work in
high-technological sectors. The biggest ones are
Kosmos-Neft-Gaz in the Voronezh region, where
45 types of the equipment are produced. It helps
to decrease the dependency on the foreign compo-
nents from 80% to 40%.
Using successful factors of the industrial parks,
70.0000 working places will appear. Volume of the
output grows in 312 milliard rubles and budgets of
all levels will get 40 milliard of taxes.
This topic for the research is quite acute. These
are the basis of the new economy. It helps to change
the Russian economy and transfer to highly tech-
nological production.
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M. INFRA-M, p. 184.
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[3] Kuznetsov V.P., Kuznetsova S.N., Bulatova E.A
2015. Development of Russian auto-making a base
of industrial parks//Economic analysis: theory and
practice. No. 17 (416). pp. 12–20.
[4] Kuznetsov, V.P., Romanovskaya, E.V., Vazyansky
A.M. & Klychova G.S. 2015 Internal Enterprise
Development Strategy. Mediterranean Journal of
Social Sciences. T. 6. No. 1 (S3). pp. 444–447.
[5] Kuznetsova S.N. 2012. The analysis of the crea-
tion and working of the industrial parks//multilevel
social production: questions of theory and practice.
No. 2 (19). pp. 232–242.
[6] Kuznetsova S.N. 2012. Transformation of the eco-
nomic relationship, that appears in domestic cor-
porations as the result of business mechanisms
formation Messenger o Cherepovets state university
No. 1 (42). pp. 54–57.
[7] Kuznetsova S.N. 2013. Organizational approach to
industrial parks’ development. Messenger of Nizhny
Novgorod University named after N.I. Lobachevski
No. 3. pp. 142–146.
[8] Kuznetsova S.N. 2013. Development of the business
mechanisms in industrial parks formation; thesis.
Ivanovo state university Ivanovo. p. 24.
 [9] Kuznetsova S.N. 2013. Development of the indus-
trial parks that are based on private-state partner-
ship//Modern technologies. Regional addition.
No. 4 (36). pp. 72–77.
[10] Kuznetsova S.N. 2014. Analysis of the investments
volume to industrial parks and respond of Russian
to sanctions//Multilevel social production: questions
of theory and practice. No. 7 (23). pp. 310–317.
[11] Kuznetsova S.N. 2014. Economic of the enterprise
and selection of the residents on the base of the
industrial parks. Mininsky state university. No. 1 (5).
[12] Kuznetsova S.N. 2014. Economic of the enterprise
and implementation of global investment project of
the industrial park. Messenger NGIEI. No. 5 (36).
pp. 93–106.
57
[13] Lavrenteva E.A., Kuznetsova S.N. 2015. Re-
industrialization of Russian with the help of
the industrial parks//Economic development of
Russia: tendencies, perspectives collection of arti-
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Methodological solutions for the production of a new product

V.P. Kuznetsov, E.P. Garina, N.S. Andriashina & E.P. Kozlova

Nizhny Novgorod State Pedagogical University named after K. Minin, Nizhny Novgorod, Russia

S.N. Yashin
Nizhny Novgorod State University named after N.I. Lobachevski, Nizhny Novgorod, Russia

ABSTRACT: This paper reveals the categories «ware» from the angle of renewed technological process
that has improved the technical–economic criteria and characteristics that are in demands. The methodol-
ogy of making a new product at the auto-making enterprises is broadened by the effective use of reserves;
methodological recommendations are justified; and start-up, adjustment, projecting works, re-tooling,
and modernization are taken into account.

1 INTRODUCTION Shuhart. (Shukhart, 2013), and others. In domes-

Objective tendencies in the modern economy
prove that the competition becomes stiffer in the
conditions of increasing unstable environment at
the enterprises. Also, high changeability of the
customers’ demands need continuous renovations
of the production and modernization of the tech-
nology. At the same time, enterprises are highly
motivated in order to optimize the cost structure
excluding ineffective expenses. The practical imple-
mentation of the import-substituting programs
and the appearance of domestic enterprises at the
international markets are possible only if a com-
petitive product is created.
Peculiarity of the auto-making enterprises
functioning is that there are a lot of obstacles that
impede the creation and development of compli-
cated highly technological products. For example,
low competitive ability compared with foreign
analogies, restricted access to long-term credit
resources, low level of work productivity, high
operating costs, and use of classic technologies.
The researchers have the following goals: (1) defin-
ing the sense of the notion “ware”; (2) developing
the methodology to create ware at the auto-making
enterprise; and (3) revealing some particular ele-
ments of business mechanisms that are connected
with product creation.
2 THEORETICAL BASIS OF THE
RESEARCH
Significant investment in the studies devoted
to the creation of a new industrial product was
made by D. Becker, S.L.K.R. Hoffman, W.A.
tic science, the problem is raised by S.A. Aleshin
(Aleshin, 2011), E.I. Boshzkova (Boshzkov, 2013),
U.I. Efimicheva, O.V. Trofimov, A.U. Efimichev,
A.G. Shipilov (Efimichev and others), E.M.
Korotkova (Korotkov, 2010), S.A. Kharitonovich
(Kharitonovich et al., 2015), and others. However,
some aspects of the creation a high-tech product
are not studied enough.
3 METHODS OF THE RESEARCH
In this study, we use general scientific methods: the
method of the analysis and design, classification,
as well as SWOT analysis, comparative analysis,
economic and statistics analysis, and qualitative
research strategic analysis.
4 ANALYSIS OF THE RESULTS
Qualitative analysis of modern domestic and for-
eign economic literature let us allocate the main
characteristics of the industrial product in auto-
making: the product must have characteristics
of «development» and «change»; also it should
have a certain level of novelty; at the level of the
enterprise, a new product is just a product that
was not released by the enterprise; the final goal
of product creation is to increase the competitive-
ness and efficiency of the enterprise. However, in
the approaches studied by the authors, no atten-
tion was devoted to the technological process and
its production, which is the basis for all activities
at the industrial enterprise and guarantee needed
result, with given characteristics. Because of

59
this fact, «product of the production» should be
considered as the product that is based on renewed
technological process. The product that has better
technical–economical characteristics in accord-
ance with the customers’ demand. The suggested
definition of the term considers permanent chang-
ing and renovation of the technological process as
the most significant characteristic.
Nowadays, studies conducted worldwide raised
a lot of questions that are connected with the crea-
tion of the new product at the industrial enter-
prise. However, some aspects of the process are
still not studied enough. Therefore, we think that
it is necessary to study some additional questions
that are connected with the mechanisms of the
formation of a new product. In these mechanism,
we imply an ordered set of economical elements
and correlations that reflect planning actions,
analysis, development, and implementation of the
effective processes for creating a new product at
the auto-making enterprise. These processes are
Figure 1. Business mechanism of a new product creation in the auto-making [Andriashina, 2015].
60
formed under the influence of the internal and
external environment at the enterprise. We intro-
duce the scheme that shows business mechanism
for creating a new product at the auto-making
enterprise (Fig. 1).
Motives that appear while the product is created
mostly depend on the environment of function-
ing. Environment of the operation of the enter-
prise socioeconomic, technological, business, legal,
political, and other conditions help develop the
enterprise or thwart progress. We can allocate:
• External environment—business units and driv-
ing forces that influence on enterprise activities.
In that case, factors that participate in the forma-
tion of an external environment can be divided
into factors of direct influence (factors of the
microenvironment) and indirect influence (fac-
tors of macroenvironment). The main factors of
the microenvironment are suppliers, customers,
intermediaries, competitors, responsive group
 of consumers, and market. The main factors of
the microenvironment are political, economic,
demographical, scientific, natural, and interna-
tional factors.
• Internal environment—set of active people and
forces that have a direct connection with the firm
and its opportunities. Diversification of the inter-
nal environment factors can be divided into three
types: operational, managerial, and economic.
• Motives for the creation a new product at the
auto-making enterprises mostly determined by
external and internal environments.
• Influence of changes in the external and internal
environments sets the goal for an auto-making
enterprise. The aim is to create a new competi-
tive product that corresponds to customers’
demands and has high socioeconomic effec-
tiveness. Participants in the implementation of
the goal are owner of the enterprise, managers,
engineers, quality managers, and marketologists
(Kuznetsov et al., 2011). The basis for the mech-
anism of a new project at the enterprise are prin-
cipal of modernity, principal of originality and
quick implementation, and principal of economy
and technology. To achieve this goal, according
to the main principals of a new product creation,
the participants of the process should choose the
most appropriate model (Aiello, 2012).
Today, it is often operated upon the models of
creation a new product:
– «Gate stage»; «quality gate»; the sense of the
stage is that the process of production is divided
into some fixed points, with each point cor-
responding to a certain stage of the project
(Kharitonovich et al., 2015). There are perfor-
mance benchmarks that led to transfer to the
next stage if the goal is achieved;
– Design of «matrix structure of the production»
is a model that led to determine «reasonable»
set of tasks (planning, management, and
implementation) complicated PD—projects
with the use of different algorithms (clustering,
modeling);
– PDPNet model, the sense is—to form NPD
mode in business processes of the integrated
enterprises;
– DMADV model, where the NPD process is
introduced as the closed sequence of five stages:
(1) determination of the goals of the project
according to the customer’s demands and the
formation of the strategy of the enterprise; (2)
measurements and identification of CTQ key
quality characteristics; that have fixed points in
the framework of the specification; (3) analy-
sis of the projects’ solutions, development of
the product, projecting alternative variants; (4)
specifying the constructive peculiarities of the
61
product, optimization of its implementation
plans; and (5) control/assessment of the design
solutions, creating new developmental bunches
and realizing the business process.
The described models are not adapted to the
conditions of a real production, so in the frame-
works of chosen model, projecting systems are
being developed. Examples of such system are
LPDS—Lean Product Development System
(Toyota), PPDS—Product Planning Development
System («GAZ» group), and others.
PPDS (Product Planning Development Sys-
tem) determines standards to develop a new pro-
ject, from planning to production. In that system,
at every stage (design, examination, preparation,
service, etc.), there is a quality gate, whose total
number is 12. The system allows building in, syn-
chronizing, guaranteeing management of the sec-
ond and further levels to develop a new product:
• Cost management;
• Synchronized work with the suppliers;
• Failure Models and Effects Analysis (FMEA);
• APQP, Advanced Product Quality Planning and
Control Plan;
• Product Data Management (PDM);
• Virtual Projecting and Engineer Analysis (VPD-
CAE);
• Quality administration (demands for a product);
• Styling;
• Change management;
• Product configuration.
Besides the problems listed above, projecting and
planning system allows us to use unified showings
of the effectiveness to develop a new product. Using
these showings, companies can estimate the effec-
tiveness of the systems and projects (Garina, 2015).
To increase the effectiveness and competitive-
ness, we suggest the following method to create a
new product at the auto-making enterprise, which
includes some stages that are shown in Figure 2.
Compared with the existing ones (Bonev, 2012),
the given method has the following peculiarities:
− This method can be used to create products with
a different level of novelty;
− form exact demands for a new product;
− allocate customers’ demands and guarantee
quality with minimum waste of resources;
− opportunity of interim audit, transferring to the
previous stages of the project in order to correct;
− opportunity to avoid chaos in the process of the
program implementation.
A new product is developed according to the
developed method, and well-planned events led us
to have a certain economic effect, forming stable
competitive advantages of a new product.
 In the last stage, we control the effectiveness of
the implementation of a new process, which allows
creating a competitive product that fulfils custom-
ers’ requirements.
The practical use and effectiveness of the sug-
gested ideas to organize a process of a new product
production were used at «GAZ».
Necessity to implement changes appeared when
the process of a new product creation at the metal
enterprise was analyzed. Practical usage of the
business mechanisms to create a new product and
methodological base has some stages:
The first stage reveals the disadvantage of the
products: high cost, low competitiveness, and tech-
nical characteristics do not correspond to custom-
ers’ demands.
The second stage reveals that by modifying
existing products, some reserves to increase qual-
ity were revealed in order to economize resources.
Business effect of the suggested mechanism is con-
sidered as the result of the implementation of cor-
porate actions shown as economic assessment and
formation of the structure that led us to cooperate
with internal and external environment, satisfy the
needs of the enterprise, and achieve the goals.
Figure 2. Stages to create a new product (Andriashina,
2015).
62
We conducted an analysis of the showings to
determine the directions for an effective produc-
tion (Kuznetsov, 2015):
• Productive capacity is used by 72%, which is 8%
less than norm;
• Success rate of the stock-list is closer to the bot-
tom borderline of the statuary level –0.93%;
• Reject level is higher than the normal –2%;
• Output ratio is 0.72 (norm, 0.65), which proves
that expenses can be decreased (for raw materials)
Analysis shows the necessity to improve techno-
logical process in order to improve showings.
To improve quality and change technical char-
acteristics of the product, we suggest to change
material for details. Products that are made of
graphite iron C -35 are not suitable for the cus-
tomers due to the weakness and fragility of the
material. Therefore, we decided to use ductile iron
B -40 and B -50 for casting. These changes let
us create the line of new products with improved
characteristics.
We determine the variants to economize the
resources; determine the usage rate of the basic
materials; decrease expenses for electricity;
decrease expenses for lining; decrease expenses for
supporting furnaces in working conditions; and
scrapheap.
Therefore, changing the material to cast with
the help of resource economy allows us to decrease
prime cost and create new, more competitive
products.
In the third stage, we develop some suggestions
to change productive process of a new product.
Analysis of the productive process of the iron
allows us to reveal a lot of problems. Furthermore,
it is evident that the creation of a new product with
out-of-date machinery is impossible. Therefore, we
suggest conducting a modernization of the exist-
ing induction furnaces LFD-25 and buy induction
crucible furnaces IFM-7 «ABP» to melt iron and
casting units OCC-50 «ABP».
In the fourth stage to determine the need of
money, we made investment and organizational
plans for the project, and some graphs about fund-
ing and performance were created as well.
All project works require buying machinery,
installing machines, and assembling works. The
investments are introduced in Table 1.
In the fifth stage, we calculate the efficiency and
pay off of the project.
Table 2 shows that in 4 years of the realization,
net profit is 401, 472 thousand rubles when invest-
ment is 214, 492 thousand rubles.
From 2013 to 2016  , the total economic effect
is 593, 805 thousand rubles with inflation. Report
about movement of funds is introduced in Table 3.
Table 1. Investments for the project (Andriashina, 2015).

Activities Cost

Survey and design work 5 455

Cost of the smelting unit, which consists of 2 ovens IFM-7, branded as ABP Induction Sistems GmbH 160,605
Cost of 2 casting units ABP PRESSPOUR® OCC-50 ABP Induction Sistems GmbH
Assembling of the smelting unit, which consists of 2 units IFM-7 ABP Induction Sistems GmbH 4 625
Assembling of 5 casting PRESSPOUR® OCC-50 ABP Induction Sistems GmbH 1 769
Building and installation work (fundamental for crucible melting furnace) 13,305
Building and installation works (fundamental for casting units) 8 784
Added value for the main (3,6715%) 5 897
Supporting machinery for building and installation 13,169
Added value for supporting machinery (3,6715%) 483
Paperwork with customs documents 400
Total cost 214,492

Table 2. Introduces the report about program profitability (Andriashina, 2015).

Showings 2013 2014 2015 2016

Economy for existing production 79,612 124,560 134,709 145,349 484,230

Additional profit from additional volume 29,995 34,795 27,000 17,785 109,575
Total economic effect 109,607 159,355 161,709 163,134 593,805
Amortization (14,299) (21,449) (21,449) (21,449) –78,646
Net worth tax (2 936) (3 932) (3 460) (2 989) –13,317
Taxable earnings 92,372 133,974 136,799 138,696 501,841
Tax on income (18,474) (26,795) (27,360) (27,739) –100,368
Net profit 73,897 107,179 109,439 110,957 401,472

Table 3. Report about movement of funds (Andriashina, 2015).

Showings 2012 2013 2014 2015 2016 2017 2018 2019 Total

Net profit – 73,897 107,179 109,439 110,957 113,653 112,431 118,064 745,620
Amortization – 14,299 21,449 21,449 21,449 21,449 21,449 21,449 142,994
Investments (80,553) (133,938) – – – – – – (214,491)
Money flow (80,553) (45,741) 128,628 130,888 132,406 135,102 133,880 139,513 674,123
CCF (80,553) (126,294) 2 334 133,222 265,628 400,730 534,610 674,123  
DCF (80,553) (38,600) 91,601 78,659 67,148 57,819 48,351 42,519 266,943
Accumulated net (80,553) (119,153) (27,553) 51,106 118,254 176,073 224,424 266,943  
present value

In the second quarter of 2015, when the pro- Table  4. Showings of the project effectiveness
ject pays off, the accumulated DCF will be 51, 106 (Andriashina, 2015).
thousand rubles. Calculation of the main effective
showings of the project for a new product crea- Unit of
tion in comparison with statutory value is shown aZShowings measure Value Ratio*
in Table 4.
NPV Thousand 266,943 >0
From Table 4, it follows that effectiveness show- rubles.
ings satisfy statutory values, so we come to the con- Margin of profit 2.38 ≥ 1.3
clusion that program of a new product creation is Internal rate of return % 69% > 25%
reasonable. Payout time years 2.48 < 3.5
Implementation of the method allows us to
achieve positive economic effect and create some *Ratio of the effectiveness showings in investment pro-
new products. To achieve these results, we use cost- jects is used according to the decree «GAZ group» No.
saving, to be more exact to create products with a 160 from 09.09.11.

63
new price; change technical characteristics of the
products; and implement a new technological pro-
cess that leads to process acceleration and cost—
cutting of the new products.
5 CONCLUSION
This study allows us to formulate the following
conclusions and suggestions:
1. The notion of the term «ware» is determined,
which is different from the existing ones, as
defined the term as the product, which was cre-
ated as the result of production that is based
on renewed technological process. The product
has improved business characteristics, which is
interesting for the customers.
2. Certain elements of the business mechanisms
to create a new product in auto-making are
revealed. Mechanisms of a product creation
gives the outcome of the system: all the elements
are connected and work to reach the main goal,
that is, to create a new competitive product that
fulfils the requirements of the customers and
has high economic effectiveness.
3. The method for a new product creation at the
auto-making enterprise is designed. The peculi-
arity of the method is that reserves are used to
develop production.
The implementation of the method allows
achieving positive economic effect and creating
some new products. To achieve these results, we use
cost-saving for production; change of the technical
characteristics of the products; and implement a
new technological process, which leads to the econ-
omy of scale and increases competitiveness.
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a new product creation in auto-making: synop-
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Lobachevsky.
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prises; thesis, diss., Ph.D in economics—Orel: State
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vative product implementation at the enterprises in
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technological center of information, metrology and
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nomic. No 11. Moscow: “Creative economic”.
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Hvam L. (2012). Extending product modeling meth-
ods for integrated product development. Technical
University of Denmark. —URL: http://orbit.
dtu.dk/fedora/objects/orbit:121264/datastreams/
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Studying the methods of process management at
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

State instruments choice for strategic planning in Russian regions

A.N. Ryakhovskaya & D.I. Ryakhovsky

Financial University under the Government of the Russian Federation, Institute of Economics and Anti-Crisis
Management, Moscow, Russian Federation

M.V. Erhov
Ltd., “Katkoneft” Kogalym Khanty-Mansi Autonomous Okrug, Russian Federation

ABSTRACT: In this paper, we presented the results of the classification of Russian regions accord-
ing to the set of indices of measurement of social development and identified six cluster groups, with
each group defining the necessary tools for strategic planning. The challenges in the implementation of
national projects and the ways of their elimination methods of network planning are identified.

1 INTRODUCTION the social sphere, evaluating the development of

The goal of socially oriented economy is social
development that requires accelerated develop-
ment of social services (education, health) and
branches providing comfortable living conditions
(agriculture, housing management, and construc-
tion). The choice of these sectors of social service
areas of national projects is defined by the Govern-
ment of Russia.
Under present conditions, a relevant issue is the
search for efficient management instruments that
would provide complex socioeconomic stability of
the regions and contribute to creating conditions
for the sustainable development in the long term.
In this regard, consideration of strategic planning
instruments is expedient as measures, which play a
significant role in solving the problems in the sus-
tainable development of Russian regions.
A variety of opinions on issues related to the role
of strategic planning instruments in addressing the
socioeconomic development of the regional system
and problems of these instruments improvement
reflect the complexity and diversity of the subject.
Studies by Bochko V.S (Bochco, 2010), Butova
T.V. (Butova, 2008), Glazyev S.Y. (Glazyev, S. Y. &
Fetisov, 2013), Gulin K.A. (Gulin, 2012),
Lavrikova Yu.G. (Lavrikova, 2008), Nikiforova
E.S. (Nikiforova, 2008), Ryakhovskaya A.N.
(Ryakhovskaya & Ryakhovsky, 2016), Tufetulov
A.M. (Tufetulov, 2009), Fedosova R.N. (Fedosova,
Hokshanova, & Pimenov, 2009), Yurina E.A.
(Yurina, 2007) (Yurina & Ivanova, 2015), and oth-
ers are worth mentioning. These authors explore
the regional dimension of social problems in deter-
mining the strategic directions of development of
social sectors, and defining quality of life.
However, the implementation of the state
policy required the development of strategic
tools for the implementation of national pro-
jects of social sector development at the national
level. However, studies by these authors do not
fully characterize the specificity of the strategic
planning instruments improvement problem in
the context of the national economy increasing
stability and radical socioeconomic and politi-
cal transformations in the regions. The authors
indicate in their work the target program and
the state program as the state strategic planning
tools, the most widespread in the Russian prac-
tice. Targeted programs are intended for a spe-
cific region. Government programs are mainly
used for the development of individual indus-
tries. The difference between national projects
and state projects is that the former are aimed at
solving social problems in not a specific region
but the entire national economy.
2 RESEARCH METHODS
To classify Russian regions by types of social
development taking into account differences in the
social development index, its change rate, as well
as the balance coefficient, and allocating groups of
“related” regions, which need the same programs
of regional socially oriented development, results
of cluster analysis were used.
Social development index in the regions was
determined as the average of social development
indices measurements.

65
 The following parameters were used as the basis
for clustering:
− education index—α. It characterizes the change
in the proportion of population with secondary
education;
− longevity index—β. It describes the change in
the average lifetime for the analyzed period;
− material well-being index—γ. It evaluates the
change in the volume of internal regional prod-
uct per capita for the analyzed period (Sagradov,
2000);
− social development index—I. It is calculated as:
I = (α + β + γ) / 3; (1)
− coefficient of social development balance—K.
The formula for determination of the indicator
is as follows:
K = 1 / [(I − α)2 + (I − β)2 + (I − γ)2]; (2)
− average annual growth rate of social develop-
ment index—L. This indicator is calculated
using the formula:
L = (I2015 / I2011) − 1. (3)
As the information base, official statistics for
2011–2015 was used.
3 RESULTS
The results of the clustering of Russian regions are
presented in Table 1.
The number of regions has been identified as
a result of cluster analysis of official statistical
information base Rosstat in the regional context
(Regions of Russia. Socio-economic indicators.
2015: Stat. Sat., 2015).
The required tools are identified by experts. The
experts were the authors, representatives of the 38
regional governments, and Ministry of Economic
Development staff (11 people).
Cluster No. I includes regions with a high coef-
ficient of social development balance. The regions
of this group (Rep. of Tatarstan, Lipetsk region)
require little adjustment of measures aimed at the
social development. Therefore, the use of national
projects as strategic planning instruments is not
mandatory.
Cluster No II includes regions with an aver-
age coefficient of social development balance.
The regions of this group should adjust their
social programs and pay more attention to health
care and education issues. This cluster includes
the Krasnodar, Moscow, Leningrad, Tyumen,
Sverdlovsk, and other regions. The need for
national projects implementation is extremely high
in the regions of this group.
Cluster No III includes the most numerous
group of Russian regions with the social devel-
opment balance below the average. Regions in
the cluster need to stabilize the economy and sig-
nificantly increase their attention to public health
issues. This cluster includes most of the Central
Federal District regions (Kaluga, Kostroma, Orel,
Ryazan, Tver, Tula regions), Siberia, and the Far
East. Along with the national project “Health”, a
wide range of state strategic development instru-
ments is recommended for implementation in the
regions of this group.
Cluster No IV includes regions with low social
development balance. The regions of this group
need to stabilize their economy (through more effi-
cient use of available educational potential) and
increase their attention to the health issues. This

Table 1. Classification of human development characteristics for Russian regions according to the cluster analysis
results, 2010 (calculated by the authors).

No Centers coordinates Quantity Required strategic planning instruments

I α  = 0,724; β = 0,869; γ  = 0,748; 2 Not required on a priority basis

I  = 0,781; = 81,95; L = 0,0124
II α = 0,705; β = 0,867; γ = 0,712;
I = 0,761; = 54,07; L = 0,0174
III α = 0,688; β = 0,867; γ = 0,667;
I = 0,741; = 39,72; L = 0,0172
IV α = 0,699; β  = 0,885; γ = 0,637;
I = 0,741;  = 28,86; L = 0,0172
V α = 0,717; β = 0,868; γ = 0,724;
I = 0,770;  = 66,68; L = 0,0118
VI α = 0,699; β = 0,861; γ = 0,514;
I = 0,691;  = 15,38; L = 0,0177
16 National projects, federal target programs aimed at health
care and education promotion.
32 National projects, federal target programs aimed at health
care promotion; state economic development programs
including the state program of agribusiness development
14 State programs for the development of economy branches,
national projects “Education”, “Health”
4 State programs for the development of economy branches
5 Federal target program of the region development

66
Table 2. Problems identified in the implementation of national projects and ways to eliminate them by the network
planning methods.
Problematic areas of national projects
Lack of coordination at various levels of national projects
management, disruption of the national projects schedule
(particularly in construction), lack of authorities’ interest
to establish an efficient system of cooperation for
the PNP implementation
Disinterest to innovative management methods promoting
the reduction of time for coordination of project activities
Absence of effective system for regulatory and law
enforcement authorities coordination1
The national projects results monitoring is formalized, and
monitoring activities are strictly limited in time
(usually held once a year)
1
There is a stable growth of corruption and crimes committed in the sphere of priority national projects implementa-
tion (according to the RF SD Security Committee data for 2011).
cluster includes the Primorskiy Krai, Khabarovsk
Krai, Ivanovo, Kaliningrad, Pskov, Penza, and
other regions.
The main goal of regions in the cluster No V is
an increase in the economic growth rate. These are
republics of Tuva, Kalmykia, Buryatia, and others.
Cluster No VI includes Russian regions, which
are the most retarded in social and economic devel-
opment. This group includes most of the North
Caucasus Federal District republics. Regarding
the regions of this cluster, the state support pri-
orities should be in the field of economic devel-
opment. Urgent development of special programs
for each region’s socioeconomic development is
needed. National projects implementation in their
usual format is premature, as it does not take into
account territorial, economic and other character-
istics of different regions.
The right choice presented in Table  1 State of
strategic planning tools will allow rational use
of state funds for a balanced development of the
national economy of Russia.
However, Table  2 shows the shortcomings of
ongoing national projects and ways to eliminate
the methods of network planning.
4 SUGGESTIONS AND
RECOMMENDATIONS
The following suggestions should be recommended
to improve and enhance the effectiveness of strate-
gic planning instruments:
1. The use of network planning method, the need
for which is determined by the possibility to
coordinate and synchronize activities of all lev-
els of authorities to address specific problems in
the spheres of priority national projects. One of
67
Ways of elimination
Common understanding of tasks, works execution
timing, and interaction ways by all parties
Reduction (optimization) of time required to
implement projects
Increase of the program activities monitoring
operativeness and efficiency
Possibility to make corrective decisions in early
stages of deviations from the planned
program implementation
the necessary conditions is the transition from
“resource planning” to “results planning”. In
the regions, the complexity of works on net-
work planning organization includes:
• development of calendar (network, aggregate)
action plans for the implementation of the
PNP, FTP, and SP;
• preparation of methodical, regulating mate-
rials on their development and introduction
(actualization) of the plans;
• construction of calendar planning and con-
trol system for the PNP, FTP, and SP.
2. The most important instrument for the strategic
planning instruments effective implementation
is the use of result-oriented budgeting. Appli-
cation of the result-oriented budgeting mecha-
nisms for the implementation of PNP, FTP, and
SP will allow better determining of approaches
to the following tasks solution:
• distribution of budget resources by strategic
objectives instead of the cost types;
• comparison of programs and selection of the
most efficient ones according to the evaluation
of their efficiency and expenditures effectiveness;
• improvement of budget expenditures trans-
parency and reasonableness;
• focus shift from the external control over tar-
geted expenditures to the increase of internal
responsibility and internal control over the
expenditure efficiency;
• attention to the consequences of decisions
on the volume and structure of the budget
expenditures.
5 CONCLUSION
Enhanced cooperation between business and gov-
ernment will help to create a more transparent
system of state orders, catalyze investment pro-
cesses by eliminating unnecessary government
regulation, and minimize the administrative
impact in the sphere of strategic planning with the
use of public–private partnership mechanisms and
instruments.
Implementation of these suggestions in the
Russian practice will improve the efficiency of
the state strategic planning instruments, ensure
sustainable socioeconomic development of the
regions, and optimize the development of produc-
tion and social spheres in them.
REFERENCES
Bochco, V. S. (2010). Integrative strategic development
areas: theory and methodology. Yekaterinburg: Insti-
tute of Economics, Ural Branch of the Russian Acad-
emy of Sciences.
Butova, T. V. (2008). Managing social responsibility
of business in the coCorporate social responsibil-
ity: administrative aspectnditions of realization of
priority national projects in Russia. In Corporate
social responsibility : administrative aspect (391–402).
Moscow: KnoRus.
Fedosova, R. N., Hokshanova, E. P., & Pimenov, S.
(2009). The methodology for developing a regional
invest-ment strategy, taking into account social pri-
orities. Regional Economy: Theory and Practice, (11),
18–23.
Glazyev, S. Y., & Fetisov, G. G. (2013). On the strategy
of sustainable development of Russia’s economy. Eco-
nomic and Social Changes: Facts, Trends, Forecast,
25(1), 23–35.
68
Gulin, K. A. (2012). On the issue of socio-economic
modernization of Russian regions. Economic and
Social Changes: Facts, Trends, Forecast, 22(4), 42–58.
Lavrikova, Y. G. (2008). Cluster formation and develop-
ment strategy in the economic space in the region.
Yekaterinburg: Institute of Economics, Ural Branch
of RAS.
Nikiforova, E. S. (2008). Tools and methods of forming
the strategy of spatial development of the Russian
Federation (on an ex-ample of the Kaliningrad area).
Herald OSU, 86(5), 68–73.
Regions of Russia. Socio-economic indicators. 2015: Stat.
Sat. (2015). Moscow: Rosstat.
Ryakhovskaya, A. N. & Ryakhovsky, D. I. (2016).
Improving the Efficiency of State Regulation in the
Crisis: the Desirability and Necessity. ETAP: Eco-
nomic Theory, Analysis, and Practice, (1), 63–77.
Sagradov, A. A. (2000). The human development index:
application experience. Moscow: MAKS Press.
Tufetulov, A. (2009). Integration processes of transfor-
mation of the regional economic structure. Moscow:
INION.
Yurina, E. A. (2007). Regional monitoring as a func-
tion of adjusting the regional development strategy.
Scientific Herald of the Academy of Management and
Service TSU, 25–36.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Harmonization of the tax portfolio of an organization by means of

situational matrix modeling

I.V. Frolova
Accounting and Audit, Southern Federal University, Rostov-on-Don, Russia

T.V. Matytsyna
Information Economy, Southern Federal University, Rostov-on-Don, Russia

T.G. Pogorelova & E.A. Likhatskaya

Accounting and Audit, Southern Federal University, Rostov-on-Don, Russia

ABSTRACT: In this paper, we study the problems of harmonization of an organization’s tax portfolio
by means of situational matrix modeling offered by O. I. Kolvakh and on the basis of matrix math used
in financial accounting of the organization’s economic operations. We define the tax portfolio of an
organization and reveal the particularities of the tools used in the matrix modeling of financial account-
ing. We offer the optimization algorithm for an organization’s tax portfolio and analyze and specify the
advantages and disadvantages of the harmonization of an organization’s tax portfolio by means of situ-
ational matrix modeling

Keywords: financial accounting, organization’s tax portfolio, situational matrix modelling

1 INTRODUCTION to reflect (based on the mathematical basis) the

The process of harmonization of the tax portfolio
of an organization is connected with the need
for the personalization of the tax burden of an
organization for the purpose of sustainable and
competitive growth of a business unit under the
active national system of taxation with a glance to
the International Financial Reporting Standards
(IFRS).
The degree of harmonization of national finan-
cial accounting systems and International Finan-
cial Reporting Standards (IFRS) has its own
functional, operational, and “linguistic” limits of
harmonic coordination connected with the par-
ticularities of conducting financial services by the
economic entity and of the functioning of national
accounting systems (Kolvakh O. I. & Kopytin V. Y.,
2004; Kopytin V. Y., 2005).
The necessity to increase the quality of primary
processing of financial information creates new
requirements for the scientific foundation of the
organization’s revenue to increase the structural
and financial information visibility of the financial
accounting of an organization.
In this regard, we note the urge to search the
information and methodological coverage of the
organization’s financial accounting and are able
real picture of the tax burden and financial health
of an organization on the basis of the financial
accounting modeling. It allows us the possibility to
increase the quality of assumptions made by the
financial managers and the degree of projection of
accounting and tax consequences of the manage-
rial decisions made (Kolvakh O. I., 2000).
Professor O. I. Kolvakh offers the method of the
situational modeling accounting on the basis of the
tools of matrix math and demonstrates the results
of the financial accounting of an organization in the
form of compact and thus easily manageable mod-
els, equations, and algorithms (Kalmykova O. Y.,
2009), in contrast to the large tables «Spread-
sheet» of tridimensional dynamics of incomes and
expenses offered by Y. Idziri (Idziry Y., 1989).
The problems with the research of the “tax
portfolio” of a business unit were primarily stud-
ied from the viewpoint of a state in the works by
Groves, Kahn, T. Besley, A Kaze (Groves H. M. &
Kahn C. H. 1952, Besley T. & Case A. 2003,
Garret T. 2009). They analyzed the revenue elas-
ticity and the stability of receiving federal and
local taxes by a state depending on the changes
of elasticity in time and business cycle through
the analysis of the tax portfolio. The analysis of
the tax portfolio of a state shows the ability of

69
the government to hedge the risks connected with
the given tax base.
Studying the tax portfolio of an organization,
O. Harmon and R. Maleek analyzed its optimality
in what concerns three principal target figures: the
increase of state’s income, stability, and growth of
the equity capital of a corporation. The authors
demonstrate that when based on these figures
the efficiency of a virtual tax portfolio increases
(Harmon O. & Mallick R. 1994).
They also state that the federal government can
reduce the tax revenue deviation via creating the
“tax portfolio” of an organization. It requires the
adaptation of the existing methods of creating a
tax portfolio from the macro level to the level of
a business unit. Furthermore, the methods of har-
monization of financial accounting were defined
from the viewpoint of the traditional tools of tax
optimization, not on the basis of the methods of
financial accounting methods, giving ample oppor-
tunities for the financial accounting of business
operations (Alberternstn S. & Sureth C 2015).
This paper is devoted to the following issues:
− to analyze the characteristics of situational tools
of matrix modeling in a financial accounting
system;
− to determine the algorithm of optimization of
the tax portfolio;
− to identify the advantages and disadvantages
of the harmonization of tax portfolio using the
matrix of situational modeling.
2 SPECIFIC NATURE OF THE
SITUATIONAL MATRIX MODELING
IN THE SYSTEM OF FINANCIAL
ACCOUNTING
by equations and formulas, but the magnitudes
acquire meanings in the numerical tables of pre-
scribed size and structure.
Tables are the main type of presenting and
transforming of financial information. We can
say that situational table accounting is the modern
system of means and tools of financial accounting
(Frolova I. V. et al., 2015).
Situational matrix modeling is viewed as a tool
for generating the forms of presenting and trans-
forming the financial information using matrices
and mathematical operations within them. The
generation of reciprocal shifts from table struc-
tures, categories, and operations of traditional
accounting to corresponding structures, categories,
and procedures in the integrational system of situ-
ational matrix modeling is realized by virtue of the
mathematical basis of the method (Kolvakh O. I.,
2010).
Mobility plan is a square matrix E(X, Y) of size
m*n, in which we put 1 at the intersection of debit
side X and credit side Y and other elements are
equal to zero. Sides X and Y are traditional sides
of the working chart of accounts stated by a busi-
ness unit. The number of sides within the chart of
accounts defines the maximum value of a mobility
plan (Kolvakh O. I., 2000)
An entry matrix is the product of the sum of
an item of business operations and a mobility plan
Sx, y • E(X, Y), where Sx, y is the sum of an item
of business operations corresponding to account
correlations of X, Y. If we multiply a matrix by
X, all its elements increase X times. If we multi-
ply the transaction amount Sx, y by the mobility
plan E(X, Y), the sum of the business operation is
Table 1. Entry in the form of a matrix.

In the existing practice of generating the primary

accounting information, we use the traditional
ways of entries recording (texts, tables, graphs) that
are for historical and other reasons not adjusted
for recording formulas and algorithms of the gen-
eration of primary accounting information.
Professor O. I. Kolvakh offered his own sys-
tem of situational matrix accounting. In the given
system of means and tools of modeling, the key
configurations of demonstrating and transforming
the financial information are matrices and mathe-
matic operations within them. In mathematics, the
table structures meet the mathematical structures
called matrices, defined as table numbers (Kolvakh
O. I., 2010). The mathematical operations with
matrices are addition, subtraction, scalar multi-
plication, multiplication, matrix transposition,
and inversion. Like in algebra, in matrix algebra,
the connections between magnitudes are defined

70
reflected in the position where we put 1, and other
elements of an entry matrix are still equal to zero
(Kolvakh O. I., 2010). This is possible due to the
laws of matrix algebra.
It means that the accounting entry demonstrates
salary payments from the account number of an
organization; Debit 70 Credit 51 is equal to 100000
rubles in the matrix system as shown on Table 1 below.
The mobility plan and the entry matrix are
unbordered matrices, which do not include the
results of columns and rows. Analytical account-
ing and analysis usually deal with bordered matri-
ces, which include the results of columns and
lines. We must note that bordered and unbor-
dered matrices as forms of presenting the infor-
mation are equal, and their differences are not
relevant in the context of the analyzed system of
matrix modeling.
Let us analyze the salary payment situation in
the form of a bordered matrix.
If we multiply the sum of business operation
by a matrix, all the figures in it increase the same
number of times. In the first variant (unbordered
matrix), all its elements except for E(70,51)  =  1
are equal to zero. Thus, the sum of the entry S70,
51  =  10000*E(70,51)  =  100000 rubles automatically
finds itself in the corresponding position, and the
other elements of the entry matrix are equal to zero.
In the second case (bordered matrix), ones are situ-
ated in the entry position and in the corresponding
Table  2. Salary payment in the form of a bordered
matrix.
71
resulting positions. Thus, when we multiply the entry
sum S70,51 = 100000 rubles automatically correspond
to the position E(70,51) = 1 and to the corresponding
resulting positions of the column, row, and overall
result of the entry matrix as shown on Table 2.
The mathematical basis of matrix accounting is
predisposed to using it in modern information sys-
tems. Using the means of matrix algebra helps us
to solve the accounting and tax problems of defin-
ing the income size, expenses, transformation costs,
tax burden, and so on. Mathematical exactness of
the method helps us to reveal possible risks that
may emerge when administrating the tax portfolio.
Applying the formulas of situational matrix
modeling permits us to represent traditional tables
of analytical registers in the form of matrices,
where a matrix is a rectangular table. At the inter-
sections of the columns and rows of this table,
there are numbers S, i, and j, where i = 1, 2,..., m is
the number of rows, j = 1, 2,..., n is the number of
columns. The number of columns and rows deter-
mines the size of a matrix, which is the product of
the number of columns and rows (m*n).
A classic example of the use of a matrix in finan-
cial accounting is an articulation statement over a
period, where X is the number of a row or the code
of a debit side and Y is the number of a column or
the code of a credit side.
The main part of creating a meta-model, a
model representing the structure and the princi-
ple of operation of another model for the pur-
poses of administrating the tax portfolio, is the
generation of a debit movement matrix and per-
forming different transformations. As a result, we
get different variants of balance statements that
characterize predictable tax burden of a business
unit and its influence on the financial position of
a business unit.
Here, we can obtain the formula for a debit
movement matrix from a business transactions
journal. It represents articulation balance via col-
lecting terms:
∑
Cm
MDO X C1
Sx
S , y * E (X ,Y ), (1)
where X, Y  =  c1, c2,…, cm are the bookkeeping
accounts; Sx y ∑ ixy 1 Si xy is the sum of consoli-
nxy
dated documentation of accounts corresponding
to the given counting operation for the accounts X,
Y. It is always true that ∑ Xm C ∑Y mC nxy n, where
C C
1 1
n is the total number of records in the journal of
items of business operations.
Therefore, we can represent the tools of situ-
ational matrix modeling in the form of entry
formulas depending on the entering sums of
operations, exogenous variables, sums of opera-
tions with other entries, and semi-constant
magnitudes. Besides, the means of SMM permits
us to record not only entry formulas but also the
algorithms of accounting procedures of gen-
erations of the primary accounting information
depending on logic conditions. (Pogorelova T. G.,
2015).
3 THE ALGORITHM OF GENERATING
THE TAX PORTFOLIO OF AN
ORGANIZATION BY MEANS OF
SITUATIONAL MATRIX MODELING
The tools of situational matrix modeling permit
us to integrate the accounting system loop into
the existing types of accounting the laws of matrix
algebra via setting up the criteria and integration
conditions of analytical entries.
Information accounting data in the context of
using situational matrix modeling depending on
the analyst’s purposes can form finance or man-
agement statements and represent per saltum a
constant part of a tax portfolio for its analysis,
managing the risks and optimization.
Taxation is a substantial share of the expenses
of business units. That is why, in the context of
generating a tax portfolio, we develop anticipa-
tions of tax payments on the basis of the budgeted
major economic indicators.
The formulas of matrix algebra represent the
process of generating an analytical matrix of a tax
portfolio at any period necessary for the verification
of the optimum of a tax portfolio taking a limited
period changing per saltum the indicators of active
Figure  1. Integrated system of tax, bookkeeping, and
management accounts by the tools of situational matrix
modelling.
72
or foreseeable course of events. A step-by-step
algorithm of tax portfolio administrating by means
of situational matrix modeling is shown in Figure 2.
This algorithm can be used by different corpo-
rate business units and permits us to momentar-
ily create a tax portfolio matrix and balance its
constant and variable parts under risk-oriented
administration of a tax portfolio with a purpose
of making it optimal. Thanks to the methods of
situational matrix modeling we can swiftly evaluate
different events influencing the financial position
of a business unit in what concerns administrating
its tax portfolio, including the changes of taxation
rates, imposing new taxes or tax equivalent pay-
ments, for example, the creation of Chapter  33,
“Sales Tax”, in the TCRF and its introduction in
Moscow in 2015, windfall increment of the tax
base, and so on.
The basis of modeling of a tax portfolio matrix
algebra permits us to view this algorithm in the
compact form of a matrix formula. (1) The situ-
ational matrix paradigm helps to systematically
reproduce the process of administrating a tax port-
folio that consists of several stages and has such
characteristics such as the dissociation in what
concerns the time and place of realization.
Administrating a tax portfolio using the tools of
situational matrix modeling provides:
• Density of presenting the analytical data, its
transformation, and the results achieved;
• Liquidation of adhering the results and logic
paths to the basic data (financial registers) and
information transformation;
Figure 2. Algorithm of optimization of a tax portfolio
by means of situational matrix modelling.
• Verified results in the context of analyzed events
and transformations of matrix algebra.
The matrix model is created only via mathemati-
cal modifications of a matrix formula of the event
log of an organization. It can be logically repre-
sented, has extended capacity, is condensible, and
is uniform and true for numerous events described
in terms of double entry, including nonfinancial
factors.
The advantages of situational matrix modeling
with a purpose of administrating the tax port-
folio of an organization are (Pogorelova T. G.,
2015):
− The possibility to make a complex analysis of
the taxation system of a business unit in the
form of a model in contrast to many of the
existing methods of tax portfolio planning;
− It permits us to avoid the faultiness of an eco-
nomic model and determine the real computa-
tional error because the basis of the modeling is
mathematical knowledge;
− It solves the problems of administrating a tax
portfolio when determining its results via semi-
constant magnitudes and explanatory variables,
such as the tax base and taxation rate, interpo-
lated or statistically elaborated normals (Merton
R.C., 1972);
− We can determine the tax burden of a business
unit only thanks to the openness of the data of
the created information registers;
− Double orientation, which provides information
about administrating a tax burden as well as
generates the information system that controls
expenses and quality for the purpose of control-
ling costs, production, and profit;
− Availability of the analytical data on business
operations of an organization that influences the
generation of tax expenses and its unhindered
transformation for universal financial analysis
(Hines J. R., 2010);
− It simplifies communication, increases the
speed of data transport, and promotes scientific
progress;
− In contrast to program 1C, which when being
moved to a new platform transfers the previous
data only through closing balance transfer, saves
the previous data after being configured, and
costs less than the products by 1C;
− It can adapt to the needs of any business
unit that uses the method of double-entry
bookkeeping;
Visibility, high capacity, and condensibility of logic
trends—it can be easily programmed, including
the use of electronic table Excel Microsoft Office
or tables Open Office Math to simplify the study
of a tax portfolio;
73
− It reduces a tax burden via administrating a tax
portfolio and saving control over key business
decisions;
− We can analyze and predict the consequences
of statutory changes of tax rates and equivalent
payments, which are dealt in the model as semi-
constant magnitudes;
− High efficiency of daily management;
− Potential for recording the algorithms of proce-
dures of tax portfolio administrating in the algo-
rithmic form.
Among the disadvantages of situational matrix
modeling with the purpose of administrating the
tax portfolio of an organization is the need for a
specialist with a high level of economic training,
which refers to all the methods of administrating a
tax portfolio (Pogorelova T. G., 2015).
Therefore, the introduction of situational
matrix modeling is profitable for business units
with a high level of organizational culture and
staff training. Otherwise, it can result in adminis-
trating disorganization.
4 CONCLUSION
1. The modern development of financial modeling
is based on mathematical objects, in particu-
lar, on the objects with the table structure. In
mathematics, the structures called matrices are
defined as the numerical tables corresponding
to the table structures. It is possible to per-
form complex mathematical operations over
matrices, such as addition, subtraction, scalar
multiplication, multiplication, matrix trans-
position, and inverted transformation. Like in
algebra, in matrix algebra, the links between the
magnitudes are determined via equations and
formulas, but the included magnitudes acquire
their value in a table of predetermined size and
structure.
2. The mathematical basis of the situational
matrix accounting is suitable for its introduc-
tion into the modern information systems of
financial accounting. The use of the tools of
matrix algebra permits us to solve accounting
and tax tasks of determining the position of
revenue, expenses, tax burden, and so on. The
mathematical accuracy of the method helps to
reveal the possible risks of administrating a tax
portfolio.
3. The use of the formulas of situational matrix
modeling allows us to represent the traditional
tables of analytical records in the form of matri-
ces where a matrix is a rectangular table in which
there are numbers S, i, and j at the intersections
of columns and rows, where i = 1, 2,..., m is the
 number of rows, j = 1, 2,..., n is the number of
columns. The total number of columns and rows
determines the size of a matrix, which is usually
represented as the product of the number of
columns and the number of rows, that is, m*n.
4. The formulas of matrix algebra reproduce the
process of generating the analytical matrix of a
tax portfolio at any time taking a limited period
momentarily changing the figures under active
or foreseeable changes in the course of events.
5. The basis of tax portfolio modeling, matrix
algebra, permits us to analyze the algorithm
in a compact form—as a matrix formula. Situ-
ational matrix paradigm helps to systematically
reproduce the process of administrating a tax
portfolio consisting of several stages and has
such characteristics as the dissociation in what
concerns the time and place of realization.
6. The introduction of the tools of situational
matrix modeling gives a positive effect when
used by business units with a high level of organ-
izational culture and staff training; otherwise, it
may result in administrating disorganization.
5 DISCUSSION
The tools of situational matrix modeling act as an
integrative basis of financial, bookkeeping, and
managing account for an organization.
The appliance of situational matrix modeling
toward the questions of the harmonization of the
portfolio of an organization allows us optimize
the tax burden of a business unit on the basis of
the mathematical proof of the business decisions
made. It permits us to increase the quality of pri-
mary financial information processing on the basis
of the unity of the principles of systematization,
confidence, data completeness, and comparability,
which increases the level of validity and integra-
tion of business decisions in the field of financial
accounting of an organization. It requires further
scientific studies in what concerns the appliance of
situational matrix modeling of the tax portfolio of
an organization.
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ing and reporting standards in the system of credit
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Assessment of business activity impact on national stock market indices

O. Loseva & M. Fedotova

Financial University under the Government of the Russian Federation, Moscow, Russia

ABSTRACT: This article investigates the Russian and foreign diffusion index of business activity from
the standpoint of performing the functions of the barometer for the national economy. To establish the
relationship between the indices of business activity and national stock exchange, the correlation and
regression analysis and Granger causality test were used. The results showed that the Russian indicators
of business activity are related to stock market indices to a lesser extent than in the US and Germany. The
speed of response of the Russian stock market indices to changes in the business activity is also lower than
abroad. The findings can be used to predict the turning points of the economic cycle.

Keywords: business activity indices, stock market indices, Granger causality test, correlation models

1 INTRODUCTION 2 METHODOLOGY

1.1 Urgency of the problem
In developed economies, the problem of growth is
largely solved by monitoring business activity of
various management objects (national economies,
industries, companies, etc.) on a regular basis. The
business activity indicators describe expectations
of future profits and future changes (expansion
of production, investment in factories and equip-
ment) and thus fulfill the function of predicting
the turning points of the economic cycle (Joseph
2011, Eren 2014, Zhang 2015).
In Russia the attempts to measure business
activity and growth management through the
parameters of business activity are also being
made. However, nowadays these methods are
poorly used in practice (Filimonova 2014,
Dresvyannikov 2015). This requires the neces-
sity of measuring the correlation dependence
between the indicators of business activity, on
the one hand, and the national economic indica-
tors, on the other hand, to identify causal rela-
tionships and accelerate the business activity of
industries and certain enterprises which can laid
the basis for the management mechanism of stra-
tegic development.
1.2 Purpose of the study
The purpose of the study is to identify and esti-
mate the closeness of the relationship between the
business activity and stock market indices.
2.1 Method of identifying the availability and the
degree of closeness of relationship between
indices
Determination of the availability and the degree of
closeness of the relationship between the business
activity and the stock market indices is solved by
setting the pair correlation dependence.
The study of correlation dependence includes a
number of stages:
a. determining the availability of the relationship
and its direction;
b. measuring the degree of closeness of the rela-
tionship between the indices;
c. regression model building, i.e. finding an ana-
lytic expression for the relationship;
d. evaluating the adequacy of the model.
To solve these issues, you must first consider
the nature of the second phase and the corre-
lation method. According to this method, the
closeness of the relationship between the two
linearly dependent variables is determined using
the linear correlation coefficient. The use of cor-
relation coefficient to explore the closeness of the
relationship between the indices in this case is
justified, as there is a linear relationship between
them that can be proved with the results of the
regression analysis in the event of evidence of its
adequacy.
The business activity indices and stock market
indices of the USA, Germany and Russia have

75
been chosen for our research and are presented in
Table 1 along with a link to data sources.
2.2 Granger causality test 
Assume that you have two variables X and Y. We
say that X Granger-causes Y if the past values of
X help predict the future values of Y. This can be
verified through linear regression of the value Y on
the past values X Y.
In other words, we present the values Y as
follows:
Yi = μi + ∑αkYi−k + ∑βkXi-k + εi
where Yi is a value of the variable Y at the time i
Xi is a value of the variable at the time i;
i = 1 n;
k is a time delay (in this case, the lag). It deter-
mines the impact of which statute of limitations
we’d like to test.
If in the regression the coefficients βk can be
neglected, the past values of X is believed not to
help predict the Y and X doesn’t Granger-cause Y.
Conversely, if in Formula 1 coefficients βk are sta-
tistically significant and they can not be ignored,
we believe that X Granger-causes Y.
3 RESULTS
In order to search for the tools of indication and
macroeconomic regulation of business activity in
Russia, we have selected the statistical approach
which focuses on the macro-level and involves the
use of the business activity indices based on the
method of construction of the so-called diffusion
indices. The diffusion index is based on a survey
of a large portion of respondents to answer the
Table 1. Indicators to be studied.
Factor indicator (X)
USA
The Index of Consumer Sentiment (ICS).
Source: http://www.sca.isr.umich.edu/
Germany
PMI is the index of business activity in industry.
Source: http://investments.academic.ru/984
Russia
Business Condidence Index with the types of activities
«Mining», «Manufacturing», «Electricity, gas and
water supply» (without small enterprises).
Source: http://www.gks.ru
Note. Data for indicators to be studied from authors.
question: Have business conditions improved with
regard to a number of factors such as employment,
commodity prices, production, etc. Three options
are given: «higher», «lower» or «unchanged». The
survey results on a large statistical sample are sum-
marized and the Diffusion Indices (DI) for each
item of the questionnaire are determined using the
following algorithm:
DI = (% of the respondents answering
«higher») + 0,5 * (% of the respondents
answering «unchanged») (2)
(1) Then the obtained indices are corrected subject
to seasonal adjustments:
SADI = DI/seasonal coefficient (3)
Next, the corrected partial indices are averaged,
giving each factor a certain weight, and get the
final average weighted business activity index. In
various countries the number of factors presented
in questionnaires and, consequently, the assigned
weights are different.
Such indices, as indicators of business optimism
of the representatives of small and medium-sized
enterprises are regularly published in most coun-
tries (Andrukovich 2015, Chena 2015). Unlike
many other indicators of socio-economic statistics
they are subjective indicators. However, these indi-
ces have very strong predictive attributes and are
therefore considered leading indicators of business
activity, a barometer of the national economy.
The indicators of the state of the national econ-
omy are various indicators, such as GDP, inflation
rate, unemployment rate, public debt, balance of
payments and etc (Loseva et al. 2015). However, in
most cases it takes quite a long time to assess them,
as a rule, a three-month and/or a year period,
Performance indicator (Y)
The Dow Jones Index (DJ)
Source: https://news.yandex.ru/quotes/12.html
DAX is he market index based on statistics in the
last three years.
Source: http://world.investfunds.ru/indicator/
view/265/
RTC Index is the official indicator of stock
exchange of the Russian trade system.
Source: http://moex.com/ru/index/stat/
dailyhistory.aspx?code=RTSI
76
which does not allow to track the negative changes
in economic processes. In this connection, it’s pref-
erable to use stock market indices, whose updat-
ing is carried out in real time. It is well-known that
the drop in stock market indices generally leads to
depreciation of the national currency, and hence
inflation. In addition, stock market indices serve as
generalizing characteristics of the macroeconomic
situation and investment climate in each particular
country. They show the market value of a certain
securities portfolio, the market value of some aver-
age share or the market capitalization of a certain
group of corporations. Comparing the dynamics
of the behavior of these indices can show how the
state of any industry changes in relation to the
economy as a whole. Thus, along with other eco-
nomic indicators market indices are included in the
system of economic monitoring of the state of the
national economy.
Our study requires to select business activity
indices and stock market indices for the subse-
quent determination of the closeness of the rela-
tionship between them, and the leading influence
of business activity on the national economy. Thus,
business activity indices serve as a factor indicator
and stock market indices serve as a performance
indicator. The selection criteria are as follows:
a. availability of relevant statistics on the index
values for a significant period of time to reliably
determine the predictive time lag;
b. opportunities to compare, foreign and national
practices of using the studied indices for the
purposes of this study;
c. representativeness of samples;
d. interpretability of the data and relationships.
Taking into account the criteria stated in Sec-
tion  2.1. We have selected foreign and domestic
indices of business activity and market indices at
Table 2. Regression analysis of the relationship of the business confidence index for the mining and the RTS index.
Regression analysis
Multiple R 0.764
R-squared 0.584
Normalized R-squared 0.576
Standard error 0.200
Observations 53
ANOVA
  df
Regression 1 2.886
Residual 51
Total 52
  Coefficients
Y-axis crossing 1.3408
Variable X 1 0.0901
Source: Authors’ calculations.
the first stage of the study, which are presented in
Table  1, indicating the source of information for
the analysis of specific indicators values.
In the second stage the regression analysis has
been carried out for each pair of indices in Table 1
with the purpose of justifying the possibility of
using the linear correlation coefficient to estimate
the closeness of the relationship between them. An
example of this analysis is shown in Table 2.
The table shows that the model of linear regres-
sion is adequate, since the model parameters are
recognized as significant at the level of 95% (p-value
<0.05). F-statistics also proves the accuracy of the
model (significance F < 0,05). Therefore, the use of
linear correlation coefficient to assess the closeness
of the relationship is admissible.
The third stage determines the degree of the
closeness of the pair correlation of business activ-
ity and stock market indices for the USA, Germany
and Russia between January 1, 2012 to May 1,
2016. The results of the correlation analysis for the
USA Index of Consumer Sentiment (ICS) (X) and
the Dow Jones Index (DJ) (Y) are shown in Table 3.
Table 3 shows that the displacement of the val-
ues of the Dow Jones Index with respect to Con-
sumer Confidence Index (CCI) for the period of 0
to 10 months, the close relationship is maintained
(correlation coefficient is greater than 0.7). The
closest relationship is notable for the first two
months, which means that the US stock market
immediately respond to the consumer sentiment,
and the maturity of predictive ability of the exam-
ined business activity indicator. A similar picture
is notable for Germany, the only difference being,
that the relationship is significant but not close
(Table 4).
Correlation coefficients for Business Condidence
Index (BCI) of «Mining» (X1), «Manufacturing»
(X2), «Electricity, gas and water supply» (X3) and
SS F Significance of F
71.8798 2.62E-11
2.0479
4.9343    
Standard error P-Value
0.02855 1.21E-43
0.01063 2.62E-11
77
Table 3. Determination of the time lag of the leading To carry out the required calculations, the statistic
influence of ICS on DJ. product Eviews was used. The time lag was con-
sidered up to the value at which the correlation
Pair correlation coefficients coefficient was the highest on basis of the previous
Time lag, in months of ICS DJ
calculations.
0 0.826268 Table 6 shows that the leading influence of the
1 0.838523 PMI on the stock market indices for the foreign
2 0.839741 and domestic indices is not revealed. The opposite
3 0.7995 proved to be true: the changes in the situation on
4 0.773401 the stock markets determines the change in the sen-
5 0.757708 timent of businesses, but with a different time lag.
6 0.745136 One of the most obvious reasons for the results
7 0.751543 obtained can be a large passivity of the change in
8 0.768754 entrepreneurs’ psychological sentiment inherent
9 0.795887 in business activity indices in accordance with the
10 0.829828 method of calculation as compared with almost
instant changes in financial components of stock
Source: Authors’ calculations. market indices. The second reason is the avail-
ability of the third explanatory variables, which,
Table 4. Determination of the time lag of leading influ-
ence of PMI with DAX. Table  5. Determination of the time lags of leading
influence of X1, X2, X3 to Y.
Pair correlation coefficients
Time lag, in months PMI with DAX Pair correlation coefficients X1, X2, X3 with
Y-based RTS index
0 0.609525079
1 0.633504628 BCI, % of
2 0.642509386 BCI, % of BCI, % of Electricity, gas
3 0.62886869 Time Mining Manufacturing and water supply
4 0.61233364 lag, in
5 0.608653066 months X1 X2 X3
6 0.625860669
7 0.663257289 0 0.524675 0.58554 −0.05743
8 0.66292313 1 0.580997 0.58873 −0.0685
9 0.633269675 2 0.612696 0.57753 −0.0411
10 0.614810065 3 0.618278 0.56219 0.016504
4 0.588489 0.53611 0.110069
Source: Authors’ calculations. 5 0.543278 0.52474 0.209969
6 0.472223 0.46649 0.283416
RTS Index (Y) have been calculated similarly for 7 0.402765 0.39764 0.310792
Russia. The results are shown in Table 5.
Source: Authors’ calculations.
Table 5 shows that unlike the USA indices the
relationship of the Russian business activity and
Table 6. Consolidated data of causality test analysis for
stock market indices is: all leading indices.
1. significant, but not close, for mining and manu-
facturing (0.5 < R < 0.7), Results of causality test
(leading influence)
2. weak (R < 0.5) for electricity, gas and water sup-
(«+»—leading influence has
ply. The latter result appears explicable by the fact Indices
been proved; «−»—leading
that the activities of these organizations, as a rule, influence has not been
is regulated by tariff restrictions imposed by the Y X proved)
state. As a result, the stock market reaction to these
companies is shifted by at least six months in time. DJ ICS Y → X + X → Y –
DAX PMI Germany Y → X + X → Y –
As to the mining and manufacturing, the reac-
RTS BCI, % of Mining Y → X + X → Y –
tion of the stock market index to the change of
RTS BCI, % of Y → X – X → Y –
BCI shifted by 1–3  months, which indicates the Manufacturing
indirect influence and the average level of predic- (without small
tive ability of the considered indices. enterprises)
The predictive ability of the indices shown in
Table 1 is verified using the Granger causality test. Source: Authors’ calculations.

78
Table 7. Key directions for use of the findings on the Russian indices of business activity.

Directions for use Target groups of consumers

– forecasting the turning points of growth
and recession in the economic activity;
– predicting fluctuations of the stock market
and, indirectly, inflation jumps;
– determination of the GDP values expected
in the next quarter;
– predicting seasonal fluctuations of the
index of industrial production
– Department of macroeconomic forecasting of the Ministry of
Economic Development of RF;
– investors and traders of the stock market;
– companies’ management;
– Department for Investment Policy and Macroeconomic Forecasting
of the Department for Strategic Development and Project
Management, the Ministry of Industry and Trade of RF;
– Federal State Statistics Service

Source: Compiled by the authors.

one way or another, distorted the results Granger
causality test. This reason seems to be more proba-
ble, according to the above calculations hypothesis
confirming the leading influence of certain BCI on
the stock market indices, derives its justification.
4 CONCLUSION
According to the results of the study, the following
conclusions can be drawn:
• the majority of the tested diffusion of the business
activity indices of the USA and German show a
good correlation with stock market indices, includ-
ing the stock market index values under shear over
time, which indicates their leading nature;
• the Russian business confidence index for min-
ing and manufacturing industries have a signifi-
cant correlation with the RTS index (0.58–0.62),
which is slightly lower than for the USA and
Germany. This is primarily due to insufficient
development of the national stock market;
• weaker correlation is observed between the
index of business confidence for organizations
engaged in the electricity, gas and water supply,
and the RTS index (0.31–0.46), which is caused
by the state (non-market) tariff regulation of
this type of the activity.
To sum up the findings one can recommend
directions for their use for target groups of con-
sumers, including both governments and the rep-
resentatives of the business community (Table 7).
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Innovative development of a region: Growth pole approach

O. Goiher & A. Posazhennikov

Vladimir State University, Vladimir, Russian Federation

A. Loginov
LLC “EC at the VLSU”, Vladimir, Russian Federation

O. Arkadeva & A. Danilov

Vladimir State University, Vladimir, Russian Federation

ABSTRACT: This paper aims at solving an important problem related to the absence of a consistent
approach to innovative development of regions. To solve this problem, it deals with the growth pole
approach and its application in innovative development of a region. First, the paper outlines and describes
all the components of the growth pole involved in innovative activity. Then, it proposes a new model for
regional innovative development as well as the implementation of a stepwise algorithm for the model.
Finally, the paper specifies the value of the growth pole approach in the complex assessment of regional
innovative development.

1 INTRODUCTION So, “novelty” represents a specific result of

The prospective of Russia’s economic development
is a debated topic among its leading experts. Today,
the most challenging task is to choose a proper
trajectory that involves both solving current prob-
lems and outlining strategic goals. Recently, the
much-debated trajectory “scenario innovative
development for Russia” is considered to be most
promising, which requires a major breakthrough
in the industry. This trajectory must be thoroughly
grounded and carefully planned. The chosen tra-
jectory can be implemented by using the growth
pole approach.
2 THEORETICAL FRAMEWORK
Let us first consider the terms “innovation” and
“growth pole”.
Innovation is generally understood as “invest-
ment into novelty”: “innovation is a feasible out-
come resulting from investment of capital into
new equipment, new technology or organization
forms of labor, production, service and manage-
ment including new methods of control, account-
ing, planning and analysis” [1]. Thus, innovation
means application of that novelty in practice. This
should lead to a new product, technology, and a
new approach to job management that must come
into use. Otherwise, they may not be considered as
innovations.
research and inventions, whereas “innovation”
is the process of implementing the novelty that
results in return of investment.
When considering “poles”, we should mention
the definition given by B. Ergashev, A. Khashimov,
and Z. Davydov. It is similar to that of “growth
pole” with particular emphasis on the idea of tar-
geted simulative monetary policy determined by
the government as an important constituent of
growth pole. In their view, growth pole refers to
the territory with high activity and high perfor-
mance of its enterprises. One more feature of poles
is the stimulation of enterprise activity on the part
of the government [2].
Considering the term “growth pole” when
applied at the regional level, O. Voronova gives
the following definition for regional growth pole:
“combination of developing and expanding
branches capable of enhancing economic growth
within its control area” [3].
Regional innovative initiatives are the ones
expected to boost the development of both specific
regions and the country’s economy in general.
Thus, we can assume that “growth poles”
formed at the regional level must become the foun-
dation, basis, and driving force that will allow the
territory to discover its full potential.
Regional “growth pole” can correspond to:
− a region itself, seen as a territory unit;
− a specific community, municipal unit, town/city;

81
− a sector, seen as a union of interrelated enter-
prises producing innovative products;
− an enterprise, seen as a separate economic unit
in the economic system of the country.
All the above-mentioned points can create a
momentum of growth in one way or the other.
Poles can act as autonomous units as well as enter
into partnerships in the region.
Thus, we must identify the fundamental com-
ponents of the pole that are capable of operating
regardless of the pole’s level and type.
The availability of required infrastructure is a
key factor for innovative as well as any other eco-
nomic activity. Infrastructure not only boosts the
interaction between economic agents but also cre-
ates the demand for innovations itself.
We can conclude that the development of infra-
structure is a priority at all levels of government.
Therefore, special attention should be given to the
development of transport, communications and
information technology facilities to speed up the
creation of an innovative economy.
It can be argued that innovations as well as
other processes in the country are significantly
influenced by institutional factors and are highly
dependent on their development and operation.
Institutional transformation has to be thor-
oughly considered because of the related quality
of institutions that define the scope of activity of
a particular region, sector, program or policy. This
should be done at all stages, not only during the
process of establishing institution and its opera-
tion, but also at its starting point. The reason is
that the starting point involves the setting of stra-
tegic goals and objectives, with regard to the nec-
essary rules and regulations to assess both the
effectiveness of the institute being created and the
prospects for its operation.
The traditional system of institutional struc-
ture can be represented as a hierarchy of rules.
The first level is represented by the legal rules and
regulations, which can be further divided into
three sublevels: federal, regional and local legal
and regulatory frameworks. The second level can
be represented by the so-called informal rules and
regulations, based on common practice, mental,
historic and cultural features, and background
specific to the territory. Informal institutions are
sometimes referred to as “soft”, implying a fixed
pattern of behavior shared by many or the major-
ity in the society [4].
The importance of considering both levels
is accounted for by a simple apprehension and
common logic. Even with massive resourcing,
it is impossible to make good use of the existing
potential without regard to the institutional and
informal characteristics of a region.
82
Formal and informal components of innovative
activity create trends for further development,
which affect the strategic potential of the entire
region. Formal components of innovative activity
involve legal issues of its implementation (laws and
legal documents at all levels in the country). Infor-
mal components are represented by historically
grounded rules and practices of a particular terri-
tory. Therefore, it is difficult to define the priority
component because of the number of factors to
be considered, on the one hand, and on the other
hand, due to various stages of the institution’s life
cycle that may demand various priorities referring
either to formal or informal components.
Thus, we can say that a proper institutional envi-
ronment creates favorable conditions for people’s
life support on the whole. It also encourages inno-
vative activity and growth of human capital.
Infrastructure development is one of the most
important objectives at all levels of government.
To boost the development of innovative economy,
special attention must be paid to infrastructure for
transporting resources and information transfer.
However, managing actions typically require sig-
nificant resources, involve large groups of popula-
tion in the region, and differ in response time. The
development of science and technology results in
higher speed and larger number of socio-economic
processes. It requires coordination with strategic
plans of growth pole development [5].
Moreover, to successfully create “growth poles”,
we need a well-functioning system to connect all
innovative companies in the region.
In general, innovative companies can be divided
into groups according to resources they provide
for the process of creating innovative products:
human, financial, information, material-and-
technical as well as organization-related, manage-
ment, and consulting resources.
Human resources are provided by research
centers and higher education institutions, since they
generate ideas for developing innovative products.
Financial resources are supplied by business
incubator zones, foundations for assistance to
innovative activity, local governments as well as
non-governmental and non-profit organizations
interested in innovative activity. This type of
resources is represented by resources allocated for
funding or co-funding innovative activity at all
stages of development and implementation of inno-
vative products in the form of various programs,
projects, and grants.
Information resources are provided by local
governments, local agencies under the govern-
ment, and business incubator zones. This type of
resources includes data about other innovative
companies and information necessary for research,
calculations, or modeling of processes under study,
as well as for discovering consistent patterns of
their development.
Material-and-technical resources are provided
by research centers, higher educational institutions,
business incubator zones, local governments, and
organizations interested in supporting innovative
activity by providing necessary facilities, testing
ground, equipment, and technological complexes
required for developing and implementing innova-
tion at any stage of the process.
Organization-related resources are primarily
supplied by local governments and local agencies
under government. This type of resources can
include legal and regulatory frameworks to support
innovative activity by issuing acts aimed at remov-
ing or reducing barriers to innovative activity.
Management and consulting resources can be
represented by outsourcing services to perform
individual tasks in the process of producing inno-
vative products of information exchange in major
spheres of activity specific to each of the above-
mentioned innovative companies.
It is crucial to provide necessary resources in the
shortest possible time to actors generating innova-
tive ideas to reduce time losses and shorten the time
it takes to develop and implement the idea. Therefore,
all actors of innovative activity should work in close
cooperation, providing support to each other. All the
above-mentioned factors will allow to boost the pro-
cess of implementing innovations and to encourage
social and economic development of the territory.
3 BASIC PART
To support the implementation of theoretical
arguments, it is necessary to create a model and
algorithm for Regional Innovative Development
(RID) involving components of innovative activity
and to implement pole technology.
The RID model assumes consistent evolution of
growth poles. Innovation, as the core component
of growth poles, can fulfill its potential only with
proper interconnections. It necessitates the crea-
tion of infrastructure around growth poles that
will attract labor resources and funds to encourage
the innovative development of the zone.
Geographically, the zone comprises enterprises,
road-and-transport infrastructure, labor resources,
and communities. However, we should distinguish
between the zone and the territory. The reason is
that not every object geographically related to the
territory can enter the zone of Innovative Develop-
ment (ID). Conversely, some relevant components
can be located much outside the region.
The methods of attracting funds and labor force
to growth poles are based on information support
at all levels.
83
Human capital formed in the process of RID
can produce an innovative environment and gener-
ate innovations within growth poles.
Let us consider the various stages of regional
innovative development in detail.
Stage 1.1 Aims are defined with regard to basic
parameters of regional economy. Criteria for
selecting growth points are chosen.
Stage 1.2 Selection of growth points is made
on the basis of the chosen criteria by expertise.
Growth poles are formed as sets of growth points
involved in producing innovative products.
Stage 2.1 Interaction methods within growth
poles are identified. Efficient road-and-transport
corridors between growth points are constructed.
Implicit links between growth points are identified.
Stage 2.2 Control over components is made
during the process of producing innovative products.
Assessment of the contribution to the RID process
is made by the component outside the growth pole.
Additional components and links to the growth pole
are included.
Stage 3 The resulting structure of growth poles
on a specified territory is developed. Interaction
methods between growth poles are identified.
Information support for growth poles’ activity is
provided.
Stage 4 Control over components of RID
encourages the development of human capital.
Components that help develop human capital with
additional resources are provided.
Stage 5 Control of results is compliant with
target parameters. There can be barriers to the
implementation of the algorithm which are caused
by external factors. Bureaucratic and corruption
risks as well as organization-related resistance are
not associated with features and aims of the RID
model.
From the perspective of the system approach, the
growth pole model of RID represents a network of
links between components. Growth poles boost the
innovative potential of enterprises, allowing them
to sufficiently increase the effectiveness of activity
of all actors of innovative development. Growth
poles, growth points, and road-and-transport
infrastructure are sources of synergy. They act as
conditions of the positive synergistic effect in the
process of growth pole-based innovative develop-
ment, allowing the reduction in transactions costs,
and external and internal risks of RID.
Understanding growth poles as multidirec-
tional “growth points” in the region will enable
enterprises to update the issues of systematic
characteristics of innovative development. The
above-mentioned components of RID can be
described as entropic, bringing chaos and ambi-
guity into the process of innovative development.
The model and algorithm represent synergistic
Figure 1. Model of regional innovative development (based on the authors’ ideas and their research results).
elements of the system. They enable both RID
and human capital development to be orderly and
structured. Synergistic elements hold the potential
of innovative development through human capital
development. When human capital is synergistic
with other elements, it makes innovative develop-
ment flexible with ordering procedures.
For RID, the indicated directions of force work
simultaneously at each point of the growth pole.
Their interaction may be coordinated or contra-
dictory, and may have a single or multiple vectors.
In different growth poles, the same component
may act as part of different forces that affect their
development. Here the problem is that a proper
coordination of all vectors as a single direction of
RID is necessary. Another problem is that vectors
may have unequal values at different time periods.
These processes are difficult to adjust and require
continuous monitoring and management. The
prevalence of these vectors within the growth pole
will allow enterprises to expect positive synergistic
effects in RID, and will guarantee long-term devel-
opment of the territory.
Our view is based on the assumption that
management of potentials is implemented through
managerial decisions and their consistency. Focus-
ing on process parameters and their vector-related
84
performance will allow us to expect long-term
consistent development. But focusing on the
assessment of decisions in terms of profit and gain
values will only result in separate criteria of RID.
The concept of growth pole-based RID provides
an opportunity to solve multi-criteria tasks with
regard to mutual interests of all actors. A large
number of options for the interaction of compo-
nents as well as the number of economic agents
contributing to or resisting changes are involved in
fulfilling the regional innovative potential. There-
fore, it requires a careful selection of information
processing and analysis tools.
It is not possible to take into account all the
factors involved in producing synergistic effects.
During the growth and development of a complex
system, the number of components, subsystems,
and links grows at an exponential rate. At some
point, it becomes necessary to define criteria for
selecting the most relevant factors because our
task is not only to determine synergistic effects but
also to describe their background. In this regard,
complex models are not viable due to their time-
consuming and more complex nature.
Infrastructure components refer to enterprises
with their reference to the territory and employable
population that enables their operation. In a broad
Figure 2. Algorithm for regional innovative development.
sense, this factor also takes into account pricing
uncertainty with regard to innovation, production
costs on innovation, time parameters of projects,
and other factors of innovative development.
4 CONCLUSION
Implementation of RID on the basis of growth
poles enables consistent development of territories
and provides a region’s share of innovative produc-
tion in the structure of production.
Most of the concepts and approaches proposed
today define positive synergistic effects obtained in
the process of innovative development as cumula-
tive effects resulting from the interaction of actors,
which are considerably greater than their individual
potentials. Our idea is not only to merge the potential
of components but also to combine various kinds
of complex systems: cumulative effect of imple-
menting innovation, economies of scale, integration
85
of producing units, operation- and organization-
related synergy, merchandising synergy, etc.
At the level of enterprises, innovative develop-
ment has two vectors. The first vector is related to
an innovative product and its entrance to the mar-
ket to meet the most urgent needs of the society.
The second vector is innovation related to changes
in production processing chains. This vector helps
to reduce costs and increase production volumes;
however, its assessment involves a far more com-
plicated procedure.
Education is an important constituent of RID.
It is not necessarily provided by whole higher edu-
cational establishments. The growth pole zone may
comprise separate departments or groups of inter-
ested scientists. The core element is research vec-
tor. Thus, one group of scientists can enter several
growth pole zones and work for several enterprises.
RID largely depends on the quality of local
governments. It means innovative and investment
appeal of the territory, effectiveness, and proper
provision of services. Therefore, special attention
should be given to the whole system of local gov-
ernments as well as personnel engaged in its work.
Growth pole-based RID contributes to building
an effective incentive system, boosting integration
and innovation within growth poles, expanding
production, and employing information resources
and intellectual wealth. The combined work of
local governments and industrial enterprises will
produce the greatest possible synergistic effect,
allowing them to implement really ambitious
projects based on growth poles. The effective-
ness of this interaction may vary under different
external conditions, and thus synergistic effects for
growth pole actors may change from the initially
projected values and may set the vector of RID.
ACKNOWLEDGMENTS
This work was supported by grants from the
Russian Humanitarian Science Foundation No.
AAAA-A16-116041210053-4 and the Russian
Humanitarian Scientific Foundation “Comprehen-
sive approach to implementation of innovative initi-
atives in the region in the face of external pressure”.
86
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[3] Voronova, O.N. The concept of growth poles. Electronic
resource. Access mode: http://www.voronova-on.
ru/geografua/Reiguonal/Qkonomukareiguons/
Analuz/Razvutie/Marketung/Ystoqzuvoerazvitue/
osnova/Konzepzuapolqsovrosta/index.html
[4] Goiher, O.L. 2011. Reducing transaction costs in
the process of investing in the region’s economy: a
monograph. Vladimir: Publishing Vladimir State
University.
[5] Alaev, E.B. 1983. Socio-economic geography:
Conceptually-terminological dictionary. Moscow:
Think.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

The methodical approach to the assessment of regional innovation and

investment processes

Oleg A. Donichev, Sergey A. Grachev, Denis Yu. Fraymovich & Ann K. Kholodnaya
Department of Economics and Investment and Innovation Management, Vladimir State University named after
Alexander and Nikolay Stoletovs, Russia

ABSTRACT: The article deals with assessment of investment provision processes for the innovation
activity. The purpose of this research is to make a complex economic and mathematical assessment of
regional innovation and investment processes and to identify ways of increasing their effectiveness. The
results of the investment activity of regions of CFD have been analyzed and the dependence of a num-
ber of key innovation indicators on the volume of investments has been evaluated. On the basis of the
three-factor graphic model the efficiency of innovation and investment processes in the regions has been
interpreted.
Vectors of investment and innovation activity enhancement have been defined. The attained results
have made it possible to confirm the necessity of reinforcing the cooperation for better investment envi-
ronment and higher potential of the regions with the purpose of attracting investment, encouraging inno-
vations, technologies and new equipment introduction.

1 INTRODUCTION 2 LITERATURE REVIEW

The successful formation and development of the
efficient innovative economy herewith referred to
as a synonym of creative economy, depends to a
significant extent on the comprehensive and suffi-
cient provision of all kinds of resources. The latter
can be represented by intellectual assets, workforce,
finance, raw materials, energy and information
resources. Funds available for investment are an
important factor of a more rapid economic growth
and higher competition in the course of accelerated
innovation-driven development. Thus well-timed
provision of the necessary volume of investment is
an important condition of the strong momentum in
the innovative economy. Attracting investment that
will contribute to the innovation process becomes
the most important task for the authorities and reg-
ulatory bodies of the Russian Federation.
Thereby the purpose of this research is to deter-
mine ways of improving the efficiency of regional
innovation and investment processes.
The objectives are:
− to investigate the innovation and investment
processes in the economy at the meso-level;
− to offer criteria for economic and mathemati-
cal assessment of the current situation in the
regional economy;
− to identify leading and outsider regions, on the
basis of regions’ of ranks.
It is necessary to identify the theoretical aspects
conditioning provision of investments for innova-
tion activity including those at the regional level
in order to get a comprehensive idea of all the
profundity and complexity of the existing pro-
duction problems. In this context the necessity
of investing funds the innovation process is the
most important problem and a key issue. One of
the fundamental terms is availability of a system,
integrated into the country economy, and invest-
ment foundations, acting in regions, both provid-
ing funds for the progressive economy growth,
innovations and particular companies at the cut-
ting edge of their innovative development, as well
as for innovation projects selection (Torkanovs-
kiy 2014).
At the same time investment foundations are
not always equal to task. In this regard, investment
foundations of different types, e.g. mutual funds,
are often believed to be underdeveloped in Russia,
so the task should be shared with other innovative
investment entities, which could act as a buffer
between the owners of investment resources and
their customers. Among these are banks, insur-
ance companies, large joint companies with public
capital participation, and entities working in the
market for pension contributions (Burmistrova,
Kubasov 2013).

87
 Therefore contributions by private investors
can also act as an important source of funds for
the innovation-driven development. The state pro-
vides an array of incentives in order to raise pri-
vate investments including tax benefits, customs
privileges, reduction in interest rates, possibility to
participate in state-guaranteed orders and other.
The level of infrastructure development is one
of fundamental criteria determining the invest-
ment appeal to private investors. In its turn the
pre-schedule construction of the infrastructure
facilities is carried out using public funds, which
provides an accelerated inflow of private invest-
ment (Zeldner, Kozlov 2013). These are projects
of high-tech industries that are considered most
attractive, especially for the private investments,
since their profit rate is considerably above the
annual average level (Osipov 2014).
Moreover it should be mentioned that given the
limited amount of public funds available for the
innovative investment, it is important to use them
in the areas of economic focus, providing public
funds for projects and inducing private investment
on the basis of Public-Private Partnership (PPP).
It is necessary to select industries that have a real
potential to promote innovative development of
the economy, creating dual-use technologies and
new materials, maintaining an up-to-date level of
domestic industry. Amongst the priorities requir-
ing mobilization of resources we can mention
regional infrastructure, housing and agricultural
sectors (Zeldner 2014).
Today the growth rates of national business
at the international market are determined to a
great extent by existing conditions in the region.
An investment component of the innovation-
driven growth of regions is here of critical impor-
tance, and an expected pre-scheduled increase in
the amount of investment will be connected with
intensive introduction of new equipment into
the production process and expansion of financ-
ing research and advanced technologies in all the
areas of economic activity. Direct and venture
investments alongside with own and attracted
funds are of key importance in the system of fund-
ing sources for business focused on innovative
development (Vlaskin 2013).
At the same time both the procedure and the
size of assistance accorded to the innovative
sector are important in a down economy. For
this reason our point is to change the structure
of innovation projects management along with
increased funding i.e. to create special schemes
and innovative managing companies to support
innovative products from the opening phases
of their development to the final stages of their
implementation. It is also noteworthy that the
innovative investment strategy should involve
88
some efforts to improve the investment environ-
ment of certain regions and types of economic
activities. And it is also the investment potential
that predetermines development of investment
climate affected by the so called internal and
external factors. An external initial impulse repre-
sented by infrastructure development, favourable
treatment for investors, import of machines and
equipment together with other factors can lead
to the growth of innovative investment activity
(Khrustalev, Slavyanov 2011).
However we must bear in mind that regions of
Russia vary in their capabilities and conditions of
the economic activity. Their investment potential,
investment environment and consequently their
investment potential depend on their territory and
status, geographical position, availability of natu-
ral resources, access to infrastructure and some
other factors including economic policy, pursued
by local authorities, and state of institutions neces-
sary for conducting business (Sunyaev, Polishchuk
2014).
In the meantime considerable unbalance in raw
materials potential between the Russian regions,
affecting their investment potential, leads to signif-
icant differences and discrepancies in the way they
carry out their innovative activity. Thus overcom-
ing the existing interregional disbalance determines
the regions’ performance in implementing innova-
tive reforms (Vladimirova, Rudnev 2010; Valiullin,
Shakirov 2011).
There is also persistent slowdown in the rates
of economic growth in different industries of
the Russian national economy, accompanied by
decrease in the investment activity.
Currently the Russian economy is dealing with
lack of investment, typical to most countries
affected by reduction in direct foreign invest-
ment. Investors have been worried by a number
of aspects, including “euro crisis”, “jeopardy of
a financial downfall in the USA” and revolutions
in some countries. So the development of a com-
plex government policy framework in the sphere
of attracting foreign investment to the innovation
sector becomes increasingly relevant for Russia. It
should identify priority territories and industries,
work out measures of regional risks reduction
and improvement of investment climate, work out
tasks and competences of institutions, ensuring
the implementation of these interests in particular
fields (Vlaskin 2013).
The development of regional investment poten-
tial for the innovation purposes is very closely con-
nected with improving methods and procedures
of the strategic region development planning,
such as reflection of problems related to forma-
tion and development of the territory in appropri-
ate targeted investment programs. The latter are
based on the investment potential of a region, as Table 1. Ratio of the total value of research and tech-
well as the commitment to solving main problems nological innovation costs in regions to a fixed invest-
of social and economic development, including ment value over 2010–2013 by regions of the Central
the construction of high-tech objects, capable of Federal District.
performing the role of innovation centres in the Region name 2010 2011 2012 2013
future, inducing investment to related industries
of economy sectors and improving fiscal perform- Belgorod region 0.041 0.024 0.021 0.019
ance for providing higher financial potential of the Bryansk region 0.026 0.034 0.058 0.040
region (Agafonov, Ukrainchuk 2014). Vladimir region 0.101 0.102 0.120 0.128
Efficient use of scientific results obtained in fun- Voronezh region 0.067 0.090 0.071 0.063
damental and applied researches in the real sector Ivanovo region 0.098 0.041 0.048 0.030
of economy is one of crucial problems of innova- Kaluga region 0.169 0.225 0.179 0.277
tive investment-driven development. For this pur- Kostroma region 0.058 0.029 0.037 0.027
pose it is urgent to use the mechanisms that could Kursk region 0.056 0.058 0.077 0.151
consolidate the efforts of scientific schools remain- Lipetsk region 0.260 0.302 0.128 0.100
ing in operation (though the number of research- Moskow region 0.195 0.207 0.264 0.303
ers occupied in the system of the Russian Academy Oryol region 0.039 0.026 0.018 0.020
of Sciences (RAS) had declined by 10% by 1990), Ryazan region 0.095 0.083 0.111 0.121
emerging business class in the innovation sector Smolensk region 0.043 0.050 0.041 0.042
and the bodies of state administration (Pechatkin Tambov region 0.031 0.030 0.046 0.033
2013). Tver region 0.054 0.072 0.099 0.120
Furthermore, the importance of supplying funds Tula region 0.096 0.079 0.125 0.132
to provide necessary equipment and appliances for Yaroslavl region 0.197 0.231 0.238 0.249
every scientist is ever increasing. According to the Moscow city 0.296 0.456 0.346 0.282
data provided by the Institute of Economics of
RAS in Russia it is 130 times less than in the USA.
As a result, the way of the country innovative
modernization declared by the government is not Table 1 gives ample data showing the dynamics
sufficiently provided with financial and innovative of the investments inflow into the innovation sec-
resources. This happens because the implementa- tor of the regions of the Central Federal District.
tion of isolated projects, technological clusters, With total inflows in the region being 18–24% of
business incubators and Special Economic Zones the fixed investment value for the period under
(SEZ) such as Scolkovo cannot ensure large-scale review, in the Yaroslavl region they go up to
innovation-driven progress (Bevza 2011). 24–25%, in the Kaluga region up to 22–28%, in the
So consideration of the characteristics of indus- Moscow region up to 30% and in Moscow up to
trial sectors and their reactions to the innovation 28–5%. At the same time in most of the regions
influence amidst oil price downturn, external of the district this criterion is considerably lower
shocks, caused by the financial crisis resulting in than an average level in the district. For example in
lower economic potential of the country, are indis- the Tambov region it remains at the level of 3–4%,
pensable for a system-based innovative investment- in the Oryol region—at 2–3%, in the Kostroma
driven development of regions, which in its turn region—at 3–5%, in the Belgorod region—2–4%.
is impossible without high-tech industries develop- According to scientists’ estimates, the volume
ment (Agafonov, Ukrainchuk 2014). of fixed investment, necessary for the social and
economic development of the country, should be
maintained at the level of 30–35% of the Gross
3 RESEARCH METHODOLOGIES Domestic Product (GDP) value (Aganbegyan
2014). For the purposes of the rapid academic and
In order to continue analysing the investment technological development the 20% share of the
aspects of the innovative activity it seems appro- innovative investment should be multiplied at least
priate to perform the calculation of a ratio of the by half.
total value of research and technological innova- While analysing the investment resources pro-
tion costs in regions, which can be considered vision for the innovation-driven development
almost equivalent to investments in the innovative it seems appropriate to work out the following
sector of a territory, to an index of fixed invest- ratios.
ment across a correspondent region of the Central The first indicator, which represents the ratio of
Federal District over the same period. The results the shipped innovative products to the fixed invest-
of the carried out calculations are represented in ment, will be conventionally named an investment
Table 1. output.

89
 The ratio is as follows: Table  2. Values of investment output rates, funding
rates and renewal rates across the regions of the Central
Federal District over 2010–2013*.
Vin
Yo = (1)
I fiix No Region name Yo Nfund Nren

1 Belgorod region 0.132 0.009 0.015

Yo being an investment output, 2 Bryansk region 0.135 0.005 0.032
Vin—the geometric mean of the innovative pro- 3 Vladimir region 0.261 0.052 0.060
duction volume over the period under review, 4 Voronezh region 0.087 0.034 0.036
Ifix—the geometric mean of the fixed investment 5 Ivanovo region 0.036 0.017 0.028
volume over the period under review across the 6 Kaluga region 0.162 0.105 0.098
correspondent region. 7 Kostroma region 0.145 0.003 0.032
The second criterion, which represents the ratio 8 Kursk region 0.067 0.036 0.035
of the internal research expenditures to the fixed 9 Lipetsk region 0.401 0.001 0.176
investment, will be conventionally named research 10 Moskow region 0.296 0.161 0.059
funding rate. 11 Oryol region 0.071 0.101 0.014
12 Ryazan region 0.094 0.021 0.079
Viex 13 Smolensk region 0.057 0.015 0.028
N fund = (2) 14 Tambov region 0.039 0.013 0.020
I fiix
15 Tver region 0.207 0.040 0.040
16 Tula region 0.344 0.023 0.082
Nfund being a research funding rate, 17 Yaroslavl region 0.329 0.053 0.174
Viex—the geometric mean of the internal 18 Moscow city 0.238 0.220 0.096
research expenditures over the period under review
across the correspondent region. *Indicators are discussed in detail in part 3.
The third criterion, which is a ratio of expendi-
tures for technological innovations to the volume
of fixed investment, will be conventionally named
a renewal quota: innovative production, it is 0.401, in the Tula region
–0.344, in the Yarislavl region –0.329, in the Mos-
Vtech cow region 0.296.
Nren = (3) The second index Nfund—a research funding
I fiix
rate—also has substantial differences depend-
ing on the region. Thus, in the Kostroma region
Nren being a renewal quota, having relatively low fixed investment rates and
Vtech—the geometric mean of the expenditures even lower research funding volumes in com-
for technological innovations over the period parison with other regions, this indicator equals
under review across the correspondent region. 0.003. The Lipetsk region demonstrates dramati-
cally low Nfund figures being 0.001 contrasted with
a high rate of shipped innovative production. In
4 RESULTS the Bryansk region this indicator makes 0.005, and
the Belgorod region –0.009, in the Oryol region
The results are reported in Table 2. –0.101, in the Tambov –0.013. An average CFD
The analysis of the table lets us notice that level is 0.129. The highest figure has been fixed
the figures of the first criterion—an investment in Moscow –0.22. In the Moscow region it makes
output—vary widely enough (the maximum value 0.161, in the Kaluga region –0.105.
exceeds the minimum value by more than 11 times). The third rate Nren—a renewal quota—has lower
The Ivanovo region has the lowest value of 0.036. data dispersion across regions. With an average
In Tambov region this value makes 0.039, in the rate of 0.085 for CFD, the highest rate is in the
Smolensk region –0.057, in the Kursk region Lipetsk region –0.176, the Yaroslavl region –0.174,
–0.067, in the Voronezh region –0.087. So these the lowest—in the Oryol region –0.014, in the
regions show the lowest return value measured by Belgorod region –0.015, in the Smolensk region
innovative products volume per 1 ruble of invest- –0.028, in the Tambov region –0.02.
ments. At the same time across the Central Federal The attained results by each region of the Cen-
District this index equals 0.23, and in the Lipetsk tral Federal District (CFD) could be presented in
region, combining an average volume of invest- the form of a three-dimensional graphical model
ments with a high enough level of the shipped (Fig. 1).

90

Figure  1. Three-dimensional graphical model of the
innovative and investment resources utilization perform-
ance by regions of the CFD (figures at points in the graphs
correspond to the numbers of regions in Table 2).
5 DISCUSSIONS
In the presented three-dimensional graphi-
cal model the most optimal positions are occu-
pied by the regions having the maximum values
of all the three criteria, shown on the axes of
the correspondent coordinate system, which is
Yo → ; N fund → max; N ren → max. Thus region
9 (the Lipetsk region) is the closest to the ideal posi-
tion, having two maximum values— Yo = 0, 401
N ren = 0,176. Rather successful combination is
manifested by the Yaroslavl region (17). Group
of regions No 2, 4, 5, 7, 8, 11, 12, 13, 14, 15 (the
Belgorod, Bryansk, Voronezh, Ivanovo, Kursk,
Oryol, Rtazan, Smolensk, Tver, Kostroma) are
placed in the range of the minimum coordinate
values which means that they don’t fulfil their
innovation and investment potential in the opti-
mal way. Regions No 3, 10, 16, 18 are in the cen-
tral part of the three-dimensional graphical model
under review and they can be described as showing
moderate performance in the development of their
resource and production base.
It must be emphasized that Moscow and the
Moscow region are usually considered to be
leading territories in the Russian economic area
and in absolute terms display high rates in invest-
ment, innovative, infrastructure and social devel-
opment. At the same time the calculation of
relative rates gives more objective results, i.e. in
reality it shows an insufficient degree of innova-
tion and investment resources utilization in the
regions under review and evidences the possibili-
91
ties of increasing the reproduction efficiency of
specific processes.
6 CONCLUSION
As can be seen from the above considered invest-
ment aspects of provision for innovation activity
lead to some important insights, which could be
used to work out recommendations for the local
government authorities, since it is in the regions
that the innovative changes are more sensible and
give the most economic benefit. Primarily, regions
need the development of innovative investment
foundations, attracting private investors’ funds,
public and venture capital financing for these pur-
poses. So the regional authorities have to provide
favourable environment for this, developing req-
uisite infrastructure, providing tax incentives and
budgetary aid, attracting business funds and for-
eign investors to the innovative development.
The regional authorities have to put more
emphasis on the task of rising their own inno-
vative and investment potential, perfection of
methods and procedures of the strategic territory
development planning aimed at better innovation
and investment environment. It is also advisable to
pay more attention to the effective application of
scientific results obtained from fundamental and
applied researches, improving availability of the
equipment necessary for researchers, which pro-
vides the innovation sector with the investment
inflow, as well as to industries and the enterprises
with a high rate of innovative production, possess-
ing substantial added value.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Development of public–private entrepreneurship projects

N.Y. Omarova, M.M. Omarov & V.A. Shultsev

Novgorod State University named after Yaroslav the Wise, Velikiy Novgorod, Russia

ABSTRACT: In this paper, we describe the theoretical approaches to development public–private enter-
prise projects in the United States, the United Kingdom, Germany, Australia, the European Union, and
Russia. On the basis of the content analysis of theoretical studies, a definition of the “public–private
entrepreneurship” was given, and its basic principles were specified. In this paper, projects of public–
private partnership within the transport corridor Moscow-Saint Petersburg were studied, a correlation
between migration and population was found, and the facts of regions’ integration were identified. It was
proven that projects of public–private partnership in transport infrastructure are the key factors of the
economic development of the regions.

1 INTRODUCTION The relationship between public and private

In the global economy, there is a significant
difference in the population’s standard of living
within various states that is predetermined by
factors such as inadequate legislative framework,
reduction of activities in the social sphere, lack
of financial resources, and irrational use for the
development of infrastructure. The world experi-
ence proves that the promising direction to solve
these difficulties is mutually beneficial alliance of
the state with private entrepreneurs. This is a uni-
versal method to create and develop infrastructure
in certain industries and to introduce innovative
technologies.
Even in the ancient world, the “system of pay-
ments” was used as a special form of contract
between the government and the private sector,
which is, in fact, the prototype of the modern con-
cept of concession. For example, signing contracts
with individuals for provision of water to supply
the population of ancient Rome in the 5th century
BC; the agreement on the development of mineral
resources in Spain in 1256; the construction of
canal in France in 1554; the customs, the salt, and
the repurchase of wine in Russia in the late 15th
century, beginning of 16th century and in the 18th
and 19th centuries (Ayrapetyan 2013).
At the turn of the 19th and 20th centuries, many
countries of the world used private sources of fund-
ing for the construction of railways, canals, power
plants, and other objects of public use: the Suez
canal in Egypt, railway highway under the English
channel between France and Great Britain, the rail-
way line from Moscow to Saratov, Trans-Siberian
railway in Russia, and others (Ayrapetyan 2013).
sectors is currently most often referred to as “public–
private partnership”. This term is a translation
of the English term “Public–Private Partnership
(PPP): public–state, public, and people, open,
transparent; private–private, personal, nonvowel,
nongovernment; partnership–association. In the
United Kingdom, for this type of relationship, the
term “Private Finance Initiative” (PFI) is used, and
in Poland “public–private partnership” is used.
In the global economic practice, public–private
partnership is revealed in two ways:
− a system of relations between the state and busi-
ness in contractual form, which is widely used
as a tool of national, international, regional,
municipal, municipal-economic, and social
development and planning;
− specific projects implemented by various state
authorities and business together or just private
companies on objects of state and municipal
ownership.
In the United States, the term “public–private
partnership” originally meant joint financing by the
state and private business of determined programs.
In the second half of the 20th century, it meant
the financing of public facilities, and in the 1960s,
it meant joint state–private enterprises engaged in
modernization and restructuring of cities. A signif-
icant feature of public–private partnerships in the
United States was the contracts directed on realiza-
tion of national projects and programs of social-
economic development, according to which private
firms received preferential loans for up to 25 years.
These loans provided up to 65% of fixed capital
investment, which stimulated the processes of

93
structuring and modernization of their economic Research, Technology and Development); support
activities (Sarozhnaya 2015). of fundamental research and research benefiting
The United Kingdom’s first experience of small and medium-sized enterprises of EU; mobil-
public–private partnership in 1991 was associated ity and career development of individual research-
with the rebuilding of the London docks on the ers and research infrastructure (Sarozhnaya 2015).
basis of the new market-oriented planning poli- In other countries, public–private partnership
cies. A year later, “Private Finance Initiative” (PFI) mechanisms are divided into two conceptual cat-
was established, whose main task was to attract the egories (forms): “politic” and “contract”. Each of
flow of private investment for the construction of them contains different mechanisms of public–
large state objects. Public–private partnership in private partnership. For contract form, these
the United Kingdom is understood as the key ele- mechanisms are specific types of public–private
ment of the government’s strategy for providing partnership contracts. There is no such division
modern, high-quality public service and improving in Russia, but the mechanisms develop and create
the competitiveness of the country (Sarozhnaya new forms of public–private partnerships. Among
2015). them, for instance, is development of specific eco-
This initiative is successfully used in the con- nomic areas.
struction of facilities in different countries of the Using the software Atlas.ti, we present the ana-
world: lysis of socioeconomic development of six regions
within the transport corridor Moscow-Saint
− the national trunk system of highways in China
Petersburg, as well as the correlation of the migra-
and toll ring road connecting the Western and
tion and population in the studied subregion. The
Northeastern part of Athens airport in Greece;
analysis shows that the key factor in the growth of
− cable-stayed bridge crossing the viaduct in
the economy is developed transport infrastructure.
Portugal;
In this regard, results show the necessity and effi-
− high-speed rail link HSL Zuid in the Netherlands
ciency of development projects of transport infra-
and the bridge of Vasco da Gama in Portugal;
structure using the mechanisms of public–private
− Tunnel Oosterwee Link in Belgium;
enterprise.
− toll road Bresna, Milan, Italy.
Development agencies established in Germany
at the state level combine public partners (local 2 RESEARCH METHODS
authorities) and private players (landlords, trade
associations, etc.). The country uses a wide range Modern studies use the concept of “public–private
of configurations, cooperation of municipal gov- partnership”, which identifies the important role
ernments with the private sector: the provision of of the state, as it is the initiator of most projects
public utilities or the construction of various infra- and also due to the fact that a partnership is built
structure facilities. Thus, not only the powers and in relation to the state and municipal property.
profits are redistributed through the implementa- Nowadays, there are several definitions of this
tion of projects, but also they clearly allocate risks concept, which can be grouped by source in the
and responsibilities. following way: the authoritative international gov-
In Australia, in the end of the 20th century, the ernment and financial institutions; regulations and
government used frequent involvement of gov-
ernmental investment in infrastructure projects
and civil construction under the scheme of equity
participation of state and private capital, as well
as the involvement of the pension fund as a fund-
ing source. Unique experience of Australia lies in
its transparency and openness at all stages of the
project.
In the European Union, a special committee is
engaged in supporting, financing, and monitor-
ing of public–private partnership. Project financ-
ing from major European financial institutions
is rather successfully practiced: global loans to
the development of small and medium-sized
businesses, and support of specific investment
projects (European investment Bank); financing
of scientific projects of intersectional focus (in the Chart  1. Flowchart of the research of public–private
framework of Program of the EU Framework for partnership.

94
legislation; research institutes; and the business
community.
In our study, we have chosen to group the
results by host basis. Results of the content anal-
ysis revealed the essence of the definition, which
includes the following:
− Agreement/relation/legal mechanism;
− Form of cooperation and association/
integration;
− Cooperation/collaboration.
In the context of research, special attention is
paid to the following points. The first is formal-
ized relations of all parties. The second is equity
and cooperative investment of limited resources
(money, personnel, equipment, and information).
The third is that the responsibility for each share
of the parties is clearly defined as well as the
authority, resources, and revenue from the ongo-
ing project. The realization of socially important
projects in the service sector is crucial.
The study of public–private entrepreneurship
projects is conducted in four stages.
In the first stage, the purpose and the objectives
of the research are set. The goal of the research
is to define possible directions for public–private
partnership projects within the transport corri-
dor Moscow-Saint Petersburg. The objectives are
stated in stages 2–4 (see Chart 1).
In the second stage, the adopted global eco-
nomics concepts were studied. On its basis, the
author’s definition of “public–private partner-
ship” was presented, and the main features and
principles of public-private entrepreneurship were
distinguished. Then, the Unified Information Sys-
tem of Public–Private Partnership in the Russian
Federation was used to study different examples
of contracts in the field of transport infrastructure
development. After that, the advantages of such
partnership were distinguished.
In the third stage, the correlation was found
between migration and population in the subre-
gion Moscow-Saint Petersburg, which helped us
to identify four types of regions: (1) backward
densely populated; (2) backward underpopu-
lated; (3) developed and underpopulated; and
(4)  developed densely populated. Then, the pro-
gram Atlas.ti was used to analyze socioeconomic
development strategies of six regions within the
transport corridor Moscow-Saint Petersburg.
The purpose if the analysis was to identify
the factors of regional integration, define possible
directions for the development of public–private
partnership projects, and estimate possible forms
and effects of competition among those regions’
jurisdictions.
In the fourth stage, we define that the key factor to
eliminate the economical and social-demographic
95
disproportion in regions is to develop transport
infrastructure. Thereafter, projects in the field of
road construction based on public–private mecha-
nisms will be required.
3 RESULTS OF THE STUDY
In our study, public–private partnership is an
institutional and organizational alliance between
government and business to implement socially
important projects in various fields, with a syner-
getic effect and aims on the development of inno-
vation, investment, and infrastructure potential of
the territory and social responsibility of partners.
In this study, the following signs of public–
private partnerships were revealed:
− actors are the state and a private investor, pos-
sessing specific rights and responsibilities as well
as socially responsible activities;
− relationships are fixed on a legal basis;
− all available resources are joined and consoli-
dated in the process of implementing projects;
− financial risks, costs, and benefits are distrib-
uted between the parties in predetermined
proportions;
− the resulting product has socioeconomic focused
activities;
− has a synergistic effect and provides develop-
ment of territories.
Public–private partnership allows avoiding dis-
advantages of direct regulation of the state and
market failures.
Through a public–private partnership, a number
of substantial advantages are achieved:
1. Balanced funding model and the distribution
of technological and project risks between all
participants.
2. Guarantee of conformity of the technical and
economic parameters of the objects, specifica-
tions, and high-quality services.
3. Budget savings, project costs, and maintenance
costs reduction by 30–40% through the use of
the most effective technical solutions, imple-
menting innovative technologies and improving
the quality of construction.
In modern studies in this field, particular atten-
tion is paid to the principles of public–private
partnership, which include legal regulation of the
external environment; focus on forms of regula-
tion, including the activity of market mechanisms;
the principles of consistency, synergies, target base,
and differentiation; rational division of authority
between different levels of government and organi-
zations; and correction on the basis of marketing
research (Romanenko 2009).
 Without denying the significance of the above
principles, we believe that the basic principles of
public–private partnership also include the integ-
rity and organic embeddedness, compliance, selec-
tivity, complexity, consistency, the active external
expansion, information availability, tax differentia-
tion, mutual interest, and strategic management of
the social consequences. The implementation of
these principles will provide increased economic
stability and development of the territory, as well
as the formation of the social responsibility of
business and government.
Russia already has an established practice of
state-private entrepreneurship—specific projects
implemented at regional and local levels (see
Table  1). The information on each project is on
open access on the web page of the Unified Infor-
mation System of Public–Private Partnership in
the Russian Federation (www.pppi.ru).
In the Russian Federation, economical activity
is difficult because of the large distances between
regions. That is why development and realization of
public–private partnership projects in the field of
transport infrastructure is particularly important.
The rapid and effective economic development
requires infrastructure compression—a transport
infrastructure that allows solving the problem of
enormous time consumption to overcome large
distances. This will stop the excessive centraliza-
tion and allow realizing the development of unin-
habited spaces.
Quick bridging of large distances requires the
use of high-speed models of transport. Therefore,
the spatial compression requires the construction of
a number of high-speed highways of the new gen-
eration between the key cities and the development
of regional aviation (Krupnov 2007). These are the
subjects for the development of new infrastructure
projects of state-private entrepreneurship.
Research suggests that public–private part-
nership projects develop rapidly in the pro-
cess of building the high-speed highway M11

Table 1. Different types of public–private partnership contracts in the Russian practice.

No PPP contract type Example of application Concession owner Financing

1 Concession Construction of high-speed North Western – Means of Investment Fund of

agreement with road M11 Moscow—Saint
a direct charge fee Petersburg (15–58 km)
(direct toll)
2 Long-term Construction of high-speed
investment highway M-11 Moscow—
agreement Saint Petersburg on the
section 258–334 km (by
passing Vyshny Volochyok)
3 Operator’s Complex development for
agreement subsequent operation on a
paid basis of a highway
“Don” – from
Moscow via Voronezh,
Rostov-on-don, Krasnodar
to Novorossiysk on the
section – 633 225 km
4 Life cycle contract Construction of high-speed
railway Moscow—Saint
Petersburg (route length is
660 km; maximum speed
of 400 km/h)
5 Availability – –
payments
Concession the Russian Federation
Company – Credit line by Sberbank and VEB
(Vinci Group, – Personal funds of shareholders
France) – Placement of nonconvertible
interest documentary bonds of
series 03 and 04 bearer total
volume of 10 billion RUB with
a maturity of 20 years
OAO Mostotrest – State funding—90% (for a
period of 23 years);
– Private funding—10%
Operator— – State funding—0%;
OOO United – Private funding—100%
payment (contract term—10 years).
collection
systems
– Funding for the project from the
state involves the allocation of
a capital grant at the stage of
construction, the provision of
guarantees, and the payment
of service payments in the
process of operation
Return on investment by the
concessionaire investment is
phased in over stipulated in
the agreement term of return
of investments specified in the
agreement rate of return

96
Moscow-Saint Petersburg. Geographical-related
situation and socioeconomic importance of the
transport corridor Moscow-Saint Petersburg is an
integral part of the Eurasian transport network.
Highway M10 “Russia” is a part of global interna-
tional corridors: international transport of the
corridor “North–South”; European route E105
and E18 “Scandinavia”; Trans-European trans-
port corridor No. 9 (Helsinki-Saint-Petersburg-
Moscow-South of Russia-southern Europe);
Asian international route AH8.
Average population density on the territory
of transport corridor Moscow-Saint Petersburg
is 36-persons/sq km, 73 areas of 109  included in
the sample (67%) have a density below the aver-
age. Results of the correlation of migration and
population in the subregion of Moscow-Saint
Petersburg allow distinguishing four types of dis-
tricts: (1) backward densely populated; (2) back-
ward and sparsely populated, (3) developed and
sparsely populated; and (4) developed and densely
populated (see Chart 2).
Using the program Atlas.ti, we have conducted
an analysis of strategies of socioeconomic devel-
opment in the six regions within the transport
corridor Moscow-Saint Petersburg (Moscow,
Moscow oblast, Tver oblast, Novgorod oblast,
Leningradskaya oblast, St. Petersburg). The anal-
ysis of the facts of regions’ integration reveals
Chart 2. Correlation of migration to population in the
subregion of Moscow-Saint Petersburg.
Facts of regions’ St. Petersburg Leningrad
integration 2030 oblast 2025
Transportation & logistics 16 21
Tourism 9 6
Construction 7 11
Industry 7 7
Housing and public utilities 5 6
Power 1 2
Social block 2 4
Agriculture 1 1
Trade 1 4
Chart 3. Industry facts of integration of the regions transport corridor “Moscow-Saint Petersburg”.
97
certain regularities: (1) regions of intercapital
space focused on the integration with either the
capitals or the regions, ordering the capitals, and
are not focused on integration among themselves,
(2) the regions bordering the capital cities, focused
on cooperation with the capitals, which they sur-
round (Omarov 2013).
In the first place, we see the facts of regional
integration in the field of transport and logistics,
the second is the tourism sector, then construc-
tion and industry. The facts of regional integration
category of “Transport and logistics” describe the
connectivity of areas, the mobility of the popu-
lation, and the ease of the movement of goods.
Therefore, 38 facts of regional integration relate to
the tourism sector and include recapitalization of
natural recreational, historical, and cultural poten-
tial of the areas in order to increase the inflow of
tourists from neighboring regions (see Chart 3).
The study showed that the group of applicable
facts of the regions’ integration includes coordina-
tion of the development of infrastructure (mainly
transport); the establishment of a joint cluster; a
coherent territorial planning; implementation of
joint projects in the field of transport; engineering
infrastructure and housing construction; and the
formation of a unified tourism policy coordina-
tion of division budget load.
To maintain their economies, regions attract new
resources and national and international projects.
The regions, which win in the competition for
investments, receive a new modern contemporary
production on its territory, stimulating the inflow
of labor migrants from neighboring regions. Thus,
there is a tendency of the gap between the regions
to grow. In the studied subregion, accumulation of
resources is determined by the presence of com-
petitive advantages; therefore, most regions com-
pete directly for labor resources (11 facts) and the
tourist flow (5 facts).
Competition between regions’ jurisdictions may
take extreme forms. The concentration of effort on
the promotion of certain competition benefits and
Novgorod Tver Moscow Moscow
oblast 2030 oblast 2020 oblast 2025 2025
5 17 9 6
13 4 5 1
2 2
5 3
3
2 4
3
5 2 1
1
the focus of the external environment lead to the
underproduction of other types of public goods
and institutions (e.g., certain types of social infra-
structure mitigate the social and environmental
standards). The praxis shows that the competition
of jurisdictions can reduce the attractiveness of the
region for its own population and potential immi-
grants. In addition, its effect reduces spatial exter-
nalities (spatial spillovers), which are connected
with the possibility of cross-border overconsump-
tion of public goods and institution services.
Negative spatial externalities may be associated
with increased wear of the transport infrastructure
on the border agglomerations and neighboring
region. Thus, the cost of public goods and services
is higher, especially if we define “unaccounted for”
costs of their owners and sellers.
In this context, the key factor to ensure holis-
tic growth of the economy of regions is to develop
transport infrastructure, which ensures connectiv-
ity of various areas and minimizes time consump-
tion for transportation between them. Improving
the coherence of the territory is necessary to elimi-
nate the economic and socio-demographic dispari-
ties in development in different regions, activate
trade-economic relations, and strengthen the geo-
political position of the country (Krugman 1991).
4 CONCLUSIONS AND DISCUSSION
The content analysis conducted in this study helped
to form an author’s definition of “public–private
partnership” and to define its basic principles,
which increase economic stability and form social
responsibility of business and authorities.
Research shows that public–private partnership
projects develop rapidly in the process of con-
structing the high-speed highway M11 Moscow-
Saint Petersburg. Results of the correlation of
migration and population in the subregion of
Moscow-Saint Petersburg allow distinguishing
four types of districts (1) backward and densely
populated; (2) backward and sparsely popu-
lated, (3) developed and sparsely populated; and
(4) developed and densely populated.
The program Atlas.ti was used to analyze socio-
economic development strategies of six regions
within the transport corridor Moscow-Saint
Petersburg. The analysis shows that on the first
place among industries there are projects of
regional integration in the field of transportation
and logistics (74 facts). They are oriented on con-
nections between regions, population mobility,
and easy cargo movement. Thus, it is transport
infrastructure that is the basis of new territorial
authorities—technologically connected areas or
98
“corridors” of industrial development. We believe
that it is the public–private partnership projects in
the field of transport infrastructure that provides
development of regions’ economy.
Our results can be used in regional benchmark-
ing: the process of studying and evaluating the
best practices of management of territorial socio-
economic systems in the regions; comparison
of performance of one region with others to get
information about advantages and disadvantages
as well as the possibility of spreading successful
experiences.
REFERENCES
Ayrapetyan, M.S. 2013. Foreign experience of using
public-private partnership. Analytical note of the
Legal Department of the State Duma of the Russian
Federation. URL: http://www.g-kh.ru/directory/articles/
736090/-2013. (dated 4.03.2015).
Concession—a form of Public-Private Partnership (PPP)
has been used successfully in many countries of the
world. Official site of the North-West concession
company. 2016. [Electronic resource]. URL: http://
msp-highway.com/about_gchp/. (dated 20.06.2016).
Knyaginin, V. 2016. State policy of regional development
in Russia. [Electronic resource]. URL: http://www.
archipelag.ru/authors/knyginin/?library=1147. (dated.
20.06.2016).
Krugman, P. 1991. Increasing Returns and Economic
Geography. J. of Political Economy. Vol. 99. No. 3.
pp. 483–499.
Krupnov, Y. 2007. Novosibirsk development corridor
“Tomsk—Novosibirsk—Biysk”. Conceptual project—
Moscow: ANO “Institute for demography, migra-
tion and regional development”.—39 S. [Electronic
resource]. URL: http://www.kroupnov.EN/pubs/2010/06/
06/10692. (dated 15.06.2016).
Krutik, A.B., Omarova, N.Y. 2009. Social-economic
development of the country and necessary measures
for overcoming the crisis. Bulletin of Saint-Petersburg
state agrarian University, No 17. pp. 159–162.
Omarov, M.M., Omarov, N.Y. 2016. Promising direction-
stion and assessment of efficiency of investments into
the regional economy. Economical revival of Russia.
No. 1(47). pp. 154–159.
Omarov, N.J., Murashov, A.A. 2013. To the question
about the configuration of economic space: develop-
ment corridor Saint-Petersburg-Veliky Novgorod—
Tver-Moscow. Proceedings of the Free economic
society of Russia.—T. 176. pp. 469–482.
Romanenko, E.V. 2009. Mechanisms of overcoming of
crisis phenomena and enterprise development based
on public-private partnership. Journal of Creative
economy. No. 8 (32). pp. 129–136.
Sarozhnaya, E.S. 2015. The alliance of government, busi-
ness and science—OC-Nova efficient functioning of
the economy [Electronic resource]. URL: http://elib.
bsu.by/bitstream/123456789/23051/1/tom1_1.pdf#1.
(dated 20.06.2016).
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Methodology of e-economy infrastructure research

T.N. Beliatskaya & V.S. Knyazkova

Belorussian State University of Informatics and Radioelectronics, Minsk, Belarus

ABSTRACT: This paper aims to clarify the meaning of the term “infrastructure” from the standpoint
of the development of economic system of new quality—e-economy. It describes the testing results of the
methodology proposed for the infrastructure of e-economy analyses. Framework such as construction
of e-economy infrastructure index has been proposed. This framework provided guidelines, which were
subsequently used to perform a comparative analysis of the components of e-economy infrastructure for
countries with medium level of e-economy development.

1 INFRASTRUCTURE OF E-ECONOMY of an “informational” job, earning 53% of labor

The theory of socioeconomic systems and the
information society evolution is based on the
writings of John Galbraith’s “The New Industrial
State” (1967, 1972), Daniel Bell’s “The coming
post-industrial society” (1973), M. Porat’s “Infor-
mation economy: definition and measurement”
(1977), F. Webster’s “Theories of the Information
Society” (2002), M. Castells’ “Information Age”
(1996), E. Toffler’s “Third Wave” (1999), and so
on. At present, the theory of e-economy is not
conceptually articulated; however, since 1998, the
sufficient amount of individual publications has
been realized, revealing one or another aspect of
e-economy.
In the second half of the 20th century, the fact
of the industrial transformation of the economic
system into a new quality became obvious. This
new system’s quality arises because of addition to
the traditional set of factors, such as labor, capital,
and land knowledge and information. Thus, since
the 1960s, it is advisable to allocate a new sector
of the economy: knowledge-based economy or
knowledge economy. One of the pioneers in the
field of developing the concept of information and
its role in the economy is F. Muchlap. In 1962, he
proposed the concept of the knowledge industry
on the basis of the study of the impact of patents
on economic growth.
On the basis of the conceptual approaches
proposed by F. Muchlap, M. Porat has offered
his vision of a new industry—the “information
economy”—the set of organizations that gen-
erate added value as a result of the collection,
storage, and processing of data. He noted that
“… 46% of the Gross National Product is bound
up with the information activity … we discover
that nearly half the labor force holds some sort
income” (Porat 1977).
Infrastructure is a complex of interconnected
service structures or objects and components that
create and/or provide the basis for the functioning
of the system (Edwart 2008); a set of industries,
enterprises, and organizations belonging to these
sectors, types of activities that are designed to cre-
ate conditions for the normal functioning of the
production and circulation of goods, as well as
human activity. Traditionally, infrastructure has
been distinguished into productive and social. The
infrastructure includes roads, communications,
transportation, warehousing, external power sup-
ply, water supply, sports facilities, landscaping, and
public service enterprises. Sometimes it includes
science, education, and health (A.P. Gorkin 2006).
From the viewpoint of e-economy, infrastructure
includes one more component—Information and
Communication Infrastructure (ICI).
On the basis of the above data, we define
the infrastructure as follows. Infrastructure of
e-economy is a collection of interconnected
specialized institutions operating within the
e-economy and performing the functions of access,
secure access, transfer of payments, and transfer of
goods. Even with these definitions, the concept of
e-economy infrastructure remains a broad topic.
Hence, in this paper, we will focus on the issues
associated with the factors influencing it.
Therefore, the purpose of this paper is to clar-
ify the content of the category “infrastructure of
the e-economy”, to develop the methodology for
assessing the e-economy infrastructure compo-
nents for understanding the control factors of
the development of the electronic subsystems of
the economy. The reminder of the paper has been
divided into two sections. It is structured around
the framework shown in Figures  1 and 2 that

99

Figure 1. E-economy structure.
Figure  2. Conceptual model of e-economy infrastruc-
ture index.
highlight the fact that e-economy infrastructure
can be examined at different levels.
2 SURVEY METHODOLOGY
Investments in infrastructure are among the most
capital-intensive tasks within the organization of
e-business systems. Therefore, the information that
some elements have the greatest effect on the tar-
gets is essential in the management of e-business
systems.
A multidimensional classification of economies
by the criterion of “the amount of income gener-
ated in the electronic markets” was done. Cluster
analysis—a method of multivariate statistics—
most clearly reflects the features of the multidimen-
sional classification of objects in the procedure.
E-economy structure is presented in Figure  1
(Beliatskaya 2015).
Many economic systems, characterized by a set
of indicators—the amount of income on fintech
market, smart home, smart cars, e-advertising,
e-health—are divided into five homogeneous clus-
ters (Table  1). Objects within a cluster are more
“similar” to each other than to other objects in
the groups. Thus, cluster analysis is focused on
the selection of such geometrically remote groups
where objects are close.
The methodology provides for the implemen-
tation of the cluster analysis of objects. This step
helps to reveal the structure of the classification
100
Table 1. Cluster structure.
Cluster No. Countries
Cluster 1 USA
Cluster 2 China
Cluster 3 Italy, India, the Russian Federation, Spain,
South Korea, Canada, Brazil, Australia,
France
Cluster 4 Japan, UK, Germany
Cluster 5 Estonia, Serbia, Latvia, Lithuania, Mexico,
Slovenia, Slovak Republic, Croatia,
Turkey, Malaysia, the Philippines,
Hungary, Denmark, Vietnam, Romania,
South Africa, the Netherlands, Israel,
Singapore, Portugal, Hong Kong,
Ireland, Austria, Indonesia, Czech
Republic, Finland, Belgium,
Switzerland, Saudi Arabia
data, by finding on the division of the aggregate
area of congestion on a set of attributes. For
objects, homogeneity measure was adopted by the
most commonly used metric—Euclidean distance
(Equation 1). This method is effective for grouping
objects with similar parameters: the closer they are
to each other in this metric, the more similar the
objects are, and vice versa. The technique involves
measuring the Euclidean distance calculating the
geometric distance in the multidimensional space
and in the classic version, which is calculated as
follows:
1
⎛ N ⎞ 2
d = ⎜ ∑ (x − x )2 ⎟ (1)
ik ij kj
⎝ i=1 ⎠
where dik = the distance between the i-th and k-th
objects; i, k = monitoring objects; N  = number
of variables that describe the objects (object
descriptions); j = 1, ..., N = index variable (num-
ber of indicators characterizing the functional
objects’ component); xij, xkj  =  numerical values
of the j-th variable for the i-th and j-th objects
corresponding to the grounds of N (indicator
values of each functional component of the i-th
and j-th cluster).
For the purpose of this paper, Euclidean dis-
tance was chosen because it allows setting the simi-
larities and differences between classified objects.
In addition, the distance between the analyzed
objects does not change with the introduction of
the new object into the analysis. The observed data
array characterizing the e-economy system is char-
acterized by two statistical outliers (China, USA).
Another distance measures, such as squared
Euclidean distance and Manhattan distance, give
similar results.
 Cluster analysis leads to partition into clusters Table 2. Index and subindices of e-economy infrastruc-
with all the grouping attributes simultaneously. ture indicators.
Thus, as a rule, they do not show clear boundaries
Parameters Indicators
of each group and also do not know how many
groups should be extracted. The criterion for the Business Start-up procedures to register a
classification of the quality of the interpretation environment business (number)
adopted is the possibility of meaningful analyses Time to export (days)
of founded groups. Time to import (days)
During the study, we have built an integrated Time to prepare and pay taxes (h)
e-economy infrastructure index and introduced New business density
our conceptual model of e-economy infrastructure Ease of doing business index
index presented in Figure 2. Financial & Fixed-telephone sub-basket
The index method is used for mapping the com- logistics Logistics performance index: Overall
plex socioeconomic phenomena. It allows to con- sub-system Mobile-cellular sub-basket
vert a private performance in relative normalized Fixed-broadband sub-basket
indicators of development that take values in the Taxes on exports (% of tax revenue)
range [0, 1] and on the basis of a comparative Taxes on goods and services (% of
ranking of matching objects studied by the revenue)
aggregated values of indicators. Taxes on income, profits, and capital
When building a composite index, the addi- gains (% of revenue)
tive method of aggregation of comparable private Taxes on international trade (% of
revenue)
indicators included in the model was used. General
Tax payments (number)
methodological approach to the construction of
Total tax rate (% of commercial
infrastructure of e-economy index includes the fol- profits)
lowing analytical steps. Used the Internet to pay bills or buy
1. The construction of the index model: a) things (% age 15+)
conceptual (Figure  2); b) scorecard (Table  2). Electronic payments used to make
2. Secondary data were collected from statistical payments (% age 15+)
data base of the World Bank data and statisti- Credit card (% age 15+)
cal committees of the studied countries. 3. The Made transaction from an account
data were processed on the basis of the statistical at a financial institution using a
methodology for the index and in accordance with mobile phone (% with an account,
the conceptual model. 4. Results of the analysis age 15+)
were interpreted in terms of comparative map- Intellectual Scientific and technical journal articles
ping of e-economy infrastructure within countries sub-system Technical cooperation grants (current
with a common history of the economic systems US$)
development. Technicians in R&D (per million
people)
For statistical proceeding of data and the subse-
Percentage of students in secondary
quent comparative analysis, the method of statisti- and tertiary education enrolled in
cal normalization of the indicators values was used Engineering, Manufacturing and
(Equations 2, 3): Construction programs (%)
Government expenditure on education
as a % of GDP (%)
x − x min Government expenditure on R&D as
ij i
x = (2) a % of GDP (%)
ij x max − x min Technical International voice traffic
i i sub-system Domestic mobile-telephone traffic
x max −x Individuals using the Internet
i ij Population covered by a mobile
x = (3)
network
ij x max − x min
i i International Internet bandwidth
Cybersecurity index
where i  =  number of the studied economies; Mobile cellular subscriptions (per 100
people)
j = index number entered in the subindex; xij = value
Fixed-broadband subscriptions (per
of index j for the i-th region; xmax and xmin = mini-
100 people)
mum and maximum values of the indicators; and Secure Internet servers
xij = normalized ratio. Telephone lines (per 100 people)
It is important to note that Equation  2 was Internet access at home
used for the normalization of those indicators. We

101
believe their increase will improve the infrastructure
of e-economy (e.g., “new business density” and
“scientific and journal articles”) while Equation 3
was used for the normalization of those indicators
we believe their decrease will improve the infra-
structure of e-economy (e.g., “time to export” and
“tax payments”).
The composite index and subindices of private
infrastructure development of e-economy were cal-
culated by Equation (4):
In = ∑ x /n
ij ij
greatest potential for e-business creation; second,
it helps to choose managerial vector for e-economy
formation and stimulation. With that, it answered
the research question, mentioned earlier, of devel-
oping a methodology that can be used in analyses
of e-economy infrastructure. In clarifying research
questions through analyzing the e-economy infra-
structure of countries from cluster 3 (Italy, India,
the Russian Federation, Spain, Canada, Brazil,
Australia, France), the proposed methodology
revealed a similarity to the existing e-economy
infrastructure. The proposed methodology can

where i  =  number of the studied economies;

j  =  index number included in the subindex;
xij = normalized ratio; and n  =  number of
indicators.

3 TESTING THE PROPOSED

METHODOLOGY

The methodology proposed in this paper was

tested to assess the infrastructure of e-economy
on the example of economies with an average level
of income generation in the electronic markets. In
accordance with the procedure described in this
paper, we refer to such economies cluster number
Figure 3. Subindex of “business environment”.
3 (Table 1).
Step 1: calculation and interpretation of the subin-
dex “business environment” that reveals readi-
ness of the business environment, which reflects
the level of preparedness of the legislation to
create e-business.
Step 2: calculation and interpretation of the sub-
index “financial and logistical subsystem” that
reflects the willingness of the economic system
to implement business transactions, including
the electronic way.
Step 3: calculation and interpretation of the sub-
index “intelligent subsystem” that reflects the
potential of the economic system to the growth
and development.
Step 4: calculation and interpretation of the subin-
dex “technical subsystem” that reflects the level
of the economic system development in terms
of access and security access.
Figures 3–6 contain these subindices.
The data in Figures  3–6 represent statisti-
cal indictors with hidden normalized values plus
end results (indices); Figure  4a and 4b as well as
Figure 5a and 5b should be vied as a single one.
Figures 7 and 8 present end results.
Thus, comparative analyses built on basis of
e-economy infrastructure index provide two ben- Figure  4a. Subindex of “financial & logistics subsys-
efits. First, it helps to select the economy with the tem” part 1.

102
Figure  4b. Subindex of “financial & logistics subsys-
tem” part 2.
Figure 5b. Subindex of “technical subsystem” part 2.

Figure 5a. Subindex of “technical subsystem” part 1. Figure 6. Subindex of “intellectual subsystem”.

also have an impact on the evolutionary nature Further research is needed in order to understand
of the e-economy infrastructure by providing the differences between e-economies of different
insights into infrastructure management problems. countries.

103

Figure 7. Total infrastructure index.
Figure 8. E-economy infrastructure index (diagram).
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Assessment of factors influencing the quality of human resources

Maria V. Rakhova, Sergey A. Grachev, Marina A. Gundorova & Mariya I. Zakirova

Department of Economics, Investment and Innovation Management, Vladimir State University named after
Alexander and Nikolay Stoletovs, Russia

ABSTRACT: Under modern conditions, the main factor of increasing the competitiveness at any level
of social and economic systems is the human capital. This paper is devoted to the assessment of the value
of the human capital on the basis of the author’s interpretation of this concept. Through the use of
economic-mathematical methods, the resulting figure was formed, which allows to determine the level of
human capital of a certain territory, which is based on the statistical data. The calculation of this indicator
takes into account the mutual influence of the analyzed areas in the Central Federal District. As a result
of the research, it has been received the new classification of regions of the Central Federal District by
the degree of availability and sufficiency of human resources, which allows to determine the belonging of
territorial subjects of the federation to classes of donor or recipient regions.

1 INTRODUCTION population shift, and search for information on

The processes of smooth operation and sustain-
able social and economic development of region
economy depend on a large number of factors,
including quality of human resources, manpower,
and brainpower, represented by knowledge, skills,
and experience, and having priority, as the pro-
ductive process in innovation-driven economy is
becoming centered around the human being.
This assumption is of particular importance
because the transition from industrial to innovation-
driven economy suggests that human resources
have acquired a new, totally different quality
gained by effective investment in human capital
assets defined as a combination of knowledge
and skills as well as horizontal communication
necessary to meet both individual and public
needs.
2 LITERATURE REVIEW
There is a number of definitions for “human capi-
tal assets”; however, there is no single or universal
one, and there have never been, according to some
researchers (Soboleva 2009).
G.S. Bekker pointed out that human capital
assets in a general sense is formed by (long-term)
human investment represented by expenditures
for education, workforce training, healthcare,
rational behavior (Bekker 2003).
F. Makhlup pointed out that unskilled labor
should be distinguished from skilled labor, with
the latter being more efficient due to investment
increasing human physical and mental capac-
ity (Makhlup 1984). These investments make up
human capital assets.
T.U. Shults remarked in his works that it is
human capacity that drives various social and
human processes, which profit the one possessing
this capacity (Shults 1961).
A.V. Suvorov and his colleagues assumed that
human capital assets mean “stock” (resources) of
capacity, skills, and knowledge available with a
human being (Suvorov et al. 2014).
Dolan & Lyndsey (1992) considered human cap-
ital assets as those represented by mental capacity
acquired either from formal training or education
or from hands-on experience.
S. Dyatlov, A. Dobrynin et  al. defined human
capital assets as “set of attributive properties and
features, productive capacity and forces, functional
roles and forms viewed from the standpoint of
consistent integrity and appropriate to the current
state of society in the era of technological social
and information revolution, involved in mar-
ket relation as key factor of public production”
(Dyatlov et al. 1993).
M. Kritsky treated human capital assets as
“universal form of economic activity—result of

105
the modern society evolution to the present state”
(Kritsky 1991).
Thus, in our opinion, the term “human capital
assets” should be understood as “stock” (resources)
of knowledge, skills, and mental and physical
capacity of a human being, including inborn abili-
ties used for producing intellectual products, new
technologies and goods for individual, social, and
economic welfare and developed due to investment
(provided) in education, science, culture, medicine,
sport, and professional achievements of the indi-
vidual to increase his/her personal contribution to
public welfare.
In this regard, a human being, with his/her
knowledge, skills, and ability to work, is becom-
ing the most important resource of social and eco-
nomic development under the current conditions.
In this context, human productive power operates
and get reproduced not in the simple commodity
form but as human capital assets, that is, employ-
ers’ knowledge, skills, and abilities are represented
as ploughed back savings and encourage the
growth of labor efficiency and quality of living
(Cherkasov & Lozhko 2014).
Management of human capital assets’ evolution
plays a key role in innovation-driven development,
with intellectual component in the first place.
Thus, greater influence of human capital assets on
these processes leads to the ever-increasing impor-
tance of education as a major factor affecting the
development of whole new level of society and
economics. Correct selection of priorities in educa-
tion and professional training development as well
as growth of investment in these fields enables to
reinforce economy (Bogolib 2012).
One more key aspect besides intellectual factor
is cultural component providing favorable condi-
tions for human capital assets development and
reproduction. Thus law obedience and the resulting
social safety is an important factor, which encour-
ages individual spiritual and moral development
favorable for human potential of the region.
Human capital assets have quantitative and
qualitative characteristics when seen as a potential
earning capacity present with an individual, includ-
ing inborn abilities and talents as well as education
and qualification acquired (Drozdov 2013). The
mentioned problems are tightly intertwined with
the problem of labor potential assessment (as part
or subsystem) of human potential understood as
labor stock, capability of the society to provide
human factor of production in the long run to
meet the needs of its development as well as poten-
tial capacity to enter into a labor contract, labor
resources, and maximum possible labor capacity
of the society (Soboleva 2007).
Some researchers considered Human Devel-
opment Index representing a set of indices of
106
individual development level in a particular field
to be a key indicator of human potential influ-
ence on social development and quality of living.
This index characterizes achievements of country
(region) in terms of health status, getting educa-
tion and actual income of its citizens in three
fields, with each having its own index. They are the
expected life span index, education index, index of
purchasing power parity GDP per capita in US
dollars (Zhuravlev 2011).
However, according to N.B. Suvorov and his
colleagues, business economics involving the cat-
egory of human capital assets should consider in
general two basic aspects. The first one (microeco-
nomic per se) implies calculating the rate of earn-
ings on human capital assets, seen as a comparison
of wages increment due to education and profes-
sional training with costs to acquire them. The
second aspect (macroeconomic) implies evaluation
of the total human capital assets and their inter-
temporal changes at the level of national economy
(its particular sectors and types of activity) and
assessment of the impact of its increase on eco-
nomic growth (Suvorov et al. 2014a). Later, these
scientists specified the above considered aspects
by pointing out the following approaches to the
assessment of total human capital assets. The first
method is capitalization of earning power. Earn-
ings are seen as percentage of human capital assets
available with an individual. The second approach
is based on the assessment of the total wealth of the
society. The total wealth is defined as the integral
of the annual consumption figures taken with dis-
count and resulting in the total immaterial capital,
including among others human capital assets. In
the context of immaterial capital, however, human
capital assets are assessed by means of salaries and
wages (Suvorov et al. 2015b).
Thus, successful building and development of a
highly efficient innovation-driven economy largely
depends on its supply with all kinds of resources,
including intellectual, labor, financial, material and
technical, energy, information, raw materials, and
other resources.
3 RESEARCH METHODOLOGIES
Economic growth rates in Russia’s regions differ
depending on the supply extent of these resources.
It means that any transformations including those
aimed at a higher social and economic efficiency
in the region system must be duly supported with
resources. In this context, the key resource econ-
omy increasingly lacks high-quality labor (human)
resources. It is their constituents and quality that
largely determines the prospects of development
of the economies of particular regions. Transition
to innovation-based development suggests that Thus, formula (1) for region i is as follows:
economic areas of Russian regions should be con-
siderably reshaped in terms of step-by-step supply HR = HmC M ( HC )
M
( MC )
CMC
C
M3
(2)
with resources, saturation with technical and engi-
neering organizations, advanced production sites, where Mj = total index of influence of neighboring
and a network of highly skilled service providers. regions on region i based on human capital assets
If we consider Central Federal District as an for a particular year.
example of a social and economic system made up The extent of influence on the region under
of interacting and correlated constituents (regions) study is deemed possible to be assessed by calculat-
operating in the context of uncertainty, we can see ing the coefficient of variation:
that each region has a certain supply of human
resources. However taking into account the fact δ (x)
that regions represent open systems, we assume M V (x) = × 100% (3)
that all processes going on within their bounda- M (x)
ries are influenced by several factors, including
external environment, that is, the Central Federal where δ(x)  =  mean-square deviation of the index
region and other regions. That is why the extent of number for region i in the time period under study
this influence must be considered when assessing and M(x) = expected value of the index number for
human resources or human capital assets. region i in the time period under study.
Assessing mutual influence of regions is thought In this context, the expected value is calculated
to be a crucial task, as this indicator will enable with arithmetical mean formula:
arranging the territories under study according
∑
k
to existing development trends and consequently xi
M (x) =
j =1
considering this effect in the future, which can (4)
n
enhance efficiency and pace of economic growth
in the regions. where xi is the value of index number for region i
Human resources should be given both quali- and ni is the number of cycles in the time period
tative and quantitative assessment. For this pur- under study.
pose, the total amount of human resources can be It is noteworthy that calculation of the expected
represented by several subsystems displaying fea- value is illustrative only in case when long period
tures characteristic of this category, including the is considered, the given calculation was based on a
following: fire year period (2010–2014).
− HmC—human capital—total amount of labor
pool and gainfully employed population of the
region; Table 1. Extent of influence of external environment on
− HC—health capital—physical strength, endur- constituents of human resources index number in regions
ance, capacity for labor, immunity to diseases, of CFD, 2014.
active labor cycle necessary for every line of
Region M1 M2 M3
profession.
− CMC—cultural and moral capital—business Belgorod region 0.025 0.025 0.069
ethics, decency, moral, commitment to models Bryansk region 0.009 0.022 0.108
of conduct, law obedience, and so on. Vladimir region 0.009 0.011 0.132
In the view of foregoing, the total amount of Voronezh region 0.007 0.024 0.097
human resources in the region can be described as Ivanovo region 0.014 0.027 0.101
follows: Kaluga region 0.018 0.031 0.080
Kostroma region 0.025 0.030 0.099
HR = HmC+HC+CMC (1) Kursk region 0.010 0.052 0.142
Lipetsk region 0.022 0.018 0.109
Moskow region 0.014 0.039 0.099
Here, the extent of regions’ influence must be
Oryol region 0.010 0.031 0.053
taken into account. Particular constituents of
Ryazan region 0.023 0.010 0.039
human capital assets can be assessed on the basis
Smolensk region 0.016 0.025 0.159
of statistic data given in approved source-books.
Tambov region 0.019 0.040 0.080
Thus, health capital is deemed appropriate to be
Tver region 0.005 0.037 0.175
assessed on the basis of sickness level in the region; Tula region 0.003 0.010 0.099
human capital—based on crime rate total labor Yaroslavl region 0.016 0.034 0.138
pool; cultural and moral capital—based on (the Moscow city 0.036 0.028 0.044
number of registered crimes per 100,000 people).

107
 Following the above described logic, the On the basis of the undertaken research, we can
following results were received for regions of the conclude that the values of external environment
Central Federal District for 2014 (Table 1), and the influencing the amount of human resources in the
calculation for subsequent periods is not possible region can provide grounds for negative cross flows
due to lack of statistic data. of work force, that is, the region acts as donor.
The higher the values of the index numbers, the Nearly all regions act as donors except the Oryol
greater is the influence of the external environment. and Tver regions, which employ human resources
If the index number is equal to 1, all resources of from external environment. It is noteworthy that
the region are used outside its boundaries, the 0 the described influence is restricted to Central
(1–1), that is, the compound on the whole equals 1. Federal District. Following this logic, the leading
regions in terms of imported human resources are
Moscow city (0.750), the Ryazan region (0.876),
4 RESULTS the Lipetsk region (0.889), and the Belgorod
region (0.875). Moreover, the remaining regions
On the basis of the results received, we can con- have insignificantly different matching ratio values,
clude that all regions cooperate within CFD and by mere 0.01. Hence, we can arrange the regions
are mutually influenced; however, no region is into three groups according to their development
totally influenced by another one. The highest trends:
extent of influence was observed for the cultural
− donor regions ( c>0)—the Tver and Oryol
and moral component, with index number as high
regions;
as 0.175 in the Tver region and 0.159 in the Smo-
− leading recipient regions (0,8< c<0,9)—Moscow
lensk region. The lowest values are accounted for
city, and the Ryazan, Lipetsk, and Belgorod
by health component being under 0.1.
regions;
Human resources of the regions as of 2014
− others (0,8< c<0,9)—all remaining regions.
were assessed with regard to values of the extent
of influence (Table 2) with subsequent comparison
of the received value with actual value (without 5 CONCLUSION
regard to influence). Then, the influence coeffi-
cient was calculated as the ratio of human resource Finally, it is noted that the process of sustainable
with regard to the influence extent to the value functioning and socioeconomic development of
without considering the influence extent. the economic systems of the region depends on
several factors, including the quality of workforce,
and intellectual resources is a priority, because
human capital in the innovation-driven economy
Table  2. Resulting values of human resources in par-
becomes the center of the reproduction process.
ticular regions of CFD, as of 2014.
In modern scientific literature, there is a rather
HR value HR value Matching large number of concepts of this category. In our
without with ratio, opinion, the term “human capital assets” should
Region influence influence Kwith be understood as “stock” (resources) of knowl-
edge, skills, and mental and physical capacity of
Belgorod region 212.586 186.004 0.875 a human being, including inborn abilities used for
Bryansk region 108.775 106.827 0.982 producing intellectual products, new technologies,
Vladimir region 64.478 62.514 0.970 and goods for individual, social, and economic
Voronezh region 540.858 524.873 0.097 welfare, developed due to investment in education,
Ivanovo region 37.015 36.475 0.985 science, culture, medicine, sport, and professional
Kaluga region 160.155 148.610 0.928 achievements of the individual to increase his/her
Kostroma region 78.558 71.011 0.904 personal contribution to public welfare.
Kursk region 262.481 256.774 0.978 The cumulative quantity of human resources
Lipetsk region 178.139 158.331 0.889 or human capital at the level of the region can be
Moskow region 1014.061 952.590 0.939
characterized by the official statistical data, which
Oryol region 25.868 26.514 1.025
allow considering all components of this category:
Ryazan region 162.661 142.481 0.876
health capital, cultural and moral capital, and
Smolensk region 146.257 136.876 0.936
human capital. In determining this indicator, the
Tambov region 184.653 171.021 0.926
value characterizing the magnitude of the mutual
Tver region 83.473 87.634 1.050
Tula region 225.532 224.048 0.993
influence of the territories within the analyzed area
Yaroslavl region 110.634 106.209 0.960
was introduced.
Moscow city 2357.261 1767.185 0.750 On the basis of the results, it can be concluded
that all regions, working in the framework of the

108
Central Federal District, under the mutual influ-
ence, but none of the subjects is fully under the
influence of another territory. The most significant
effect is observed in cultural and moral component,
where the level reaches 0,175 in the Tver region and
0,159 in the Smolensk region. The lowest values of
impact indicators fall on the health component,
corresponding to the value of less than 0,1. Taking
into account the impact of certain variables, the
value of human resource of regions was calculated
in 2014, including the mutual influence, and this
value was compared with the actual value (without
mutual effect). In addition, the impact factor was
determined by calculating the ratio of the value of
human resources, taking into account the impact
on the value, excluding the effect.
The results of the calculations made it pos-
sible to arrange the regions into donors classes
(the Tver and Oryol regions) and recipients (the
Moscow, Ryazan, Lipetsk, and Belgorod regions),
and territories with pronounced tendencies (other
regions) were marked. These results must be con-
sidered when planning the development of the
Central Federal District, as they allow taking into
account the existing flows of human resources
between the regions, which is an important aspect
for the formation of a single vector of the devel-
opment and construction of the effective social
and economic system, provided by the Federal
District.
REFERENCES
Bekker, G.S. 2003. Human Behavior: economic approach.
Selected works on Economic Theory. Moscow: HSE.
109
Bogolib, T. 2012. Management of Human Capital Assets
in Industrial Enterprises. Problems of Management
Theory and Practice. 11–12: 53–57.
Cherkasov, P.S. & Lozhko, V.V. 2014. Development of
Human capital Assets and Quality of Living as Priori-
ties of Regional Housing and Building Policy. Prob-
lems of Modern Economics 4: 254–256.
Dobrynin, A.I. et al. 1993. Productive Forces of an Indu-
vidual: Structure And Display Forms. St.Petersburg:
UEF.
Dolan, E. & Lyndsey, G. 1992. Market: Microeconomic
Model. St.Petersburg: UEF.
Drozdov, G.S. 2013. Human Capital Assets: are there
limits of a wider understanding? Problems of Modern
Economics. 1: 33–37.
Kritsky, M.M. 1991. Human Capital Assets. St.Petersburg:
Len. Univ.
Makhlup, F. 1984. Knowledge: Its Creation, Distribution,
and Economic Significance. Vol. II. The Economics of
Information and Human Capital. Princeton: Princeton
University Press.
Shults, T.U. 1961. Investment in Human Capital. The
American Economic Review. 51(1): 1–17.
Soboleva, I.V. 2007. Human Potential of the Russian
Economy: Problems of Safe Being and Development.
Moscow: Nauka.
Soboleva, I.V. 2009. Human Potential of the Russian
Economy: Problems of Safe Being and Development
Economics Issues. 9: 51–69.
Suvorov, A.V. et al. 2014. Approaches to Measuring the
Rate and Structure of Human Capital Assets and
Assessment of its Influence on economic Growth.
Forecast Issues. 3: 3–17.
Suvorov, A.V. et al. 2015. Assessment of Evolution and
Structure of Human Resource Capital for the Russian
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Impact of industrial policy on the competiveness of high-technology

businesses

N.N. Polzunova, N.M. Filimonova, M.Y. Malkerov, O.S. Starostina & I.S. Polzunov
Vladimir State University, Vladimir, Russian Federation

ABSTRACT: Modernization of economy and formation of innovation-driven growth model of Russia

is impossible without the development of the sector of high-tech entrepreneurship. Conceptual relation
between these processes is that the level of competitiveness of industrial enterprises increases in the course
of performing active industrial policy that supports the enterprises, which use high technologies, and
is oriented on the arrangement of conditions for their competitive development. On the basis of the
experience of other countries and the data of comparative analysis, this paper shows that customs tariff
regulation and tax depreciation policy are efficient instruments to ensure the competitiveness of business
entities, which use high technologies.

1 INTRODUCTION 3 years, the European Commission will take meas-

ures to achieve the average value of this indicator
The innovative development pathway of society is in amount of 23% till 2020. At the same time, the
currently the only possible one that can provide the European Commission designated that the yield
economic growth and welfare gain. increase and introduction of new technologies
We propose three scenarios for transition to the should be provided with measures connected with
innovative development pathway (Gokhberg & augmentation of investment in equipment from the
Kuznetsova, 2011): current 6–7% GDP to 9% in 2020 (UNIDO, 2013).
Thus, we observe and participate in the process of
1. Forced integration into the global economy with
“new industrialization”, which is performed on a
implementation of the postindustrial model of
modern technology platform.
development;
However, we have to state that nowadays the
2. Gradual buildup of the innovative development
industrial sector of Russia does not play the role
potential;
of main generator of technological innovations in
3. Retention of existing tendencies and practices
national economy. The specific amount of enter-
under the conditions of slow economic growth,
prises that put technological innovations into prac-
its raw-material orientation and dependence on
tice in Russia is 8.9% according to data dated 2011;
external market conditions.
by contrast, this amount is 63.8% in Germany,
Realization of the above mentioned scenarios 39.6% in Norway, and 19.8% in Poland (Higher
assumes existence of industrial enterprises, most School of Economics, 2013).
of which have objective disposition for innova- The main reasons for this phenomenon as we
tive activities, commercial orientation of innova- think are the following:
tive activity, and high sensitivity to any kind of
• Quality of economic growth that is irrelevant to
interaction.
the current challenges. In developed countries,
The current stage of world economic devel-
80% of GDP is achieved due to innovative sec-
opment is characterized with focus on indus-
tor (Komkov, Yeroshkin, & Kravchenko, 2005),
trial development, especially on the development
and this portion is less in Russia;
of high technologies, with high level of use of
• Outdated technological base, which in the
intellectual component that forms the basis for
sphere of machine and equipment fleet, is worn
innovation-driven economy and contributes to the
by 54.1%, with 22% of totally worn out equip-
growth of competitiveness of industrial business
ment according to data dated 2011 (Rosstat,
entities. That is exactly why the European Com-
2012). According to inspection conducted by
mission plans to increase the industrial portion to
the university “Higher School of Economics” in
20% till 2020 (UNIDO, 2013). In the context of
2009, 55% of the examined large and medium-
this tendency, much attention is paid to the gross
size industrial enterprises have equipment fleet,
fixed-capital formation as part of GDP. In the next

111
 half of which is fully over-aged (Shishkov et al., 2. circumspect distribution of productive forces
2011); on the territory of the country;
• Level of development of innovative system of 3. existence of the innovative system.
the country. According to the level of innovative
The developed industrial base is nothing else
activity of enterprises, which does not exceed
than a combination of competitive industrial busi-
10%, Russia is inferior to the leading industrial
ness structures.
countries as well as to the Eastern European
Many scientific works conducted by Borisov
countries. Russia is characterized with low inten-
V.N, Pokuchayeva O.V.(Borisov, V.N., Pochu-
sity of expenses for innovations in relation to the
kaeva, 2011), Kutin A.A. (Kutin, A. A., Korn-
amount of sales: an average amount for the indus-
ienko, 2009), Eleneva Yu. Ya. (Grigoriev, S. N.,
try is 1.9% (5.5% in Sweden, 4.6% in Germany).
Eleneva, Y. Y., & Andreev, V. N., 2014), Porter M.
Their output is not impressive too—the increase
(Porter, M., 1998), and so on are concerned with
of expenses is not accompanied with an increase
scientific coverage of the problem of competitive-
of the portion of innovative products within the
ness of industrial enterprises in whole as well as
total production, which has remained at about
with analysis of influence of individual factors on
5% for the last 10 years. The innovative activity
the level of competitive position.
is realized primary due to the acquisition of
The object of this paper is to analyze the influ-
machines and equipment rather than the crea-
ence of industrial policy on competitiveness of
tion of reserves for the development of radical
structures of industrial enterprise using high
innovations (Gokhberg et al., 2011);
technologies.
• Low level of involving of inventions in legal civil
circulation. Only 20% of state contracts contain
provisions for establishing the rights for results
2 RESEARCH METHODS
of research and development, only 10% of pro-
tectable results of intellectual activity obtained
The data of official tax statistics of the Russian
due to budget financing are patented and only
Federation (Rosstat, 2014), the data of economic
1–2% of them are used in the stream of com-
report of the US President (Obama, B., 2015), and
merce. At the same time, the institution of
the data of expert interviews are used for writing
“know-how” is hardly ever used. The rights for
this paper.
results of scientific and technological activities
Analysis of the data of official tax statistics
are not protected in any possible way: neither in
was focused on parameters such as the level of tax
open way by means of patenting, nor in closed
burden, portions of tax receipts in GDP, absolute
way by means of “know-how” as a trade secret
value of tax proceeds, the total value of depre-
(Fedotova, Loseva, & Fedosova, 2015);
ciation deductions, and the amount of different
• Low level of involvement of society in the pro-
sources of investments in basic assets. These data
cess of innovative development of the country.
were used to assess the tax system of Russia with
other countries.
We are sure that the sufficient development
The quantitative analysis has been supplemented
of productive forces that correspond to modern
with expert interviews with the representatives of
challenges is necessary to return Russia the role
business entities, which use high technologies. The
of generator of technological innovation. The
function of such interview was to determine the
same position is mentioned in the report “New
probability of occurrence of situations connected
industrialization as a condition of forming of
with dynamics of industrial policy elements.
innovation-driven model of development of the
A total of 25 experts were interviewed, who work
Russian economy” (Russian Academy of Sciences,
at high-tech business entities as well as in regional
2013): “The innovation-driven model of economic
government authorities.
development involves the ability to not only pro-
As additional information source of the
duce new knowledge embodied in technologies
influence of elements of state industrial policy
and products with new and improved consumer
on competitiveness of business entities, which use
properties but also introduce them efficiently into
high technologies, the data of research and prac-
production using appropriate types of new tech-
tice, analytical publications, and scientific reports
nology, which involves the existence of developed
of the Russian Academy of Sciences were used.
industrial base”. The sufficiency of the develop-
ment of productive forces involves three directions:
1. creation of powerful production system at the 3 RESULTS
regional level and in country, whose which effi-
ciency level will be higher than the same one of In modern conditions, the competitiveness of busi-
the average world standards; ness entities, which use high technologies, is a com-

112
plex concept that not only involves several levels of • upgrading of the mechanism of customs tariff
competitive position in different spheres of busi- regulation;
ness activities but also takes into consideration the • upgrading and achieving complex character of
influence of the combination of factors. the system of high-tech products export promo-
All factors have a diversified influence on the tion (Maksimov et al., 2011).
competitiveness of high-tech business entities. The
The industrial countries make active use of
influence of production and technological factors
instruments of customs tariff regulation with the
on competitiveness is described in another study. In
purpose of ensuring competitiveness of business
addition to the production and technological units,
entities that act on their territory.
the scientific and technological factors includes the
Level of tariff customs policy is regarded as one
scientific and production factors, whose structure
of the factors contributing to the growth of com-
and influence are detailed in the scientific work of
petitiveness of industrial business structures.
Fedosova R.N. and Kheifits B.I. (2013).
The tax policy has a great influence on the
In our opinion, in modern conditions, the state
competitiveness of high-tech businesses entities
industrial policy has very high importance, especially
and their economic efficiency. For the achieve-
in the context of ensuring competitiveness of indus-
ment of competitive position, the tax burden on
trial business entities, which use high technologies.
business entities that use high technologies should
Under the state industrial policy, we mean a coor-
not exceed the tax burden existing in the Western
dinated complex of measures of the state authori-
countries. It should be noted that the tax burden in
ties, the most important task of which is to build the
different countries can be significantly different, as
state system of legislative, financial, institutional,
shown in Fig. 1.
and staffing support and regulation of economic
Comparison of the tax burden of Russia
processes of “new industrialization” at all levels.
(Table  1) and developed foreign countries pro-
Such policy should contribute to the creation
vides an opportunity to state their comparability
of sectoral proportions in the national economy
with the average level of tax burden in countries
that should provide structural modernization of
of Organization for Economic Cooperation and
the economy and sustainable economic growth
Development. However, according to the data
and should be formed on the basis of global trends
of auditing and consulting company PWC, the
and internal features of economic management. In
total average tax rate for enterprises in Russia is
fact, at this point, we agree with the idea of Korolev
54.1%, which is higher than the level of tax bur-
O.G. (2014) that creation of the economy that gen-
den in the countries of European Union (42.6%),
erates innovations requires at first the moderniza-
Central and East Europe (41.3%), and in the world
tion of business environment for economic entities.
economy (44.7%) (PwC, 2013). Especially because,
The result of circumspect industrial policy
according to the data of KMPG, the highest tax
should be the creation of such working conditions,
burden in Russia having manufacturing compa-
which contribute to the achievement/growth of
nies, means that this list includes the high-tech sec-
competitiveness of high-tech industrial business
tor of business entities. This opinion is shared by
entities.
Lykova L.N.: “the highest tax burden is imposed
In modern conditions, most instruments for the
on mechanical engineering” (Lykova, 2006).
formation of environment for achievement of com-
Another interesting comparison is that of the
petitive position by the high-tech business entities
types of taxes in the tax burden in different coun-
are tariff and customs, tax, and tax depreciation
tries. In Russia, the share of income tax and VAT
policies. Let us examine each of these in detail.
in relation to gross net income was 42.8%, and after
By means of tariff and customs policy, the state,
2002 it dropped to 36.4%, due to the decrease of
in a definite way, regulates, stimulates, or limits
income tax from 35% to 20% and VAT from 20%
the production and innovation processes on its
to 18%. In 2012, this figure was 31.7%. Even at
territory. With this purpose, the tariff and customs
this level, it is four times higher than that in the
regulation is focused on the following:
United States. More importantly, in the United
• strengthening of the regulating functions and States, there is no VAT—the most adverse tax for
further improvement of structure of the com- the high-tech sector of the economy. If in calcula-
mon customs tariff while preserving fiscal func- tion of this figure social and insurance payments in
tions of tariff and customs regulation involving Russia are almost entirely paid by the business enti-
economic efficiency; ties are taken into account, the differences in the
• associating the development of programs of tax burden on legal entities between Russia and the
changing of customs duties with implementa- United States will be even higher (Sokolov, 2009).
tion of large-scale economic projects connected Moreover, the current trend is that in the last
with realization of sectoral strategies of growth 30 years the income tax rate dropped by a factor
of competitiveness; of 1.8–2. For instance, in Germany, the income

113

Figure 1. Diagram of tax burden relative to GDP in 2011.
Source: CTJ (2014).
Table  1. Share of tax revenues in Russia’s GDP in
dynamics (%).
Year 2007a 2008a 2009a 2010b 2011b 2012b 2013b
Share of tax 37,0 36,1 31,6 32,3 38,4 37,9 36,1
revenues
Sources: a) (Sayfieva S., 2012); b) (Rosstat, 2014).
tax rate in 1990 was 56%, which reduced to 29.5%
in 2008 (ibid., 2009). In the United States, there
is an increase in tax revenues. Thus, income tax
revenue grew from 22.7 to 420.6  billion USD—
the maximum in 2007, an increase of 18.5 times,
and personal income tax revenue grew from 46.1
to 1,488.7  billion USD (the maximum in 2007),
an increase of 32.3 times. Social and insurance
payments grew from 16.4 to 992.1  billion USD
(the maximum in 2008), an increase of 60.5 times
(Council of Economic Advisers, 2013). That is, the
tax burden is transferred from legal entities over to
individuals.
Such changes, and here we agree with Sokolov
M.M. (2009), through the decrease of tax burden
on legal entities with a simultaneous use of
targeted tax incentives, promote the intensification
of investment processes in the economy. There-
fore, investments to increase productivity of labor,
reduce energy and material intensity of high-tech
production, and introduce the newest technologies
and equipment of the sixth waves of innovation
contribute to the growth of wages of workers.
Growth of the income of the latter, especially in
the countries with a prevailing tax burden on indi-
viduals, allows to significantly increase the amount
of taxes collected without any increase of tax bur-
den on the manufacturing sector.
In modern conditions, introduction and use of
tax stimulation measures in the high-tech entrepre-
neurship is required. This may include benefits and
loosening in the calculation and payment of VAT,
up to its abolishment, tax benefits for purchasing
of modern equipment, which corresponds to the
fifth and sixth waves of innovation.
114
Depreciation policy has a significant impact on
improving the competitiveness of high-tech enter-
prises. At present, there is a need to revise the use
of depreciation deductions in industrial production,
which are some of the most effective sources for the
performance of investment activities. In 2007, the
total amount of depreciation deductions in the cor-
porate sector in the United States was 1.432 billion
USD, which is 87% of taxable income and 66.2% of
the investments into fixed assets (Council of Eco-
nomic Advisers, 2009). Compared with this, depre-
ciation deductions spent on investments in Russia in
2001 amounted to 7.5 billion USD, which is 18.1% of
the taxable income. Therefore, the share of deprecia-
tion deductions in Russia in relation to taxable income
is five times lower than that in the United States. In
the middle of the 20th century in most industrialized
countries, the share of depreciation deductions in
total investments amounted to 25–30%; in the early
21st century, it amounted to 65–75%; on the con-
trary, the share of income decreased by about five
times from 50% to 5–10%, and the share of borrowed
funds by two times from 25–30% to 12–15%. In Rus-
sia, the control over the use of depreciation deduc-
tions was abolished. As a result, from year to year,
the amount of depreciation deductions, which are
not used for the intended purpose increases. In 2000,
102 billion RUR were not used on the intended pur-
pose, which amounted to 544 billion RUR in 2006,
which is 42.8% of the total amount of the accrued
depreciation. In 2008, 748.3  billion RUR or 39.2%
accounted for purposes unrelated to investments into
fixed assets. Moreover, 30.4% was spent on acquisi-
tion of shares and other securities. Related to this sit-
uation, the structure of investments into fixed capital
by sources of financing in 2011 is of interest: in the
total volume of investments into fixed assets in the
corporate sector, depreciation deductions amounted
to only 21.6%, own income amounted to 17.2%, and
raised funds amounted to 57.3%.
However, the effectiveness of progressive depre-
ciation policy is out of question and is defined by
the following directions, as described by Sokolov
M.M. (2009) in his report.
First, accelerated depreciation can be rightfully
called a “veiled” indirect subsidizing of investment
activities at the cost of the national budget.
Second, depreciation deductions, unlike income
and debt are the most stable source of funds for
entrepreneurs, because they are much less affected
by recessions, interest rates increases, price
changes, and so on.
Third, depreciation funds are own funds of the
enterprises, and when debt funding is not used they
allow saving on interest, which generally improves
production efficiency.
Fourth, the presence of depreciation fund and
the need to use it strictly for designated purposes
disciplines the entrepreneur, on its own, forc-
ing them to spend these funds on expansion and
modernization of production. State control over
nondesignated use of depreciation funds and pen-
alties in the form of payment of income tax beat the
temptation to spend the funds on personal needs.
Fifth, under conditions of sharply accelerated
technical progress in the world, the “time factor”
plays a significant role. The money acquired today
will be “worth” much “more” than the money
acquired 2, 3, or more years later. Accelerated depre-
ciation allows entrepreneurs to “move” the receipt
of funds, which are even exempt from income tax,
to the first years of the after the commissioning of
fixed assets and, therefore, receive a tangible time
head start relative to competitors that use this area
for investments less actively.
The impact of progressive depreciation policy,
which is a component of the overall tax policy,
on the economy of the developed countries dem-
onstrates that it is a powerful stimulant, not only
to improve the effectiveness and growth ratios,
but it also contributed to a significant growth of
prosperity of these countries. Because extended
reproduction in these countries was done not at
the cost of accumulation fund, but at the cost of
compensation fund, that is, depreciation deduc-

Table 2. Breakdown of situations presented in Fig. 2.

Situation Characteristic of the situation

1 The most favorable situation.

4 Reduction of economic competitiveness, deceleration of investment processes; however, it can be
compensated by improving other components of industrial policy.
8 Favorable situation with activation of use of intangible assets. Stimulating the consumption of
products of fund-generating industry sectors without additional sources of growth of expenses.
Implementation of the strategy of import substitution.
12 Improvements of entrepreneurial climate; however, there are limitations on the renewal of techno-
logical platform using own financing and activation of the use of intangible assets in the organi-
zations’ activities.
15 Stimulation of export–import activities, lack of interest in development, shrinking of business,
investment and innovation activities, shrinking of social activities and ecological competitiveness.
22 Emergence of opportunity to smoothening of technological level of industrial entrepreneurial
structures and borrowing of modern technologies; however, these opportunities can be offset by
the growth of costs and decrease of investment and business activity.
2, 20 The favorable situation for the realization of the import substitution strategy and improvement of
competitiveness of the domestic market.
5 Stimulation of the renewal of technological base of the company using own resources and growth
of production and technological competitiveness as a result. Decrease of economic and ecology
competitiveness and consumer demand. The situation is possible with accelerated modernization
of technological platform, most likely in narrow segment.
10, 16 Deterioration of production and technological competitiveness and inability to gain price competi-
tive advantage as a result. However, this can be compensated by improving other components of
industrial policy.
13 Emergence of opportunity to smoothening of technological level of industrial entrepreneurial
structures and borrowing of modern technologies; however, these opportunities can be offset by
the growth of costs, decrease of investment and business activity, and deterioration of financial
stability.
17 Lack of incentives to increase competitiveness.
23 Unfavorable situation related to the growth of costs and deterioration of business climate. Decline
in investment and innovation activities. Generally, loss of competitiveness can be predicted.
3, 7, 9, 19, 21, 25 The favorable situation in terms of competitiveness improvement.
6, 24 Decrease of economic competitiveness. However, this decrease can be compensated by search and
use of internal reserves for increasing effectiveness.
11 Improvement of entrepreneurial climate, increase of availability of borrowed funds, lack of stimu-
lation of technological improvement with the use of internal resources. The opportunity to
increase competitiveness quickly.
14 The most unfavorable situation. A policy inadequate to economic conditions and the objectives of
development.
18 Lack of motivation to modernization activities.
26 Emergence of deficit of new technologies from other countries and rise in prices. Deterioration of
quality of produced products and motivation to import substitution are created.
27 Lack of motivation to increase competitiveness; however, in general, the situation is favorable, as it
allows to adapt and find and use other sources of growth of competitiveness.

115

Figure  2. Closed form of schematization of influence
of tools of industrial policy on competitiveness of indus-
trial structures.
tions, an opportunity emerged, especially with
the growth of the effectiveness of the economy,
to increase the consumption rate in the national
income without compromising economic
growth. Moreover, if the share of depreciation
in investments into fixed assets prevails, it allows
gaining a competitive advantage in price over
companies using debt to finance investments.
The above tools are only a part of state indus-
trial policy and they have a diverse effect on the
industrial structures using high technologies. Let
us apply the method of artificial abridging of
the system when external tools and conditions
are transformed into a series of internal factors
of competitiveness/noncompetitiveness (Fig.  2),
and in Table  2 we provide details on the influ-
ence of industrial structures using high technolo-
gies and the below tools of industrial policy, on
competitiveness.
Sequence numbers in Figure 2 reflect the impact
of possible situations as well as the tools of tax,
customs, and amortization policies at the level of
competitiveness of high-technology businesses.
In this context, the importance of methodologi-
cal support of assessment of influence of separate
components of industrial policy and of their com-
bination on competitiveness is growing.
Out of all the situations described below, the
situation number 26 currently seems to be the
most probable one. The least probable scenario is
situation number 11.
4 CONCLUSION
Government industrial policies affect the relation-
ship between investments in high-tech and low-
116
tech enterprise structures, encourage investment
in priority areas, and thus indirectly stimulate the
increase of competitiveness of industrial enter-
prises, which operate in these areas.
The abovementioned factors and their charac-
teristics suggest that innovative development of
industrial entrepreneurial structures, which use
high-technologies, should be done using holis-
tic systems approach, which would provide the
required level of scientific validity assessment of
potential risks and their consequences.
This study aims to search for reserves of perfec-
tion of tax, depreciation, and tariff policy in order
to ensure the competitiveness of enterprises and
building strategies of competitive development.
Further research will be associated with the
development of models of the effect of tax, depre-
ciation, and tariff policy in the competitive devel-
opment of high-technology businesses.
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able development of domestic machine building Stud-
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Fedotova, M., Loseva, O., & Fedosova, R. (2015). Devel-
opment of a Methodology for Evaluation of the Intel-
lectual Human Capital of a Region.
Gokhberg, L.M., & Kuznetsova, T.E. (2011). Strategy
2020: new outlines of the innovation police. Forsayt,
5(4), 8–30.
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(2005). Analysis and evaluation of prospects of tran-
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 Managing Service, Education and Knowledge Management
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© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Effectiveness of innovations in the process of complex industrial

and domestic waste utilization in Vladimir region as a source of raw
materials for the modern construction sector

I.A. Gandelsman, L.V. Zakrevskaya & I.V. Kozlov

Vladimir State University, Vladimir, Russian Federation

ABSTRACT: The article deals with rock materials used for construction (dense and solid sedimentary
rocks, sands, diatomite and tripolite, gypsum, fusible clays). Currently in the Russian Federation there are
more than 1,900 deposits of carbonate raw materials with over 60 billion tones explored. Some of these
deposits are located in Vladimir region. The type of waste to be recycled for construction material pro-
duction is selected through comparing chemical composition of wastes and traditional raw materials used
for similar purposes. The authors have proved effectiveness of the innovations in the process of complex
industrial and domestic waste utilization in Vladimir region as a source of raw materials for the modern
construction sector.

1 INTRODUCTION cement production. Only 30–40% of the total out-

In Vladimir Region there are rock deposits (dense
and solid sedimentary rocks, sands, diatomite
and tripolite, gypsum, fusible clays) located quite
compactly and used for construction materials
production.
Currently in the Russian Federation there are
more than 1,900 deposits of carbonate raw materi-
als with over 60  billion tones explored. Some of
these deposits are located in Vladimir region (see
Fig. 1). Vladimir Region is among five top regions
of Russia in terms of the explored dolomite depos-
its. These massive materials are mostly used as con-
struction stone to produce cement and lime.
Dolomites with over 18.5% of MgO content
are the most valuable raw material for magnesia
put is used for standard product manufacturing,
with the rest of the rock goes into a disposal area.
In addition to the economic issues the environ-
mental problems become crucial.
Although our country has potentially vast
reserves due to the careful attitude towards
resources, it has recently experienced a lasting
shortage of raw materials.
Adopted in Vladimir region production of
construction materials based on industrial wastes
promises considerable benefits. Using wastes as
raw materials can help to solve environmental
(preservation of lands, water and air resources)
and economic issues related to production volumes
increase.
The global tendency is to attach more impor-
tance to MgO-based products in view of the
implementation of the environmental sustainabil-
ity program. As there is shortage in magnesium
carbonate and it is of high demand, the EC 2014
recognized it as a “critical raw material” (Walling,
2016).
The most important ways of utilizing some
kinds of industrial by-product and residential
wastes in Vladimir region are listed in Table 1.

2 RESEARCH METHODS

The type of waste to be recycled for construction

material production is selected through compar-
Figure  1. Distribution of dolomite wastes in vladimir ing chemical composition of wastes and tradi-
region. tional raw materials used for similar purposes. The

117
Table 1. Directions of utilization of industrial and domes- in case of both soil stabilization and concrete
tic wastes in the vladimir region [Strokova V.V, 2010]. synthesis.
Another aspect to be considered is using soil
Waste-based construction as a construction material. International practices
Wastes materials
provide evidence for soil-concrete as a promising
Dolomite wastes Magnesia binding materials construction material. Soil blocks are made from
concrete and dry mixes plastic soils, which are easily prepared by introduc-
facade finishing materials tion of dolomite wastes with binding properties
soil and concrete mixes into soft clay soils. Thus, the soil removed from
Foam glass production Lightweight concrete excavation pits and traditionally transported into
wastes brick road base dumps, can be used for wall material production
Recycled PETF Heat-insulating materials (see Fig. 3).
geotextile Physical and mechanical properties of soil-
concrete products are given in Table 2.
It is evident from the Table 2 that the material
suggested for use is quite suitable for low-rise resi-
dential construction.
Soil is known to have been used in Russia for
residential construction since 1933. This includes
residential houses and household constructions in
Stupino town, Moscow region. Similar structures
were built in the town of Balashikha in 1951 and
in Krasnodar region in 1956. By 1990, these tech-
nologies have been replaced by reinforced concrete,
but when soil vibroflotation technology came into
being, a new phase of soil-concrete construction
development started not only for wall but also for
pile structures.
Introduction of soil-dolomite constructions
provides reduction of energy costs by 9–11 times
being green technology using no burning. In
Figure 2. Dependence of derivatives on chemical com- addition, labor costs are reduced by 50–60% and
position of raw materials. transport costs decrease by 3–4 times. Capital
1. Magnesia binding materials. 2. Raw materials for investments are slashed by 8–9 times.
refractory. 3. Soil and concrete mixes. 4. Limesilicate
mixes.

diagram below (see Fig.  2) can be used for this

purpose.

3 ANALYSIS OF RESULTS

When analyzing substances constituting industrial

wastes, the “like dissolves like” principle is to be
applied. Basicity factor Mb can be of some assist-
ance in this issue. Thus, binding properties are
observed to occur at Mb > 1.5.
The main task, i.e. reducing the cost of mate- Figure 3. Wall materials made from soil-concrete.
rials, was accomplished in this research by using
wastes of various origins such as by-products of Table 2. Physical-mecanical properties of soil-concrete
mining and foam glass production and recycled [Golik V.I. et al. 2014].
PETF.
Introduction of disperse dolomite powder Compressive Water Frost Heat
reduces soil shrinking deformations significantly strength, absorption, resistance, conductivity,
(up to 30% at 50% mass concentration of wastes). mPa % cycles W/m°K
During the experimental test polycarboxylate was
10–12 5–6 15–20 0,55–0,72
used as superplasticizer for strength retention

118
 Application of soil-concrete in road construc-
tion may provide exciting prospects. Present-
day research findings (Strokova et  al., 2010),
(Komohov, 2006) show that if progress is made
in this direction, the demand of the industry for
scarce materials, such as sand, crushed stone and
cement, will drop sharply, thus reducing construc-
tion cost crucially.
Caustic magnesite is used for heavy-duty con-
crete production and can be obtained by burning
dolomite waste at a temperature of 700°C. The Figure 5. Comparative cost data for binding materials.
application of powder with a rather extensive
surface area (1300 to 5000 cm2/g) obtained by the
authors has allowed part of the cement contained Table  4. Characteristics of known and suggested
materials.
in concrete (up to 15–18%) to be replaced with
dolomite wastes and has increased the strength Producer Consumption, Price,
of the product by up to 30%. Furthermore, it has country Name l/m2 rubles/l
increased abrasion and moisture resistance and
improved acoustic properties (see Table 3). Germany Kieselit-Fusion 0.3 497
Sale statistics of various astringents in Russia in AmphiSilan-Plus 0.2 296
2015 is shown on the diagram (Figure 4). Reno Top 0.12 400
The ratio of costs is shown on the diagram Russia Lotus 0.12 200
(Figure 5). It can be seen from the comparison (proprietary
mix)
that the magnesia binding material based on dolo-
mite wastes is 30% cheaper than cement and 50%
cheaper than traditional caustic magnesite.
This effect is achieved due to lower energy costs
in grinding and burning.

Table 3. Properties of dolomite wastes as binder.

Properties

Sound-absorption
Grade by coefficient
Composition Rcomp, Rabr, moisture at frequency
grade kg/cm2 g/cm2 resistance 1000 Hz

Bd -1 158 0.35 4–6 0.027

Bd -2 163 0.40 8 0.028
Figure 6. Waste utilization scheme.

4 CONCLUSION

These findings are consistent with those indicated

in papers by other researchers (Maslov, 2002),
whose calculations show a high economic effect
of dolomite waste application, amounting to
3,380,000 rubles per 40,000 m3 of concrete meas-
ured in rubles valid in 2001. A more detailed analy-
sis of the economics of the project of setting up
production of magnesia bonding material (Nosov
et al., 2013) testifies to its high investment poten-
tial. The calculations show that given the daily
output of the finished product of 115 t and invest-
ment of 30.295 mln rubles in production arrange-
ments, the aggregate economic effect amounts to
Figure 4. Sales of binding materials in Russia. +39.25 mln rubles as of the end of the year 3.

119
 The first experiments conducted by the authors
to obtain dolomite- and foamglass-based facade
self-cleaning material have been successful.
The use of the material with the “lotus” effect (the
external rough surface layer subjected to UV radia-
tion is cleaned by atmospheric moisture) makes it
possible to reduce total building renovation costs,
which include facade repair, constituting 20% of
total building renovation cost.
As can be seen from worldwide application
experience, the service life of facades protected
with such materials is extended to 50 years.
Comparative consumption and cost data for
the known and suggested materials are listed in
Table 4.
In conclusion, a scheme of industry waste utili-
zation in Vladimir Region is suggested, as well as
prospects for the research to be continued.
REFERENCES
[1] Maslov, V. V. 2002. Cement Concretes with an Appli-
cation of Dolomite Wastes and Dead Chemical
120
Industry Catalysts [Online]. Penza. Available: http://
xn--90ax2c.xn--p1ai/catalog/000200_000018_RU_
NLR_bibl_491703/ [Accessed 02.16.2017].
[2] Golik, V. I., O. N., P. & Garabaev, O. Z. 2014.
Dolomite waste utilization in mining production. Dry
plasters and mortars, 14–16.
[3] Walling, S. A. P., J.L. 2016. Magnesia-Based Cements:
A Journey of 150 Years, and Cements for the Future?
Chemical Reviews, 116(7), 4170–4204.
[4] Kramar, L. Y., Chernykh, T. N., Orlov, A. A. &
Trofimov, B. Y. 2012. Magnesial binders from Natural
Raw Martial, Chelyabinsk, Iskra-Profi.
[5] Nosov, A. V., Chernykh, T. N., Kramar, L. Y. &
Gamaly, E. A. 2013. Extra strong dolomitic bonding
substance. Bulletin of the South Ural State University
Series “Construction Engineering and Architecture”,
13, 30–37.
[6] Strokova, V. V., Lutenko, A. O. & Nikolaenko, M. A.
2010. Soil-Concretes Based on Wastes of Coal Miming
in Korkinsk Deposit, Belgorod, BSTU Publishing
House.
[7] Komohov, A. 2006. Soil-Concrete, a Modern Com-
posite Material [Online]. Penobeton. Available:
http://subscribe.ru/archive/home.build.penobeton/
200604/13150341.html [Accessed 02.16.2017].
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Values of modern youth and state youth policy

N.V. Morgunova, R.V. Morgunova & I.A. Zaytseva

Vladimir State University, Vladimir, Russia

ABSTRACT: The significance of the formation and implementation of efficient youth policy for
solving problems involving the youth in socioeconomic processes of development is acknowledged in
all developed countries. This paper deals with the most significant values of Russian youth in the new
economic situation, which characterizes the potential of its involvement in determining the objectives of
the development of the country. Polls, questionnaires, and cluster analysis are the research methods used.
Youth policy shall be aimed to provide young people with more opportunities of real participation in
large projects. The methods of the required axiological profile creation are developed within the research.

1 INTRODUCTION The research hypothesis is described as follows:

The youth is the engine of socioeconomic system
development in developed countries. It is both the
subject and the object of state management, but
the state acknowledges the subjectivity of youth
mostly formally.
E.P. Vasilyeva, A. Gabiani, V.N. Guilinsky, A.
Grishko, S. Klimova, M.A. Lukin, M.Mikhaylova,
and others elucidated indirectly in their science
works social adaptation youth problems as a sub-
ject and as an object of state youth politics. These
authors considered in their works social adapta-
tion in social-psychological and preventive health
rehabilitation process of youth and teenagers.
This means that the adaptation plays the role of
a particular way of “healing” and an overcome
of social-psychological deprivation and prophy-
laxis of deviant behavior of youth and teenagers.
State youth politics and state mechanism of its
realization are being analyzed as one of external
conditions that can stabilize social adaptation pro-
cesses [1].
The ability of the youth to create development
aims, develop strategies, and, correspondingly,
implement the policy is doubted by most top-
managers. The juvenation of governing bodies
is often performed according to the manageabil-
ity criterion of people introduced into manage-
ment administration, but not on the basis of their
ability to generate new ideas and defend their
views.
As the research in which the authors has taken
part shown, most events and programs in the sphere
of youth policy are aimed at supporting youth who
got into hardship (minors in conflict with the law,
young families with children, the unemployed) and
developing talented youth.
inadequate positioning of the place of the youth
in national economy development decreases the
level of its involvement in solving problems of
socioeconomic development of the country. Youth
underestimation takes place due to the low level of
awareness of the actual youth axiological profile.
The aim of this paper is to define the most signif-
icant values of Russian youth in the new economic
situation (crisis phenomena of 2014–2016), which
characterizes the potential of its involvement into
solving the country development objectives.
2 RESEARCH METHODS
The research methods used are polls, question-
naires, and cluster analysis. The research included
questionnaires of students, young lecturers, stu-
dents who want to receive second university
degree in several CFD regions, and students from
Bulgaria. TESTOGRAF online resource for opin-
ion polls was used for questionnaires [3]. The ques-
tionnaire was held in March–April, 2016. Data
analysis was made in June 2016.
The criteria of attribution of people to the
youth category vary significantly in various coun-
tries. There is a conspicuous trend of attributing
more and more older people to this category. This
is determined by both positive trends of increase
in population life expectancy in developed coun-
tries and negative ones such as late coming-of-
age and puerility of the youth. The classification
determines certain directions of implementation
of youth policy concerning different population
groups and influences human self-actuating [6].
In Russia, with its relatively lower life expect-
ancy compared with other developed countries,

121
one who is older than 30 years shall be considered
as youth in in practical sense. However, Russian
citizens who are under 40–45 years of age (espe-
cially who live in large cities in the center of the
country) call themselves “youth”. In the authors’
opinion, such universal trend of “youth extension”
is rather positive for Russia. A person who feels
himself young and is acknowledged by others to be
young realizes that he did not reach the climax of
his prime, development, career, and behavior [4].
Such people are more ready to take a new course
of training, change their trade or place of resi-
dence, which is normal for the young. If we exclude
people who are over 30 years of age from the youth
category, a person understands himself as well as
that he achieved the main target in his life; he does
not plan to make serious changes in his life.
We consider that a relatively low age qualifica-
tion of attribution to the youth category negatively
influences the activity of the young. Therefore,
when forming youth policy, the upper limit shall
be increased.
The most part of interviewed people is genera-
tion Z, according to their age. This generation is
most significant for the economy development
of the country. It must be said that in Russia the
differences between values with considering sig-
nificant social changes for last 30 years were not
revealed. This is the subject of future studies.
According to sociologist’s studies, this genera-
tion possesses the following features [2]:
• Dilution of philosophy and life points of refer-
ences due to very fast change of life, which leads
to belief disjuncture with parents, and informa-
tion overload, which leads to a greater incom-
prehension of the meaning of life.
• Aspiration to receiving new experience and
impressions.
• Conscious aspiration to self-actualization.
• Acknowledgement of leading, but not manage-
ment as a norm of communicating with the
superior.
• Aspiration to partnership, collective decision-
making based on discussion.
• Constant quick information exchange.
The researchers emphasize the preservation of
health values, gradual denomination of family val-
ues, increase of career and prosperity significance
and acknowledgement of personal competition.
Specifically, it is considered that the spiritual ele-
ment of life becomes worthless [5].
In order to improve the objectivity of the
results, in our research, we did not use standard
question “What is more important for us?”. The
interview format is “What is more important in
the relationship for us?”, because this statement is
122
more complicated and requires respondent to find
specific base for an objective answer.
When answering the question “What is more
important in the relationship for us?” the inter-
viewed person easily finds examples of specific
situations in his/her life when some factors influ-
enced relationship development and in such case
the interviewed person answer is more objective.
Besides, we used the pairwise comparison
method of significant features. This also increased
the evaluation objectiveness.
The contingent of the examined group:
By sex: women—141 people, men—60 people.
In Russia, females evaluate among high edu-
cated people. Their behavior becomes more active,
which allows to think that in analyzed groups their
dominance is justified enough for research targets.
By education: academic credentials—6 people,
undergraduate education—76 people, complete
higher education—119 people, among them the
most part of students gets high education.
By specialization: management, service, trade,
and lawyers.
By age: under 19 years—65 people, 19–22
years—98 people, over 22 years—38 people.
This selection reflects the currently active group
of youth mainly represented by students.
3 ANALYSIS OF RESULTS
We will now consider the questionnaire results.
Fig.1  shows the proportions of significant com-
municating factors in descending order of their
priority for respondents.
The most significant result was the promi-
nently high value of political beliefs (7.2%).
From our viewpoint, it is a positive trend,
Figure  1. Ranged questionnaire results for the whole
selection.
Table 1. General questionnaire results by groups.

Factor of interpersonal relationships Whole selection M F

Political beliefs 7.2% 6.9% 8.0%

Working language 6.0% 6.1% 5.7%
Common traditions 5.7% 5.9% 5.2%
Age 5.7% 5.7% 5.6%
Attitude toward family and marriage 5.6% 6.1% 4.4%
Family duties 5.4% 5.5% 5.1%
Responsibility 5.3% 5.4% 5.0%
Social background 5.2% 5.3% 5.0%
Health condition 5.1% 5.1% 5.1%
Allegation of or HIV/AIDS case 5.0% 4.8% 5.5%
Punctuality 4.8% 4.9% 4.6%
Sense of duty 4.7% 4.8% 4.4%
Competence 4.7% 4.5% 5.1%
Education 4.5% 4.5% 4.6%
Place of residence 4.5% 4.5% 4.5%
Religious commitment 3.9% 4.0% 3.7%
Ethnic background 3.7% 3.8% 3.6%
Nongovernmental organization membership 3.6% 3.4% 4.1%
Race differences 3.3% 3.3% 3.2%
Disability 3.2% 3.1% 3.6%
Attitude toward alcohol 3.2% 3.3% 3.1%
Common religion 2.5% 2.5% 2.4%
Sexual orientation 2.4% 1.7% 3.9%
Nationality 2.2% 2.0% 2.7%

Academic credentials Undergraduate Complete higher

Political beliefs 5.4% 6.6% 6.8%

Working language 6.2% 5.7% 5.5%
Common traditions 5.4% 5.4% 5.3%
Age 5.4% 5.6% 5.2%
Attitude toward family and marriage 5.8% 5.4% 5.1%
Family duties 4.1% 4.9% 5.1%
Responsibility 5.5% 5.0% 4.9%
Social background 4.9% 4.5% 5.0%
Health condition 5.8% 4.6% 4.8%
Allegation of or HIV/AIDS case 5.0% 5.0% 4.5%
Punctuality 4.2% 4.7% 4.4%
Sense of duty 4.0% 4.4% 4.4%
Competence 5.4% 4.0% 4.4%
Education 4.7% 4.3% 4.2%
Place of residence 3.2% 4.2% 4.2%
Religious commitment 4.6% 3.7% 3.6%
Ethnic background 2.7% 3.3% 3.6%
Nongovernmental organization membership 4.0% 3.1% 3.4%
Race differences 1.9% 3.0% 3.1%
Disability 3.8% 3.3% 2.8%
Attitude toward alcohol 2.8% 3.0% 3.0%
Common religion 2.9% 2.0% 2.4%
Sexual orientation 0.8% 2.3% 2.2%
Nationality 1.5% 1.9% 2.1%

which, for one, demonstrates attention of the contradicts with the low significance of the fac-
youth to the changes, which occur inside the tor “non-governmental organization member-
country. However, such a conclusion somehow ship” (3.6%).

123
 Several clusters can be distinguished by received
values. The first cluster includes political beliefs
and working language, and the second one (the
largest one) includes common traditions, age, atti-
tude toward family and marriage, family duties,
responsibility, social background, health condition,
allegation of or HIV/AIDS case, punctuality, sense
of duty, abd competence. The great significance of
social intimacy characteristics such as language,
common traditions, and age bears evidence of
comfort valuation. This somehow wears down the
above-listed evidence that Z generation appreciates
new impressions and experience. A high signifi-
cance of attitude toward family and marriage, fam-
ily duties, and responsibility also contradicts the
results of published research. This also can be said Figure 2. Significance of factors by gender.
about characteristics, which determine the oppor-
tunity of career development—punctuality, sense
of duty, and competence. Their significance in the
general selection is lower than the significance of
comfort and family values as shown on Table 1.
The third cluster (with medium-priority factors)
includes education, place of residence, religious
commitment, ethnic background, and nongovern-
mental organization membership. It seems that the
youth does not consider education to have a sig-
nificant influence on human development and life
success, as the significance of this factor is under
the medium level. The influence of difference in
religious commitment and ethnic background on
the young is overestimated by the society. Our
youth does not consider such factors to be signifi- Figure 3. Significance of factors for respondents with
cant. This bears evidence of tolerance and possibly academic credentials.
misunderstanding of religious beliefs.
The fourth cluster includes the most nonsignifi-
cant factors. Those are race differences, disability, And accordingly it is necessary to pay more
attitude toward alcohol, common religion, sexual attention to the development of the last value
orientation, and nationality. If the low significance for men because it will increase their responsibil-
of race differences, common religion, or nation- ity in work as far as their family is in need to get
ality proves our conclusions, then indifference to endowment.
attitude toward alcohol will sound worryingly. Young people with academic credentials (Fig. 3)
Despite reduction of alcoholization of students, pay more attention to development factors, com-
they bear tolerance to inebriety. One may talk of petence, health, are more tolerant to religious com-
the insufficient level of significance of leading a mitment, and so on. However, such results need to
healthy lifestyle. be studied additionally because the portion of such
Comparative analysis of polling results revealed respondents in the selection is rather low.
expected differences (Fig. 2). Men pay more atten- Insignificance of the differences can mean itself
tion to political beliefs and less attention to family that the work to develop some personality in edu-
values; they are more tolerant to disability, AIDS cational process is not effective enough. This ques-
cases, and nontraditional sexual orientation. tion needs be studied better and further.
Career factors are more important for them. Differences in factor evaluation by young peo-
Differences between roles of values based on sex ple with complete higher and undergraduate edu-
mean that it is necessary to use different methods cation (Figs.  4, 5) are practically nonsignificant,
to make those wished values more evident for men the trends for the general totality.
and women. Insignificance of the differences can mean itself
The biggest difference is marked down in that the work to develop some personality in edu-
“political belief ” and “attitude toward family and cational process is not effective enough. This ques-
marriage”. tion needs be studied better and further.

124

Figure 4. Significance of factors for respondents with
undergraduate education.
Figure 5. Significance of factors for respondents with
complete higher education.
Differences for various age groups were also
nonsignificant. This can be explained by their little
fluctuations.
4 CONCLUSION
This study produced contradictory results, which
did not allow to expressly approve or wear down
our hypothesis. High significance of political
beliefs bears evidence of the desire of the youth to
understand the changes and its involvement into
situation discussion. At the same time, the youth
tries to preserve the status quo: early comfort1 and
family values are more significant than profes-
sional or instrument ones in such young age. Low
1
When a person entirely satisfied with what he has
achieved, he has no desires and goals for further develop-
ment, changes.
125
health significance and tolerance to bad habits
lead to negative conclusions.
To get more objective conclusions, we will con-
duct the future survey on the basis of specific
respondent categories, especially males and older
respondents.
Youth policy shall be aimed to provide young
people with more opportunities of real participa-
tion in large projects. Only experience of participa-
tion in real affairs and real responsibility forms an
axiological profile of a modern human responsible
for one’s own life, life of one’s relatives, and one’s
commitments. The methods of the required axi-
ological profile creation are developed within the
research.
ACKNOWLEDGMENT
This study was financially support by RFH
within the RFH research project (Mechanism of
increasing efficiency of state youth policy influ-
ence on regional development) (project No. 15-12-
33004a/ ).
REFERENCES
[1] Lukin, M. A. The Soviet youth as the subject and
object of political control: the modern historiogra-
phy of the problem // Historical, philosophical, politi-
cal and law Sciences, Culturology and study of art.
Issues of theory and practice. 2011. No. 4–1.
[2] Krasikov A. A., Gorin Ye. A. Social science, social
points of references of the innovation process and
priorities of modern education// collection of pub-
lications of Globus journal adapted from mate-
rials of Achievements and problems of modern
science international scientific-practical conference
in Saint Petersburg: collection with articles (stand-
ard level, academic level). - Saint Petersburg: Globus
magazine.—2015.—p. 78.
[3] Online—polling tool https://www.testograf.ru/ru/
[4] Filimonova N. M., Morgunova N. V. Development
of the Human Potential in a Region through the For-
mation of Value Orientations of Young People// Eco-
nomics, Taxes & Law.—2015.—No. 6.
[5] Filimonova N. M., Polzunova N. N. Directions of
state policy development in the sphere of support-
ing talented youth in the region// Modern problems
of science and education—2015.—No. 2–2.—p. 408.
[6] Yerlygina Ye. G. Influence of youth life quality indi-
cators on the level of Russian regional development//
modern problems of science and education—2015.
—No. 2–2.—p. 462.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Influence of the state support on the development of small and

medium-size entrepreneurship of the Vladimir region

T.N. Kashitsina, E.S. Lovkova & S.M. Basharina

Vladimir State University, Vladimir, Russian Federation

ABSTRACT: The development of the small and medium-size entrepreneurship influences the level of
financial well-being of a country’s population and thus increases the quality of life of its citizens. It is
stated by the authors that the state strongly supports and regulates the development of the small and
medium-size entrepreneurship in regions. It is determined in the paper that the state provides a significant
support in Russia, with the help of which the activities are fulfilled, which are connected with the creation
and improvement of the development conditions of the small and medium-size entrepreneurship. How-
ever, each region has its own economic and social features of development, they have different financial
means and investment and innovative potential. On the basis of literature review, analytical survey data,
and statistical information, the dynamics of small and medium-size entrepreneurship development in the
Vladimir region was determined in this paper. The modern economic system of small and medium-size
entrepreneurship support is not adequately oriented toward the achievement of significant results in eco-
nomic activity. In such situation, it is necessary to reveal the problems of establishment and development
of the small and medium-size entrepreneurship of the Vladimir region and to create the development
mechanisms of supporting system of the small and medium-size entrepreneurship.

1 INTRODUCTION The state support of small and medium-size

entrepreneurship includes such directions:
The role of small and medium-size entrepreneurship
1. the establishment of the work basis of the
is difficult to underestimate. It is obvious that the
mechanism of small and medium-size entrepre-
amount of these enterprises strongly influences the
neurship support;
level of financial well-being of a country’s popula-
2. the arrangement of advantageous conditions of
tion. The small and medium-size entrepreneurship
realization for the heads of small and medium-
have to encourage the improvement of healthy and
size entrepreneurship, by the state’s financial,
effective competition and consequently increase the
material, technical, informational, and other
quality of resources of citizens.
resources, including innovations;
With the help of the centralized control mecha-
3. simplification of the process of the enterprise
nisms, the state has supported and regulated the devel-
registration and provision of the report of its
opment of small and medium-size entrepreneurship
activity to the appropriate body;
for more than 15 years [10]. Different measures for the
4. assistance in establishment and development of
purpose of development and improvement of their
manufacturing and informational connections
activity are held. This support has a positive economic
with other cities, regions, and states;
effect due to fast response of small and medium-size
5. the proposal of the opportunity to receive train-
enterprises on the fast-changing market conditions,
ing, re-training, and advanced training for the
the creation of new work places, price changes, and
personnel of the small and medium-size entre-
the establishment of healthy competitive environ-
preneurship entities.
ment. It is stimulates the employment of innovations
and improvement in the quality of production [7]. The main approaches and priority directions
Although the major sources of small and of support are equal for all regions of the state.
medium-size entrepreneurship support still remain However, each region has its own economic and
unpractical, there are priority directions of state social features of development, and different
support, which kick-start the development of financial means and investment and innovative
activities of these institutions. potential.

127
2 DEVELOPMENT OF SMALL AND
MEDIUM-SIZE ENTREPRENEURSHIP
IN THE VLADIMIR REGION
In this paper, information is considered, which
reflects the establishment and realization of state
support toward small and medium-size entrepre-
neurship in the Vladimir region. This analysis will
give an opportunity to organize the information
base, with the help of which we may trace the devel-
opment of state support of the small and medium-
size entrepreneurship in this region. Thereby, we
may see the concept description of the majority of
the country’s regions, because the Vladimir region,
according to the economical rates, belongs to the
average statistical regions, despite its close location
to Moscow.
At present, in the Vladimir region, the regula-
tory system, which governs the regional politics
in the sphere of small and medium-size entre-
preneurship, is based on the Regional Law dated
07.10.2010 No. 90-RL “Small and medium entre-
preneurship of Vladimir region development act”,
Resolution of the Governor of the region dated
31.08.2015 No. 865 “Concerning the introduction
of amendments to the Resolution of the Gover-
nor of the region dated 17.07.2011 No. 715 “Con-
cerning the approval of the funding by means of
the regional budget of measures, accomplished
due to rendering of state support to the small and
medium entrepreneurship in Vladimir region”, the
Resolution of the Governor of the region dated
05.11.2013  No. 1254 “Concerning the state pro-
gram of the Vladimir region “The development of
small and medium entrepreneurship in Vladimir
region in 2014–2020” [3].
Stable rates of development are typical for the
region. The gross regional product has increased
during the last 5 years by a factor of 125% and made
up 218,7 billion RUB, the proportion of industry of
the gross regional product makes up 37.6% [5].
The Vladimir region has won the National Prize
of the Chamber of Commerce and Industry of
the Russian Federation in the field of business
“Golden Mercury” in the category “Region with
the most favorable conditions for business develop-
ment”, and has joined the ranks of the winners of
the competition “Yearly Public Prize for Regions
of stable development” for contribution to the
development of small and medium-size entrepre-
neurship, arranged by the Russian Union of Man-
ufacturers and Entrepreneurs.
The Vladimir region takes the 35th place in the
rating of socioeconomic situation of the Russian
Federation on the basis of the results of 2014 [5]. In
the rating of attractiveness of the Russian regions,
the Vladimir region takes 20th place and its coef-
ficients are 2,168 in total [4].
128
Great attention is paid to the development of
the small and medium-size entrepreneurship in this
region. By means of supporting programs, entre-
preneurship motivates the involvement of invest-
ments of organizations and leasing companies and
motivates the investment of the entrepreneurs’
own funds for the improvement and upgrading
of industries and creation of comfortable condi-
tions for selling of innovation products and ser-
vices. According to the rates of small businesses
(including individual entrepreneurs) in the general
number of economically active population, the
Vladimir region takes 11th place in the rating of
the Russian Federation regions “The level of small
business development” [9].
According to the Russian Statistics Committee,
more than 2500 new small and medium-size enter-
prises were established in the region during the last
3 years (Fig. 1), of which 40% work in industrial
segment, 30% work in agriculture, and the remain-
ing represent human services and commerce.
In 2014, contrary to 2013, a decreasing in the
number of subjects of small and medium-size
entrepreneurship was observed in the Vladimir
region. The decreasing in the number of small
enterprises occurred in all types of activity.
3 RESEARCH METHODOLOGY
The state program of small and medium-size entrepre-
neurship (SMB) development is implemented in the
Vladimir region. It implies direct addressed support
of the business in form of grants from the budget for
upgrading of the manufacturing and for fulfillment of
the obligations according to the leasing contracts, and
a grant support for entrepreneurs beginners.
The designed program helps to create the
favorable business climate and business conditions,
Figure 1. Dynamics of the number of subjects of small
and medium-size entrepreneurship in the Vladimir region
(pcs) [6].
encourages the growth of investment, innova-
tion activity, and competitiveness of the subjects
of small and medium-size entrepreneurship, and
involves youth into business activities.
Such support is conventional for state politics.
This program includes designed measures for
establishing new and improving the existing direc-
tions of business support. In 2014, the funding
was 62.908 million RUB, which was implemented
at the expense of budget means [1].
In 2015, 195  million RUB from the federal
budget was allocated for the state support of SMB,
19  million from the regional budget, and 12  mil-
lion RUB from the local budgets. During imple-
mentation of the program “Development of the
small and medium entrepreneurship in Vladimir
region in 2014–2020” in 2015, support was pro-
vided to 1649 entities of the small and medium-
size entrepreneurship, in which 1385 work places
were created:
1. 126 entities of SMB were supported in finan-
cially, thus finding additional 1010 work places;
2. 81 entities of business were supported by the
local governments, thus providing 254 work
places;
3. 1442 entities of small and medium-size entrepre-
neurship were supported by the organizations
of infrastructure, thus providing additional 121
work places.
Because of the support from the budget, the
total volume of investment of the subjects of SMB
increased twice as much—from 6  billion RUB in
2013 to 12 billion in 2015. Nowadays, the propor-
tion of small and medium-size entrepreneurship
in the total volume of investments in the region’s
economy makes up 17% (the double growth during
2 years).
The Vladimir region took part in a competition,
arranged by the Ministry of Economic Develop-
ment of the Russian Federation, selecting Russian
Federation subjects for funding measures, realized
in the context of rendering the state support to
Table 1. Analysis of the main measures to support small and medium-size enterprises (SMEs) in 2014–2015.
Event support
Subsidies for the modernization of production
Reimbursement of costs for leasing of equipment
Grants
Support youth entrepreneurship
1. total
129
small and medium-size businesses. In addition, the
region has won 184,260759 million RUB.
In addition, “the infrastructure of SMB sup-
port” is being developed in the Vladimir region:
1. foundation of granting microloans (up to 1 mil-
lion RUB for 3 years), which are given to the
entrepreneurs for the maintained business
development under an annual interest of 11%.
For manufacturing, building, and agricultural
enterprises, the interest rate is reduced to 10%.
From July 2016, the manufacturers may get
loans up to 3 million RUB;
2. guarantee foundation (discharge of 50–70% of
loan, concluded for a term more than 1 year
and the sum more than 1 million RUB);
3. foundation offering leasing service;
4. regional accelerator and engineering centers (in
2015, business incubator provided with 379  ser-
vices (double growth), the number of its residents
increased to 49  subjects. The regional center of
engineering supporting industrial enterprises ren-
ders services for small and medium-size entrepre-
neurship in developing manufacturing upgrading
programs and technical re-equipment and carry-
ing out all kinds of audit. In 2015, the budget has
spent 10  million RUB on it. These expenditures
resulted in a situation where entrepreneurs invested
18 times more own funds into projects, realized
thanks to the services of the engineering center);
5. the center of prototyping and business support
(in the center of business support, we can get
free informative-advisory services, and in center
of prototyping, we will get help in questions
from development of manufacturing system to
the creation of experimental specimen products
and their implementation in small series. Thus,
in 2015, the center has concluded 57 contracts
of works execution).
The total volume of budget financing for infra-
structure establishment was 900  million RUB
(majority—640—was received from the Russian
Federation) (Table 1).
The total number of small and
medium-size entrepreneurship
that received state financial Budget financing
support (million rubles)
2014 2015 2014 2015
50 76 96 63
107 50 75 45
114 81 25,12 14,1
3000 1610 5 6
3271 1817 201,12 128,1
 In spite of several programs of support and – provision of assistance for participation and
development of small and medium-size entrepre- informing of the entrepreneurs of small and
neurship, the dynamics of financially supported medium-size entrepreneurship about federal
small and medium-sized enterprises in the region support programs of small and medium-size
are reduced. In addition, the amounts of budget- entrepreneurship, and also about opportunity
ary financing have negative dynamics (in 2015, the to be invested by the private (nonstate) inves-
financing amounts reduced almost twice). tors and foundations;
– disclosure of information and accessibility of
government contracts participation in the con-
4 RESULTS tests and placement of contracts with the state
corporations and other large institutions.
The support of subjects of small and medium-size
The offered actions will allow working more
entrepreneurship in the Russian Federation remains
effectively in the program of support of small and
one of the priority directions of the state economic
medium-size entrepreneurship, as well as give a
policy. The improvement of conditions and practi-
push to the creation of new small and medium-size
cal realization of this support assumes analysis of
enterprises. All this will allow improving entre-
the modern problems of business development in
preneurial climate of the region and as a result
Russia, as well as in a particular region, estimation
increase the quality of life of the population of the
of efficiency of the realization of measures of busi-
Vladimir region.
ness subjects’ support, and optimization of direc-
tions, instruments, and terms of such support.
The problems of establishment and develop-
REFERENCES
ment of the small and medium-size entrepreneur-
ship are the following: [1] All-Russian innovative Internet portal—http://
1. Insufficient accessibility of the financing inscience.ru
sources (high-credit interest rates, the necessity [2] Burlutskaya Yu. A. Problems of development of
of pledging of collateral); small and medium business in Russia//the Young
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2. High taxes and administrative barriers, the [3] Development department of entrepreneur-
difficult agreement process, and high rates of ship, trade and service trade of administra-
infrastructure accession [11]; tion of the Vladimir region—http://drpt.avo.ru/
3. The lack of workers in the categories “qualified npa/168–2011–03–09–12–35–58.
workers” and “managers”; [4] Generalnyi Direktor („Director General“) Journal—
http://www.gd.ru/rating2015/
Improvement of economic system of small [5] Kuznetsov, Y., Filimonova, N., Fedosova,
and medium-size business support—what is really R.  Strategic development of small businesses in
important nowadays, and certainly not the exten- Russian regions (2014) Asian Social Science, 10 (13),
sion of financial resources, assigned from the pp. 231–238. Cited 2 times.
budget to support the business (1) [6] Official Website of the Federal State Statistics
To minimize and eliminate these problems, Service. Access mode—http://www.gks.ru/, (as of
measurements in the following directions should 01.06.2016).
be made: [7] Palagina A.N. Enhancement of conditions for devel-
opment of small and medium business through insti-
– simplification and “transparency” of the docu- tute of the representative for protection of the rights
ments feeding by the small and medium-sized of entrepreneurs//the Russian entrepreneurship.—
business’ entrepreneurs to the contests of busi- 2013.—No. 15 (237).—page 56–61.—URL: http://
ness support (including shortage of the fed doc- bgscience.ru/lib/8214/
[8] Russian Information Agency Rating—http://riarat-
uments list); ing.ru/infografika/20150616/610658857.html
– simplification of the infrastructure accession [9] RIA Rating. Rating of the Russian Federation
agreement order for the small and medium- regions according to the life standards—2015.—
sized enterprises; http://www.shadrinsk.info/uploads/vse podriad/life
– granting tax exemptions for the small and 2015.pdf
medium-sized enterprises during the first stages [10] Vilensky A.V. Redundancy costs policy small and
of development (as a rule, it is 1 year of devel- medium enterprises of Russia // Audit and financial
opment of the entity when it incurs losses in analysis. 2015. No. 1. S. 306–363.
case of entry into the market); [11] Vsaykix YU.V., Paynix T.A. Development of
financing of small and medium business in Rus-
– formation of contracts between the small and sia//Actual problems of humanitarian and natural
medium-sized enterprises and universities about sciences.—2015.—No. 5–1.—page 56–59.
rendering work places for the qualified graduates;

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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Predictive analysis of the tourism hospitality development in Slovakia

A. Antonyová
Department of Mathematical Methods and Managerial Informatics, Faculty of Management,
University of Prešov, Prešov, Slovakia

P. Antony
APmikro, Prešov, Slovakia

B. Soewito
Bina Nusantara University, Jakarta, Indonesia

ABSTRACT: Tourism hospitality has its own specifications in every country, although some features
are general. This paper deals with the prediction of development in tourism hospitality in Slovakia. To
evaluate the level of development in hospitality industry means to take into account especially indicators
such as the amount of accommodation establishments and their occupancy percentage rate. There are
many aspects that influence the level of the services in accommodation establishments. However, there
are some differences in the development of accommodation establishments and the hotels as their integral
part. To make prediction, the statistical methods for trend description are used. The strength of correla-
tion dependence between the number of bed places and occupancy rate creates conditions for further pos-
itive development of occupancy in accommodation establishments. The analysis also pointed to favorable
developments in the occupancy of hotels, compared with the accommodation establishments in general.

1 INTRODUCTION customer relationship management in hospitality

Hospitality as an integral part of tourism industry
can be evaluated in several aspects. Although stud-
ying the hospitality and tourism is based mostly on
the statistical methods (Brotherton 2015), it also
has its specific features (Chon 1999, Joppe 2016).
To evaluate the success of an organization that is
involved in the business of hospitality, usually key
performance indicators are used. The following
key performance indicators may be considered in
the field of accommodation (Srivastava & Maitra
2016):
• Cost of occupied room,
• Average room rate,
• Revenue per available room,
• Bedroom occupancy rate,
• Occupancy percentage rate,
• Labor cost ratio.
Of course, there are more indicators that can
play an important role in evaluating the success
in hospitality industry, such as, for instance, the
customer satisfaction, because it can also influence
the development of tourism in the area. However,
not only customer satisfaction but also customer
delight is considered as an effective indicator of
industry (Kao, Tsaur & Wu 2016).
Success of business in hospitality industry is
also contingent on the level of marketing, that is,
as managers can explore the interest of potential
customers for the area and the specifics in the field,
they are able to propagate with the use of the local
culture (Ivanov & Ivanova 2016). Of course, the
local culture is a subject to the level of develop-
ment in indigenous tourism that also influences
the relationship and interaction between indig-
enous peoples and tourists (Peters & Higgins-
Desbioless 2012). Tourism may also be introduced
as a development and delivery of travel and visita-
tion experiences. Therefore, creating opportunities
for high-quality experience is one of the important
roles of tourism management (Ritchie, Tung &
Ritchie 2011).
Contemporary research in the field of hospital-
ity management can improve the strategic planning
process and determine a suitable methodology
for the future development (Phillips & Moutinho
2014). From this viewpoint, for instance, constitu-
ency model for hospitality marketing was devel-
oped to create links between management and the
target market segments as well as the frontline pro-
viders (Baker & Magnini 2016).

131
 Of course, the development of hospitality Table  1. Number of accommodation establishments
industry as well as restaurant companies is affected as well as the number of hotels in Slovakia according to
by the manner of their financing (Singh 2012). The http://statdat.statistics.sk.
owner of the hotel or restaurant directly influences
Accommodation Number
the quality of services and culture in the institu- Year establishments of hotels
tion. It puts stress on a necessity to build a strategy
to improve the situation for investing in hospital- 2001 2275 423
ity sector stocks (Ming-Hsiang 2012). Knowledge 2002 2398 451
management in hotel industry helps to enhance 2003 2509 462
competitiveness and organizational growth, such 2004 2519 470
as, for instance, the necessity of application of 2005 2446 478
the Western-style service quality knowledge in the 2006 2490 485
domestic labor force (Wong, French & Wickham 2007 3182 578
2016). In particular, the family ownership of the 2008 3434 596
firm predominates connection of the quality of ser- 2009 3292 619
vices with the traditional culture (Xiao & O’Neill 2010 3126 611
2010). In this way, culture role can be stressed in 2011 3011 616
indigenous tourism. 2012 3643 659
Environment in the area where the accommoda- 2013 3485 650
tion establishment is situated as well as the custom- 2014 3318 632
ers’ attitudes and behaviors can also predetermine
the economic situation of the organization owning
accommodation establishment and its resulting hotels 1* to 3*, Congress hotels 3* to 5*, Well-
organizational structure and supply, expressed as ness hotels 3* to 5*, Spa hotels 3* to 5*, Boutique
supply chain management (Xu & Gursoy 2015). hotels 4* to 5*, Apartment hotels 1* to 3*, as well
The contributing authors aim to describe as motels 1* to 5* and boatels (Kolesárová et al.
and analyze the situation in tourism hospitality 2016).
in Slovakia. As a basis for processing data, the Finally, we decided to use occupancy percentage
authors used data from the Statistical Office of rate of accommodation establishments as indicator
the Slovak Republic. Using the statistical methods to evaluate the success in the development of tour-
enables to make prediction in trend for the future ism hospitality in Slovakia. Prediction was made
period in development especially in the field of using the least squares for the curve fitting of the
occupancy rate of accommodation establishments, trend line as the statistical method. Subsequently,
while special attention is paid to the hotels. analysis regarding the correlations was performed.

2 METHODOLOGY 3 OCCUPANCY PERCENTAGE RATE AS

To evaluate the level of tourism development,
several approaches can be used. One of the pos-
sible methods is based on the evaluation of the
success of the business through indicators, such
as occupancy percentage rate in accommodation
establishments. During the evaluating process, it
was developed that there are some specific features
in the development of accommodation establish-
ments in general and hotels as their integral part
in Slovakia. Table 1 shows the number of hotels as
well as the number of accommodation establish-
ments in general. Statistical Office of the Slovak
Republic defines accommodation establishment as
an establishment, which regularly or occasionally
provides temporary accommodation to tourists
(Kolesárová et al. 2016).
The amount of accommodation establishments
gradually increase except for its declination in 2006
and 2011, while the number of hotels increases in a
relatively balanced way. Hotels include: Mountain
INDICATOR
If we know the number of rooms in accommo-
dation establishments (hotels), the fully occupied
(occupied on 100%) accommodation establish-
ments (hotels) can be obtained as 365* number of
rooms per year. Thus, x% represents the number
of nights spent in accommodation establishments
(hotels) per year. Therefore, occupancy rate of
accommodation establishments in percentage [%]
per year, which is expressed in Figure 1, was deter-
mined as follows:
Occupancy percentage rate per year [%] = 100*
number of nights spent in accommodation estab-
lishments/(365* number of rooms in accommoda-
tion establishments)
In a similar way, the occupancy percentage rate
[%] per year regarding hotels was determined,
which is also expressed in Figure  1. The graphic
characteristic in Figure  1  shows that the devel-
opment of occupancy rate in the time before the

132
global financial crisis in 2008 differs from the
tendency in development after the crisis. Therefore,
the prognosis is expressed as a piecewise function,
which is composed of two parts: Percentage occu-
pancy rate during 2001–2008, expressed in Fig-
ure 2, and 2008–2014, expressed in Figure 3.
Prognosis is with the trend expression was
counted using the least squares as statistical
method. Equations  1, 2, 3, and 4 were obtained
using the program system EXCEL.
Tendency in the development of percentage
occupancy rate for accommodation establishments
during 2001–2008 (1):
y = 0.0177x6 – 0.4624x5 + 4.6625x4 –
22.791x3 + 55.546x2 – 62.462x + 43.541 (1)
with the value for index of determination:
R2 = 0.9955
Tendency in the development of percentage
occupancy rate for hotels during 2001–2008 (2):
Figure 1. Occupancy rate of accommodation establish-
ments/hotels in percentage [%] per year in Slovakia deter-
mined using the data of http://statdat.statistics.sk.
Figure  2. Graphic characteristics of percentage occu-
pancy rate in Slovakia during 2001–2008 using the data
of http://statdat.statistics.sk with the tendency line.
133
Figure  3. Graphic characteristics of percentage occu-
pancy rate in Slovakia during 2008–2014 using the data
of the Slovak statistical portal http://statdat.statistics.sk
with the tendency line.
y = 0.0138x6 – 0.3415x5 + 3.1883x4 –
13.757x3 + 26.415x2 – 16.65x + 32.205 (2)
with the value for index of determination:
R2 = 0.9999
In both cases, for accommodation establish-
ments as well as hotels, the values for index of
determination show satisfactory accuracy.
The tendency in the development of occupancy
percentage rate for both accommodation establish-
ments and hotels after the crisis shows a slightly
increasing tendency in Slovakia (Figure 3).
Tendency in the development of percentage
occupancy rate for accommodation establishments
during 2008–2014 (3):
y = 0.026x4 – 0.4889x3 + 3.3162x2 –
9.458x + 24.708 (3)
with the value for index of determination:
R2 = 0.875
Tendency in the development of percentage
occupancy rate for hotels during 2008–2014 (4):
y  = 0.0717x4 – 1.3667x3 + 9.1336x2 –
24.348x + 45.737 (4)
with the value for index of determination:
R2 = 0.878
The values of the index of determination
show satisfactory accuracy for the trend line
determination.
4 ANALYSIS WITH CORRELATIONS
To analyze the determined occupancy levels in
accommodation establishments as well as hotels in
Slovakia, a few hypotheses were set. The following
hypotheses were set regarding the correlations:
H0: Number of rooms in accommodation estab-
lishments does not correlate with the occupancy
rate of accommodation establishments in percent-
age [%] in Slovakia.
H1: Number of rooms in accommodation estab-
lishments correlates with the occupancy rate of
accommodation establishments in percentage [%]
in Slovakia.
Figure  4 expresses graphic characteristics of
the correlation of the number of rooms in accom-
modation establishments with occupancy rate of
accommodation establishments in percentage [%]
in Slovakia using the data of the Slovak statistical
portal http://statdat.statistics.sk.
The proper hypothesis will be proved on the
level α = 0.05 using Pearson’s coefficient.
The value of Pearson’s coefficient can be deter-
mined using formula (5):
n
∑ xi zi − n.x.y
i =1
rxy = (5)
⎛ n ⎞ ⎛ n ⎞ The dependency of the number of rooms in
⎜ ∑ xi2 x ⎟ . ⎜ ∑ yi2
n.x 2
n.y ⎟
2
⎝i = 1 ⎠ ⎝i = 1 ⎠ accommodation establishments on the occupancy
where: xi  =  occupancy rate of accommodation
establishments in percentage [%] in Slovakia and
yi = number of rooms in accommodation establish-
ments in Slovakia.
Thus, the value of Pearson’s coefficient is:
rxy = −0.7509
Figure  4. Correlation of the number of rooms in
accommodation establishments with occupancy rate
of accommodation establishments in percentage [%] in
Slovakia using the data of the Slovak statistical portal
http://statdat.statistics.sk.
134
Subsequently, the value of the testing statistics is
compared to that of the quintile:
| | n−2
xy
>t
α
(n − ) (6)
1 − rxy2 1−
2
If the value of the testing statistics, on the left
of Eq. (6), is greater than the value of the quintile,
on the right of Eq. (6), then the hypothesis H1 is
proved as true; otherwise, H0 is counted as true.
The value of the testing statistics:
3.93874
The value for the quintile of the Student’s Distri-
bution (Table C-4 Percentiles of the t Distribution)
t0.975(12) = 2.179
Comparison of the value for testing statistics
with the quintile of the Student’s Distribution
proved hypothesis H1 as true. This means that
the number of rooms in accommodation estab-
lishments correlates with the occupancy rate of
accommodation establishments in percentage [%]
in Slovakia. The correlation is negative, which
means that as one variable increases the other vari-
able has a tendency to decrease. However, the value
−0.7509 for Pearson’s coefficient does not mean a
strong correlation.
rate of accommodation establishments in percent-
age [%] in Slovakia can be expressed also by Eq. (7):
y = −5148.8x + 269338 (7)
Figure  5 expresses graphic characteristics for
correlation of the number of rooms in hotels
with occupancy rate of hotels in percentage [%]
in Slovakia using the data of the Slovak statistical
portal http://statdat.statistics.sk.
The hypotheses set for correlations regarding
the hotels in Slovakia:
H3: Number of rooms in hotels does not cor-
relate with the occupancy rate of hotels in percent-
age [%] in Slovakia.
H4: Number of rooms in hotels correlates with
the occupancy rate of hotels in percentage [%] in
Slovakia.
The value of Pearson’s coefficient determined
using Eq. (5) is:
rxy  = −0.83365
The value of the testing statistics determined
according to the left side of the Eq. (6) is:
5.228816

Figure  5. Correlation of the number of rooms in
hotels with occupancy rate of hotels in percentage [%]
in Slovakia using the data of the Slovak statistical portal
http://statdat.statistics.sk.
The value for the quintile of the Student’s Distri-
bution (Table C-4 Percentiles of the t Distribution)
is the same in the proof for hotels as in the proof
for the case of accommodation establishments:
t0.975(12) = 2.179
A comparison of the value for testing statistics
with the quintile of the Student’s Distribution
proved hypothesis H4 as true. This means that
the number of rooms in hotels correlates with
the occupancy rate of hotels in percentage [%] in
Slovakia.
The dependence of the number of rooms in
hotels on the occupancy rate of hotels in percentage
[%] in Slovakia can also be expressed using Eq. (8):
y = −1582.1x + 103597
Hypotheses H5 and H6 were set regarding the
level of occupancy percentage rate:
H5: Better occupancy percentage rate of accom-
modation establishments is not conditioned to the
size of the absolute value of Pearson’s coefficient
that determines the degree of dependency of the
number of rooms in accommodation establish-
ments on the occupancy rate of accommodation
establishments in percentage [%] in Slovakia.
H6: Better occupancy percentage rate of accom-
modation establishments is conditioned to the size
of the absolute value of Pearson’s coefficient that
determines the degree of dependency of the num-
ber of rooms in accommodation establishments on
the occupancy rate of accommodation establish-
ments in percentage [%] in Slovakia.
Through the comparison of absolute values
of Pearson’s coefficient for the accommodation
establishments in general (0.7509) and absolute
value of Pearson’s coefficient for hotels (0.83365)
with the values in graphic characteristics expressed
in Figure 2, where the occupancy percentage rate
for hotels is significantly higher than that in the
case of accommodation establishments in general,
hypothesis H6 is proved as true. This means that
higher absolute value of Pearson’s coefficient that
determines the degree of dependency of the num-
ber of rooms in accommodation establishments on
occupancy rate of accommodation establishments
predetermines better occupancy rate in the future.
Measurement of customer satisfaction was not
directly included into this research. However, it is
possible to know more regarding the satisfaction
of the tourists with their stay in a particular hotel
using, for instance, the portal http://booking.com.
Searching more regarding the customer require-
ments and interests is also an interesting idea for
the future research activities.
5 CONCLUSIONS
Tourism hospitality development in Slovakia
is evaluated using the occupancy percentage
rate per year as indicator that was determined
for accommodation establishments during
2001–2014. The development in occupancy of
accommodation establishments in general has its
specific features in comparison with the hotels as
their integral part. Tendency in the development
of occupancy percentage rate before the global
financial crisis also differs from the development
after the crises in 2008. Therefore, the prognosis
is expressed as a piecewise function using equa-
tions 1, 2, 3, and 4. The tendency was expressed
(8) using the least squares as statistical method. The
formulas for the tendency were determined with
the satisfactory accuracy through the index of
determination.
Analysis of the level of occupancy percentage
rate was done using the correlation in testing the
hypotheses. The proof showed that the number of
rooms in accommodation establishments corre-
lates with the occupancy percentage rate of accom-
modation establishments in Slovakia (Hypothesis
H1). The proof was realized also for the hotels with
a similar result (Hypothesis H4).
It was also proved that the higher the absolute
value of Pearson’s coefficient that determines the
degree of dependency of the number of rooms in
accommodation establishments on the occupancy
rate of accommodation establishments, the better
the occupancy rate in the future (Hypothesis H6).
The development in occupancy percentage rate
shows better results as well as the better progno-
sis for hotels as well as accommodation establish-
ments in Slovakia.
135
 To keep the hotel attractive, it is important to
keep traditions as well as the local culture. However,
some customers require the Western-style service
quality. From this viewpoint, the hotel managers
must be very sensitive to guarantee the required
quality of services while keeping the exotic nature
of the environment in hotel that is based on local
cultural traditions.
Political stabilization and security play an
important role in the development of hospitality
industries. However, the tendency to experience
something unusual and possibly also exotic is so
strong for some tourists, which they are willing to
omit also a certain level of security for the reason
of obtaining memorable experiences with admira-
ble photo or video sequence. Of course, the dan-
ger of instability of buildings, terrorism, armed
conflict, or the threat of closure of borders in the
country or cancellation of flights for political,
technical, or natural geographical reasons can seri-
ously affect the development in the field of hospi-
tality industries.
In our future field research, we will stress the
development of Slovakia in the European context.
Also, we aim to study the development of tourist
hospitality in Indonesia, a country with strong tra-
dition in tourism.
ACKNOWLEDGMENT
This work was elaborated as part of the research
work within the international scientific project
4363-6-14/16 entitled “Modeling of environmental
management processes” at the Faculty of Manage-
ment at the University of Prešov in Prešov, Slovak
Republic.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Urban areas as educational tourism destinations

A.R. Lebedev
Murom Institute of Vladimir State University, Murom, the Vladimir Region, Russia

ABSTRACT: In an urbanizing world, ever more people need drivers of their settlements economic
development found. The article is devoted to evaluating the role of inbound educational tourism in post-
industrial urban areas economic progress, as well as to detecting an appropriate inbound educational
tourism form to develop in a certain urban area. The results of the research can be used for working out
an urban area economic growth strategy.

1 INTRODUCTION non-inclusion of it in the scope of tourism (which

The number of urban dwellers in the world has
increased by a factor of more than five over the past
several decades (from 746,481 thousand people in
1950 to 3,880,128 thousand people in 2014) and
nowadays upwards of half of the global popula-
tion lives in urban areas (The Population Division
of the United Nations Department of Economic
and Social Affairs 2015).
Despite the fact that there is not a common
definition of such places (although the criteria
for classifying areas as urban are usually based on
identical characteristics (e.g. population size and
density (the lower limits above which an area is
regarded as urban range from 200 to 50,000 people
and between 150 and 1500 inhabitants per square
kilometre, respectively) (Dijkstra & Poelman 2012,
The Population Division of the United Nations
Department of Economic and Social Affairs
2015)), many of them are facing the problem of
finding drivers of economic development in the
post-industrial era.
The purpose of the work is to evaluate the role
of inbound educational tourism in the economic
progress of post-industrial urban areas, as well as
to detect appropriate inbound educational tour-
ism forms to develop in particular urban areas.
Achieving the aforesaid goal using the author’s
conceptual apparatus of educational tourism and
on the basis of a literature and statistical review
will make it possible to answer the question of
which inbound educational tourism form can be a
driver of the economic growth of a certain post-
industrial urban area.
2 THE CONCEPTUAL APPARATUS
Existing approaches to identifying the essence of
educational tourism are characterised by either
is confirmed by the fact that studying abroad
requires not a tourist visa, but a student visa) or
one-sidedness (educational tourism is considered
solely as consumers’ activity).
Applying the systems approach, we define edu-
cational tourism as a system of national and world
economies intra-level and inter-level relations con-
nected with production, distribution, exchange
and consumption of an educational tourism prod-
uct. The system will be called inbound educational
tourism if an educational tourism product is nec-
essary for a non-resident visitor to the country of
reference.
Regarding a tourism product as an amalgam
of elements and a good as a material or imma-
terial thing rendering a service and satisfying a
want or need, we interpret an educational tour-
ism product as a complex of goods the acquisi-
tion of which results from the necessity of taking
a tourism trip with the main purpose ‘education
(formal and non-formal)’. This complex includes
basic goods for acquiring knowledge and skills
(without which it is impossible to carry out
the educational process, e.g. an education pro-
gramme) and for taking a tourism trip (without
which it is impossible to take the trip, e.g. the
main movement (from the usual environment to a
point of arrival and back)) and additional goods
for acquiring knowledge and skills (with which
the educational process can be more efficient, e.g.
stationery) and for taking a tourism trip (which
can make the trip more comfortable, e.g. specific
clothes).
According to our conception, a complex of pro-
ducers of educational tourism product goods, fac-
tors of production of educational tourism product
goods and phenomena furthering the production
is called educational tourism resources. Their
presence in a certain place (including an urban
area) is the criterion for qualifying the place as

137
an educational tourism destination, by which we
mean the end point of a tourism trip with the main
purpose ‘education (formal and non-formal)’.
Taking into account the fact that a mini-
mum complex of goods that can be referred to
as an educational tourism product comprises
an education programme and the main move-
ment, educational tourism resources include at
least subjects, objects and phenomena neces-
sary for producing an education programme
and the main movement. It should be observed
that an educational tourism destination does not
need to have all resources for production of the
main movement, but it must be characterised,
at the minimum, by transport and pedestrian
accessibility.
3 RESULTS
3.1 The role of inbound educational tourism
in the economic progress of post-industrial
urban areas
As Ritchie (2003) stated, tourism and education
can replace a declining manufacturing sector in
post-industrial urban areas. However, in the period
of deindustrialisation, towns and cities develop
not only tourism, but such advanced service sec-
tor activities as banking, finance or business serv-
ices (Page & Hall 2003). Then a question whether,
these days, it is economically reasonable to turn an
urban area into an educational tourism destina-
tion by developing inbound educational tourism
may arise.
According to the World Tourism Organi-
zation (UNWTO) (2016a), modern tourism,
which is notable for robust demand, is a very
important global services trade category and, in
recent years, it has risen quicker than the whole
international trade. As for educational tourism,
it is one of the fastest-growing tourism sectors
in the world (even in the crisis period of the
late 2000s, it saw a nearly ten per cent increase
(The Association of Tour Operators of Russia
2011)). Significant demand in the educational
tourism market is displayed by young people,
who often spend more time and money in a des-
tination than other tourists and tend to return
to the place they visited and attract others there
(The World Tourism Organization (UNWTO)
2016b).
Besides, the development of inbound educa-
tional tourism can reduce seasonality in both edu-
cation (several weeks’ courses can be organised in
July and August) and tourism (one-term or two-
term courses can be organised from September to
June).
138
3.2 Inbound educational tourism forms
appropriate for development in particular
urban areas
In the age of differentiated tourism, it is indispen-
sable to develop not simply inbound educational
tourism, but its certain forms.
Having regard to the fact that education pro-
grammes can be implemented by an educational
institution both on its own and by means of a net-
work form (i.e. using resources of this institution
and other organisations), it is possible to single out
the following forms of educational tourism:
− a non-network educational form (if an educa-
tional institution implements an education pro-
gramme by itself);
− network forms:
− a network educational form (if an education
programme is implemented by two or more
educational institutions);
− educational and scientific, educational and
medical, educational and cultural, educa-
tional and sporting, educational and agricul-
tural, educational and industrial and other
forms (if an education programme is imple-
mented by an educational institution and
respective non-educational organisations)).
In order to detect an appropriate inbound edu-
cational tourism form to develop in a certain urban
area, it is necessary to establish factors influencing
the economic efficiency of inbound educational
tourism forms and to take into consideration pecu-
liarities of the area.
There are such factors influencing the economic
efficiency of inbound educational tourism forms
as:
− the length of stay in the educational tourism
destination (quantitative and qualitative charac-
teristics of an educational tourism product (its
components and price per day) being equal, the
economic efficiency of an inbound educational
tourism form is directly related to the length of
stay in the educational tourism destination);
− characteristics of subjects situated in the edu-
cational tourism destination and involved in
producing educational tourism product goods
(all other things being equal, the length of
stay in the educational tourism destination
is directly related to the number of those of
the said subjects visiting of which is not a sine
qua non of attaining the purpose ‘education
(formal and non-formal)’ (as it is important
that a visitor’s environment in the educational
tourism destination should facilitate (or, at
least, not impede) achieving the mentioned
purpose).
 Since the activity of basic sector enterprises
cannot be unnoticeable to visitors, it is these busi-
nesses that should be the first to become part of
educational tourism resources in addition to edu-
cational institutions.
Various urban areas may have diverse basic
sectors; therefore the most economically efficient
inbound educational tourism forms may differ for
different areas. For example, if the basic sector of
an educational tourism destination is education,
it is economically worthwhile to develop non-
network and network educational forms; if the
basic sector of an educational tourism destination
is industry, an educational and industrial form is
more economically efficient.
4 DISCUSSION
After creating the conceptual apparatus of edu-
cational tourism, evaluating the role of inbound
educational tourism in post-industrial urban areas
economic progress, as well as detecting appropri-
ate inbound educational tourism forms to develop
in particular urban areas, it would be necessary to
research into the influence of characteristics of dif-
ferent subjects, objects and phenomena that can be
called educational tourism resources (e.g. the envi-
ronmental and security situation in urban areas
as a phenomenon capable of furthering produc-
tion of educational tourism product goods) on the
development of urban areas as educational tour-
ism destinations.
5 CONCLUSION
Having evaluated the role of inbound educa-
tional tourism in the economic progress of post-
industrial urban areas and detected appropriate
139
inbound educational tourism forms to develop in
particular urban areas, we came to the conclusion
that, in post-industrial urban areas, developing the
inbound educational tourism form that presup-
poses the involvement of educational institutions
and enterprises of the areas’ basic sectors in pro-
ducing educational tourism product goods can
lead to the economic growth of these areas.
The results of the paper can be used for working
out urban areas economic development strategies.
The reported study was funded by RFBR
according to the research project No. 16-36-00291
mo _a.
REFERENCES
Dijkstra, L. & Poelman, H. 2012. Cities in Europe, the
New OECD-EC Definition. Brussels: European
Commission.
Page, S. J. & Hall, C. M. 2003. Managing Urban Tourism.
Harlow: Pearson Education Limited.
Ritchie B. W. 2003. Managing Educational Tour-
ism (Aspects of Tourism). Bristol: Channel View
Publications.
The Association of Tour Operators of Russia 2011.
http://www.atorus.ru/ator/press/article/1340.html.
The Population Division of the United Nations Depart-
ment of Economic and Social Affairs 2015. World
Urbanization Prospects: The 2014 Revision. New York:
United Nations.
The World Tourism Organization (UNWTO) 2016a.
UNWTO Tourism Highlights. 2016 Edition. Madrid:
The World Tourism Organization (UNWTO).
The World Tourism Organization (UNWTO) 2016b. Glo-
bal Report on The Power of Youth Travel. Madrid: The
World Tourism Organization (UNWTO).
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Methodological aspects of forming a regional benchmarking partnership

A.E. Panyagina
Murom Institute of Vladimir State University, Murom, Vladimir Region, Russia

ABSTRACT: The article considers one of the aspects of the problem of developing efficient regional
investment policy—namely, the specification of the features and components of investment strategy and
policy which help succeed in interregional investment competition, —and thereupon substantiates the
criteria for the choice of regions which can form a benchmarking partnership. In this study, the author
uses her own methodology of examining investment activity on three stages: preparing investment condi-
tions, investment activity, formation of investment results. As part of the study, it was determined that
the most essential criteria are: 1) investment conception—the strategic investment position of the region
which determines the nature of its priorities, principles and key investment goals; 2) investment priorities,
goals, objectives and performance targets meant to reflect the structure of the economic interests of the
participants of the investment process and help harmonize them; 3) investment laws, forms and methods
of investment activity management—the main point is not their variety but the ability to use them in dif-
ferent ways, depending on the target audience of investors. Proceeding from the results of the comparison
of CFD regions by the above-mentioned criteria, we have managed to form a benchmarking partnership,
determine the spheres of cooperation as well as its organizational form and outline the directions for the
improvement of Vladimir region investment policy.

1 INTRODUCTION In scientific works, the investment strategy is

In the process of substantiating the methodology of
regional benchmarking, attention is often concen-
trated to its stages, models and technology, whereas
choosing objects and subjects sometimes comes to
mere enumeration. Meanwhile, in order to deter-
mine the features of regions and peculiarities of
their investment strategy and policy which enable
them to win the competition for investment, it is
necessary to substantiate the composition and crite-
ria of comparison. It is impossible to analyse infor-
mation and work out directions of enhancement
and cooperation without solving this problem.
Selection criteria must be in line with the general
logic of the research. In this case, the research is
made on basis of a targeted approach, the require-
ment of harmonising economic interests and con-
sidering investment activity as a process covering
the stages of creating investment conditions, of
investment activity and investment results.
2 CHOOSING BENCHMARKING OBJECTS
AND SUBSTANTIATING THEIR
ASSESSMENT CRITERIA
2.1 Investment strategy and policy elements
In order to choose objects, it is necessary to iden-
tify the main elements of the regional investment
strategy and policy.
considered as a master plan, a program of achieving
long-term goals, a set of solutions connected with
providing investment activity with the necessary
resources and their efficient use.
Investment policy is interpreted as a system of
principles and mechanisms of management and
a region investment processes regulatory activity
reflected in the legal documents. The policy deter-
mines the conception stated in the strategy and
principles of investment activity management; it is
correlated with the choice of priorities and specific
forms and methods.
The composition of the components of invest-
ment policy and strategy mentioned in the research
works is quite similar (Table  1  shows a relative
“frequency” of mentioning this or that component
of investment policy and strategy in the research
works dedicated to this range of problems as well
as in the Regional investment standard).
The key “intersecting” components are goals,
objectives, priorities and implementation mecha-
nisms. In addition, it is necessary to consider the
investment conception and investment laws.
2.2 The investment conception
Defining the investment conception, which is the
prerogative of the investment policy, is the initial
step in the selection of priorities, methods and
mechanisms of implementation of the strategy.

141
Table  1. Key Components of Investment policy and based on an integrated assessment of the factors
strategy. characterizing the attractiveness to potential inves-
tors and professionals who will need to be involved
Investment Investment in investment utilisation (Valentey et al. 2015).
Components policy strategy
Votinov (2011) proved the role of the intellectual
Conception + + + and professional capacity as a social resource, on
Mission and + + + + + + + the one hand, and of the innovative resource, on
goals the other, as balancing factors ensuring the coordi-
Objectives + + + + nation of key economic interests at all levels, and
Priorities + + + + + + common ground, which is of vital importance. The
Law + researcher argued that the provision of conditions
Performance + + for a normal life of people and support of inno-
targets vative organizations serve the purpose of develop-
Assessment + ment and economic security.
criteria Therefore, while choosing an investment posi-
Implementation + + + + + + + tion, taking into account the diversity of compara-
mechanisms tive advantages of the region, preference should be
Specific + + + given to the innovative conception with its inherent
measures social component.
Management + + + Choosing investment priorities and setting goals,
resources objectives and corresponding effects reflect the
Inspection + structure of economic interests and further their
arrangement
harmonization. There are a number of require-
ments to formulating objectives of the regional
investment strategy caused by the methodology
Indicating the investment position gives inves- of goal-setting and norms of the Federal law and
tors key information on the nature of the priori- regional standard.
ties of the region, and orients in a large variety of The goal is an image of the future system state,
regional investment proposals. the desired end result expressed in quantitative or
Bystrov (2008) gives a worldwide accepted clas- clearly defined qualitative characteristics. Thus, the
sification of the basic assumptions for searching concept of goals and objectives relate to the vision
investment conceptions, which includes ten direc- of the results, effects, measurable indicators, which
tions, such as the provision with resources, pos- stipulates the mandatory presence of all these ele-
sibilities of agriculture, well-known and newly ments in an investment strategy. The multi-level
identified diversification potentialities and others. nature and the need for real implementation of
We will suggest our own typology of the prerequi- goals require their structuring, decomposing the
sites for identifying a strategic investment position main goal into major and minor ones, with cross-
of the region, highlighting the comparative advan- referencing and imparting temporary certainty. It
tages that have: the resource base (the availability is most hard-hitting to match the goals with bal-
of natural and recreational resources; possibilities anced economic interests of the subjects, which
of agriculture; climate and geographical location requires: conflict resolution through common
peculiarities); the integration base (the orientation ground system; conformity with the potential of
toward territorial and sectoral integration pos- the region, its specific conditions and cultural and
sibility and achieving multiplicative effects); the historical traditions, and global trends; common-
world economic base (searching for advantages ality of goals of investment and socio-economic
connected with activization  of foreign economic development strategies.
relations, developing export-oriented or import- Following the original conception, we will set
substituting production, creating special economic a requirement to arrange them by investment
zones); the innovation base (making use of changes activity stages. The system of objectives should
in the volume and structure of demand resulting include: the perfection of the institutional and
from the emergence of new goods and processes, infrastructure conditions for improving the invest-
human capital development, focus on the develop- ment climate at the input; organizing targeted
ment of the knowledge economy). work on investment activity increase and ensur-
Theoretical substantiation of the innovation ing coherence between its structural and volume
base of economic growth and the role of human characteristics and investment priorities; develop-
capital in this process is given in R. Lucas’ and ing high-performance, competitive production and
P. Romer’s models. Russian scientists investigate the human capital, making it possible to increase the
readiness of regions for innovative modernization investment attractiveness at the output.

142
2.3 Investment laws
Investment legislation, standards, regulations,
guidance materials assign ‘the rules of the game’;
specific ways of regulation of investment activity
give the set of tools needed in search for meth-
ods of uniting conflicting economic interests. The
depth of study and awareness of investors about
the content of the regulatory base, a targeted
approach in the process of developing a mecha-
nism of interaction with different target audiences
make it possible to focus the business on priority
activities. Therefore, the criterion of evaluation of a
strategy implementation mechanism is not so much
the diversity of forms and ways as the possibility
of modelling variants of structural composition of
investment strategy realization tools differentiated
depending on branch and territorial priorities with
the usage of them (Kruglyakova 2013).
2.4 Benchmarking group formation
The conception of the study and established criteria
for comparison determined the choice of the most
successful regions in the competition for invest-
ment. Since benchmarking involves cooperation
and interaction, what is at issue is the formation
of a partnership in which the region (in this case,
Vladimir Region) should take its rightful place.
The selection was carried out from CFD
regions that are comparable in geographic loca-
tion, proximity to the economic centre, and
availability of resources. Sources of information
were the materials of the Agency for Strategic
Initiatives characterizing the success of work on
improving the investment climate; the ratings gen-
erated by the Association of Innovative Regions
of Russia, as well as the results of a study pub-
lished in Valentey’s article (2015), which made it
possible to take account of the presence of the
innovation basis for growth, and not the factor
basis. The ratings of investment attractiveness
by RA Expert were studied; data on the values
of particular potentials and risks were used for
compilation of the internal rating of the Central
Federal District. Kruglyakova’s (2003) differenti-
ated assessment of ‘input’ (conditions and fac-
tors) and ‘output’ (the results of the investment
activities) were used.
2.4.1 Investment conditions
In the 2013 and 2014 ratings of ASI, Kaluga
Region took the first and second places, respec-
tively; Belgorod Region and Tambov Region were
ranked 3rd and 4th, respectively. The second cat-
egory includes eight CFD regions. In the full scale
rating, the positions of Moscow and Vladimir
Region were massively improved in comparison
with the pilot project.
143
2.4.2 Innovation activity. Readiness for
innovations
The Association of Innovative Regions of Russia
rates Moscow, Kaluga Region, Moscow Region
and Yaroslavl Region among strong innovators,
and Voronezh Region, Tula Region, Lipetsk
Region, Vladimir Region and Ryazan Region
as medium strong. The other CFD subjects are
defined as medium or medium weak innovators.
Valentey (2015) discerns four groups of regions
differing in the level of the social-investment
potential. Lipetsk Region and Kaluga Region are
in the first one (with a high rating and a statisti-
cally significant uptrend). Vladimir Region and
Tambov Region are highly esteemed. An upward
trend was observed in Ivanovo Region, Lipetsk
Region, Kaluga Region, Tambov Region, and
Vladimir Region. The other regions are rated
below average, without positive trends.
2.4.3 Investment attractiveness. The results of
investment activity
RA Expert describes Moscow and Moscow Region,
as well as Belgorod Region, Voronezh Region,
Lipetsk Region, Tambov Region as consistently lead-
ing regions. In the internal ranking, Moscow occupies
leading positions in all types of particular potentials,
excluding the natural resources potential. The state of
Voronezh Region is also determined by persistently
high levels of potentials with marked positive changes
of the innovation and infrastructure potentials.
The advantages of Belgorod Region are the natural
resources potential and the rapidly growing infra-
structure potential, the level of the innovation poten-
tial being medium and that of the others being good.
The cluster analysis carried out by Kruglyakova
(2013), who distinguished between regions on the
basis of investment activity conditions and fac-
tors, made it possible to assess the potential of
Moscow Region as high, and that of Belgorod
Region, Voronezh Region, Kaluga Region and
Lipetsk Region as middle. According to the results
of investment activity, a high level is reached only
in Moscow Region; other regions are characterised
by middle and low levels.
The positions of CFD regions over a three-year
period were systematized and fourteen variants of
their ‘top ten’ were obtained.
Since examining the performance of Moscow
and the region closely integrated with it, Moscow
Region, was intended for reference due to the
special politico-economic and socio-economic
status of Moscow predetermining the leading
positions of these federal subjects, Voron-
ezh Region, Belgorod Region, Kaluga Region,
Vladimir Region, Lipetsk Region, Tula Region
and Kursk Region were included in the regional
benchmarking partnership.
3 CONCLUSIONS AND RESULTS
As part of the study, it was determined that the
most essential components of the process of devel-
oping the investment strategy are: the choice of
the investment conception which determines the
nature of the priorities, principles and key invest-
ment goals; formation of a system of goals, objec-
tives and performance targets, investment laws,
forms and methods of investment activity man-
agement. It was decided that, of all possible invest-
ment conception types, preference should be given
to the innovative, socially oriented conception.
The system of goals, objectives and performance
targets should be arranged in sequence by invest-
ment activity stages and should include the crea-
tion of investment conditions; organizing targeted
work with the aim to increase investment activity
and ensure coherence between its structural and
volume characteristics and investment priorities;
developing highly efficient, competitive produc-
tion and human capital to achieve gains in invest-
ment activity performance. In addition, we attach
great importance to the depth of regional invest-
ment laws development and investors’ awareness
of their contents, the targeted approach to the pro-
cess of developing the mechanism of interaction
with different target audiences of investors, the
ability to use the forms and methods of investment
activity management in different ways, depending
on the industrial and territorial priorities of the
region. With this in view, we carried out a com-
parative analysis of CFD regions, their investment
strategies, the condition of the investment cli-
mate, attractiveness, innovative activity and readi-
ness for innovation, and formed a benchmarking
partnership.
Spheres of cooperation within its framework
may include: experience exchange in the develop-
ment of innovative activity, social and engineering
infrastructure, territorial planning, resource-saving
144
and import phase-out programmes, state and
private partnership.
The organizational form of cooperation may
include the development of cooperation programmes
and the signing of implementation agreements. The
results of the factual evidence analysis reveal that in
order to improve investment activity management
efficiency in Vladimir Region, we need to:
− work out the conception and substantiation of
the regional investment development priorities;
− order and structure the goals and specify the
performance targets, enhance the composition
of the targets which reflect the results of invest-
ment activity;
− create tools which make it possible to assess the
success of investment process management by
the stages of investment activity;
− form the mechanisms of cooperation with inves-
tors making it possible to organize targeted work
with them, coordinate their interests with the
interests of the region and thus ensure its well-
balanced social and economic development.
REFERENCES
[1] Bystrov, O.F. et al. 2008. Investment Activity Manage-
ment in Regions of the Russian Federation. Moscow:
INFRA-M.
[2] Kruglyakova, V.M. 2013. Regional Investment Policy:
Theoretical and Methodological Principles, Methodi-
cal and Instrumental Support. Author’s abstract of the
doctoral dissertation. Voronezh.
[3] RA Expert. http://www.raexpert.ru
[4] Valentey, S.D. et  al. 2015. Development Trends of
Russia’s Regions. Economics of a Region 3: 9–22.
[5] Votinov, A.V. 2011. Balance of Economic Interests as
the Base of Economic Security. Prospects of Science
9: 154–159.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Current barriers of innovation development of Russian

entrepreneurship

I.B. Teslenko
Vladimir State University named after Alexander and Nikolay Stoletovs FSBEI, Vladimir,
the Russian Federation

A.G. Bezdudnaya
St. Petersburg State University of Economics FSBEI HE, Saint Petersburg, the Russian Federation

A.M. Gubernatorov
Vladimir State University named after Alexander and Nikolai Stoletovs FSBEI, Vladimir, the Russian Federation

ABSTRACT: This paper deals with theoretical substantiation for reforming main socioeconomic
institutions for stepping up of innovation activity. The variants of further development of the economy
taking into account the impact of the current foreign economic conditions and sanction on the creation
and development of regional innovation subsystems are described.

1 INTRODUCTION Regional eco-socioeconomic system includes the

Priority innovation development is mostly imple-
mented by the internal innovation potential and
efficient managing influence. For sure, all these
measures are intended to increase the efficiency of
innovation medium functioning. However, com-
mon approaches to determine the delivery of such
measures in the innovation sphere have not been
developed yet. Therefore, issues of efficiency of
innovation transformations hinge in the peculiari-
ties of the revealed trends and consistencies, which
occur in regional systems. Studies of factors and
conditions of development of socioeconomic sys-
tems from the innovation viewpoint allow solving
the following tasks:
− search of the most significant factors of efficient
functioning of regional systems;
− determination of institutional conditions of the
region innovation development;
− identification of interconnections and hierar-
chic structure of factors influencing innovation
development;
− determination of the optimum criteria of the
interrelations of the research experiment and the
invested assets, that is, selection of such condi-
tions that gain maximum output with minimal
expenses (selection of the most profitable com-
bination of criteria);
− evaluation of the impact of the response of
regional system on the integration of the revealed
factors of innovation development.
following main subsystems: economic, environ-
mental, social, and innovational, including the eco-
nomic growth dynamics, living standards, quality
of life, environmental conditions, and level of the
innovation potential and innovation activity.
Innovation subsystems of Russian regions do
not possess a typical structure. Some papers by
native researchers deal with potential structural ele-
ments of regional innovation subsystems. Thus, the
following structural elements are given: knowledge
generation, educational sphere and process of HR
administration, innovation product fabrication,
and innovation infrastructure. However, a range
of innovation activity entities perform functions
of different structural elements (e.g., higher educa-
tional institutions or accelerators and technologi-
cal parks). This determines sophistication of the
whole structure of the regional innovation sub-
system, creation of certain superstructures, and,
correspondingly, complexity of implementing the
innovative tasks.
From the viewpoint of several authors, factors
that inhibit or stimulate innovation development
and implementation and creation of implemen-
tation of the innovation potential have a global,
macro-, meso- and micro-impact.
The global factors include:
− connections with the global community within
implementation innovative projects, which
provide efficient knowledge transfer, experi-
ence exchange, and innovation popularization.

145
 Experience has shown that any product devel-
oped by innovation companies can potentially
enter the global market. This is mostly con-
nected with the low capacity of the Russian mar-
ket for many innovation product names;
− ability of the created innovative products to
integrate with other products and technological
processes of a corresponding field.
Factors of macro- and meso-level determine the
success of the implementation of innovative pro-
jects. The main task of the state and regional
authorities is creation of advantageous economic
conditions for inflow of investments into the inno-
vation sphere. Development of innovative activ-
ity on the macro-level is performed by developing
efficient regional systems, which create regional
economy growth points and the national economy
in whole. Currently, the regional level has the fol-
lowing obstructions of development of innovative
activity: low financial support of studies and tech-
nological developments, lack of support of young
scientists, juridical protection of small enterprises,
and information support of innovation objects [3].
Objects of innovation infrastructure, which
provide interrelation between the participants of
the innovative activity, are created regionally to
remove the above-listed obstructions and to sup-
port the established innovative enterprises.
Besides, several authors distinguish two groups
of obstructions of development of the innovation
potential of the regional system:
− transformation factors, which determine the
qualitative content of the innovation potential;
− transaction factors, which describe readiness of
the region to perform innovative activity and
determine the limits of availability and imple-
mentation of the innovation potential [11].
Transformation factors include personnel, scien-
tific, technical, process, and financial restrictions,
which can hinder the development of innovation
potential of the regional economic system. Those
include high economic risk, lack of monetary funds
and skilled staff, high cost of innovations, weak
physical and science and technology infrastruc-
ture, high wear, and use of outdated technologies.
Transaction factors include the following: infor-
mational, organizational, and institutional factors.
Those include lack of reliable and efficient mecha-
nisms of cooperation of the state and business
sector of regional economy, innovative culture,
underdevelopment of the regulatory framework of
innovative activity, and innovation infrastructure;
lack of tax concessions and subventions for stimu-
lation of innovative activity of regional enterprises;
lack of information about new technologies and
commodity markets; and unproductive integration
146
of scientific, manufacturing, and educational con-
stituents of the innovative system [3].
Economic factors include lack of own funds
and state financial support, low solvent demand
for innovation products, high cost of innovations,
and long innovation pay-off period.
In the author’s opinion, industrial factors include
low innovation potential and innovative activity
of enterprises in the region, low perceptiveness of
enterprises to innovations, lack of information on
new technologies, insufficient amount of skilled
staff, and lack of opportunities for cooperation
with other innovation-active enterprises and scien-
tific entities [10].
Lack of legislative and regulatory documents gov-
erning the regional innovative activity, laxity of the
terms of innovation processes, and underdevelop-
ment of innovation infrastructure and market of the
technology market are organizational factors, which,
to a greater or lesser degree, restrain the develop-
ment of the regional innovation potential [11].
Most unfavorable factors of forming the innova-
tion potential could be overcome rather quickly if
only certain political and economic priorities would be
given to the development of the innovation economy
segment. Meanwhile, there are some factors that can-
not be overcome so far. They include labor potential
quality, competence which workers get during profes-
sional education from the viewpoint of their compli-
ance to the requirements of the innovation market
sector, studying labor norms and values and types of
social behavior of workers in this economy segment.
Arsentieva N. A. distinguished factors deter-
mining the innovation potential. They include
material readiness of the state and private sector to
implement innovations, research direction, percep-
tiveness of the society to innovations, and innova-
tive traditions [1].
Kokurin D. I. divided such factors into exter-
nal and internal. The latter include factors that
determine the status of the objective internal inter-
institutional connections. Those are form of incor-
poration of entities of innovative activity, their
procedural and institutional structure and size, and
field. Regionally, these factors may be represented
by the following: region specialization, proportion
of state and private enterprises, and so on [8].
Subjective factors of innovation potential include
those occurring during the management process,
conscious solutions concerning development, imple-
mentation or use of innovations by the entities of
the innovation process (entrepreneurs, experts,
regional government) liable for the analysis of exter-
nal circumstances and internal opportunities of the
innovation potential and their implementation.
Divayeva E. A. distinguishes factors determin-
ing the internal content, scale, and pace of chang-
ing the regional innovation potential:
− product upgrade, increase of its technical and
operational level for competitive recovery at
domestic and export markets; increase of activ-
ity of the international research and technology
cooperation, entering the global market;
− quick learning and mass distribution of the
results of scientific studies and technical
developments;
− preservation of human resources including
research and utility staff and the prevention
of transfer of skilled employees to the spheres
beyond innovative activity [6].
Many authors claim the elements of the innova-
tion potential to be the factors influencing its
development. Thus, Tatarintseva I. V. considers
financial, research and technology, organizational,
personnel, engineering and manufacturing, and
consumer factor variables, which reflect the ele-
ments of the innovation potential [17].
According to the analysis of innovative activity of
Russian companies in 2014, the direct losses of the
innovation sphere from economic sanctions com-
prise $50 million. Specifically, there is an upsurge
of innovative activity of native enterprises (Mrazov,
2015). The group index of innovative activity and
the number of new start-up have increased by 18%
and 15%, respectively. Specifically, there is a signifi-
cant upsurge of state activity: in May–June 2014,
the portion of new competitions within active fed-
eral and regional programs increased approximately
by 25% and their total amount comprised 5 billion
roubles. The amount of new field project depend-
ing on Western technologies with the most actual
import phase out has increased: biotechnologies
(18%), pharmacy services (14%), agriculture (11%),
and microsystem electronics (17%). The greatest
progress was witnessed in the sphere of creating
driverless vehicles and robotics (21%) [7].
Apart from stimulation of native innovation
entrepreneurship, sanctions and retaliatory sanc-
tions shall cause a strong negative impact. Despite
the existing scientific, labor, and industrial poten-
tial, the Russian portion in the global innovation
system comprises less than 1%, which was caused
by falling out from the global technological drive
of the 1980–1990s. As a result, in 2013, GDP
growth of the United States exceeded that of Rus-
sia 12 times (meanwhile the GDP volume of the
United States exceeded the that of Russia 8 times),
and the GDP growth of EU countries exceeded
that of the Russian Federation four times [16]. In
the United States, the portion of productive forces
of the sixth, fifth, and fourth waves of innovation
comprises 10%, 60%, and 20%, respectively; in
Russia, the portion of productive forces of the
sixth, fifth, fourth, and third waves of innovation
comprises 0%, 10%, 50%, and 35%, respectively.
147
In 2012–2013, expenses on research and devel-
opment in Russia were 25 times less than those
in the United States: in the United States—$419
billion, in China—$198 billions, in Japan—$159.1
billion, and in Russia—$18 billions. First, sanc-
tions will negatively influence cooperation with
leading European and US companies operating
in the research and development sphere. Second,
the ultimate values of investments into the inno-
vation sector reduce against global financial crisis;
in 2014, 1.53 trillion roubles from the state budget
were allotted for the implementation of innovation
programs and projects. This is less than the value in
2013 by 30%. The amount of expenses on innova-
tions in the first half of 2014 has also reduced com-
pared with the same period of 2013 (450 billion
roubles and 715 billion roubles, respectively).
The role of the state as the coordinator and
stimulator of refocusing of the native economy
under sanctions and retaliatory sanctions is very
important as it is needed to initiate the business
mechanisms of innovation development and use
on national level. It is obvious that because of the
absence of public–private partnership, entrepre-
neurs cannot change the economy focus, as the
issue of developing small and medium-size innova-
tion entrepreneurship is especially acute (in 2012,
its proportion in the total turnover of all entities
was only 21%), large business in Russia is mostly
represented by mining stocks [4]. Currently, the
government is taking the first steps to refocus the
economy. Thus, State Duma is reviewing a bill
“On industrial policy in the Russian Federation”
intended to determine the scale of state support
to the industrial sector, create conditions for its
territorial development, and clarify the peculiari-
ties of providing subventions to industrial entities,
which includes reinforcement of state regulation
of efficiency of resource allotment to the industrial
sector. Also, the innovations adopted by the bill
include special investment contracts between RF
and the investor and implementation of the best
possible technologies.
Much attention in the law is given to the creation
of high-performance workplaces and industrial
and social infrastructure objects. Also, the law pro-
vides allowances for investors, as its main purpose
is to create maximally advantageous conditions
for the implementation of an innovation project.
However, to receive financial support, the project
shall comply with the requirements of financing
volume, duration, types of production, and project
nature. Financial, budgetary, and socioeconomic
efficiency shall be the main selection criteria. In
addition, the law provides mechanisms of repay-
ment financing for access of industrial entities to
long-term loans on competitive conditions. The
Industrial Policy Council under the President of
Table 1. Innovative industrial technologies used by constituent territory of the Russian Federation.

2010 2011 2012 2013 2014

The Russian Federation 203330 191650 191372 193830 204546

Northwestern Federal District 16622 17894 17473 19697 20840
Komi Republic 550 609 491 529 564
Arkhangelsk region 1298 1414 1367 1384 1362
Including Nenets Autonomous Okrug 15 18 25 8 3
Vologda region 3209 2228 2196 2184 2379
Kaliningrad region 916 1040 1050 1044 812
Leningrad region 913 1195 1178 1532 1648
Murmansk region 1112 1557 1154 1106 1135
Novgorod region 1680 1944 1786 1684 1864
Pskov region 1609 1594 1140 1171 1292
Saint-Petersburg 4584 5122 6539 7128 7924

the Russian Federation shall become the center 2 TECHNIQUE OF RESEARCH FRONTS
of coordination of all segments of the production IDENTIFICATION
sector and relations with the society and science.
The regional innovation subsystems are the A logical model is applied to evaluate the effect of
basis of regional economy innovation develop- neutralizing the factors on the innovative activity
ment, which can create conditions for transferring of Russian business using economic and statistical
the economy to the innovative development type methods (Figure 1).
and intensify innovative activity and finally form
the medium for regional growth. The advanced
production technologies used for the Russian sub-
jects are presented in Table 1.
Development and implementation of cor-
responding programs of federal, regional, and
municipal levels are the key elements of creating
innovation subsystems on the meso-level.
The meso-level characterizes universal condi-
tions of production in the relationship between
national economy and an individual firm. This also
forms the infrastructure of interfiled complexes
and large regional systems, for example, in federal
estates of the Russian Federation and economic
districts of certain countries.
Groups of factors, which are homogenous from
the viewpoint of solving the task at hand, allow
to substantiate the content of further criterial indi-
cators for evaluating the impact of these factors
on the level of regional innovation development,
which are distinguished by statistical analysis
of the condition of innovation resources in the
Republic of Karelia. Having considered various
approaches to distinguishing factors, which influ-
ences innovation potential, it should be mentioned
that only a thorough study of each factor, which
impacts regional innovation potential, would reach
sustainable innovation development. Figure 1. Structural and logical model with elements of
Therefore, regional innovative development economic and statistical methods1.
1
Note: to assess the relative strength of influence of
shall be reviewed taking into consideration the the factors constraining the development of innovative,
factors of socioeconomic functioning of the designed elasticity coefficient, which shows the percent-
regional system in total. Only in this case, federal, age changes should expect innovative activity level when
regional, and municipal governance structures will changing the integral index of assessment of adverse fac-
be able to perform control efficiently. tors hindering innovation development by 1%.

148
Table 2. Characteristics of the integral index of evaluation factors hampering innovation development.
IF Sign
1 2
[0–0,19] Absolute lack of negative factors
[0,20; 0,36] Low level negative factors
[0,37; 0,66] Level of negative factors below average
[0,67; 0,79] Average level of negative factors
[0,8; 1] Level negative factors above average
This model:
− Is clear,
− Uses a simple-to-use economic and statistical
methods (calculation of integral index, coeffi-
cient of elasticity)
− Is based on the data of statistical reports,
− Can be applied at the macro-, meso-, and micro-
levels.
To evaluate the factors hindering innovation devel-
opment, it is proposed to calculate the integral
index on the basis of: 1) accounting component
factors, 2) using the method of peer review:
IF = γ1P1 + γ2P2 + γ3P3 + … + γnPn
where IF—integral index of evaluation factors
hindering innovation development, points; γi—the
weight of the i-th factor; Pi—i-th factor scores.
The maximum score Pi factor in conducting a
questionnaire in dense regions was 5.0. Expert
method is used to assess the weighting coefficients.
This method is based on the average weight esti-
mates given by the group of experts. On the basis
of this principle, weight is calculated as:
∑
n
γ ij
γj= I =1
∑
nm
i j =1
γ ij
where n—the number of experts;
m—the number of weighting coefficients;
γij—weighting coefficient of the j-th object, i-th
expert.
The integral index of evaluation factors hinder-
ing the development of innovative products was
interpreted on the basis of Harrington’s scale of
desirability.
This scale of desirability refers to the psycho-
physical scales, with the help of a correspondence
between the physical and psychological para-
meters. The rank index (ranging from 0 to 1) is
established scale (Table 2).
3
Favorable innovative environment
Rather favorable innovative environment
Need activation of the internal and external factors for the
increase of innovative activity
Management decisions necessary to neutralize the negative
impact of factors, both at the macro- and micro-levels
Unfavorable innovative environment
3 CONCLUSION
The analysis of innovative activity in Russia on
various classification groups demonstrates that
(1) innovative activity is at a low level in the country
and significantly yields to the corresponding meas-
ure value in many countries and (2) the develop-
ment of innovative activities happens at very slow
rates that are not promoted by the crisis phenom-
ena of the last years. Offers and recommendations
about neutralization of the most significant factors
interfering innovative activity of the Russian entre-
preneurship need to be systematized in the follow-
ing directions: (1) enhancement legislative and the
(1) standard legal documents regulating and stimu-
lating innovative activities, increase in efficiency
of the operating system of protection of author’s
rights, decrease in risks of imitation by competi-
tors, development of cooperation communications;
(2) decrease in high economic risk, increase in suf-
ficiency of own money, enhancement of financial
support from the state, decrease in the duration of
payback period of costs for innovations; (3) devel-
opment of material infrastructure and innovative
infrastructure (intermediary, information, legal,
banking, other services); (4) development of mar-
ket size and stimulation of demand for new goods
(2) (works, services), development of an information
system about new technologies and markets; and
(5) enhancement of national system of training of
qualified personnel and regulation of employment
and advanced training of personnel.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

The role of innovations in the modern economy and their

economic essence

L.I. Pugina, N.V. Chaikovskaya & D.V. Chaikovsky

Murom Institute of Vladimir State University, Murom, the Vladimir Region, Russia

ABSTRACT: The paper is devoted to studying the role of innovations in the modern economy and
specifying their economic essence using the materialist conception, dialectical method, and qualitative and
quantitative analysis. It is proposed to classify innovations from the point of view of the form of their eco-
nomic implementation: innovations as the result of scientific thought, new ideas that are not commodi-
ties yet; innovative products as commodities on the market (i.e. novelties intended for sale); innovations
introduced into the production process and applied in industry.

1 INTRODUCTION position or undermining the monopoly position

In the modern business environment, the impor-
tance of innovations is growing. They act as the
material basis for productivity enhancement, the
condition for increasing the volume of produc-
tion, its quality and competitiveness, and reducing
costs.
Despite the obvious progress made in the theo-
retical framework for the study of innovation, in
this field, there are still many unsolved problems,
which make it difficult to assess innovation activ-
ity and its influence on the economic evolution of
production systems, and to regulate this sphere at
the regional and national levels.
The purpose of the work is to study the role of
innovations in the modern economy and specify
their economic essence, which is achieved by using
the materialist conception, dialectical method, and
qualitative and quantitative analysis.
2 A LITERATURE REVIEW
The primary element of innovation systems and
innovation activity is innovations, i.e. novelties
and introductions reflecting the process of trans-
formation in a particular area. The result of scien-
tific and technological progress is innovations. In
the early twentieth century, J. Schumpeter (1982)
mentioned the implementation of new combina-
tions. According to him, this concept covers five
cases: the production of a new good or a new qual-
ity of a good; the introduction of a new method
for production; tapping into a new market; getting
a new source of raw materials; the appropriate
reorganisation, for example ensuring a monopoly
of another business. According to Schumpeter, an
innovation is not just a novelty; it is a new pro-
duction function, transition from an old produc-
tion function to a new one. In his opinion, not
every introduction is an innovation; such is new
production.
In the economic literature, there is no common
interpretation of innovations. However, there are
two approaches to understanding this term: nar-
row and wide.
Scientific literature quite often considers inno-
vations in enterprises narrowly, only from a techni-
cal point of view. The narrow approach identifies
an innovation with industrial production, espe-
cially with its new methods, technology and prod-
ucts. Adherents of this approach are L. Baryutin
and B. Twiss (Baryutin 1986, Twiss 1989). This
interpretation of innovations is explainable for the
following reasons:
− the important role of technical innovations in
enterprises;
− a deep and detailed scientific consideration of
technical innovations issues;
− easily identifiable and quickly achievable eco-
nomic results of technical innovations.
According to the wide approach, innovations are
considered as a new product or service, a new way
of their production, a novelty in organisational,
financial, research and other fields. For example,
Blyakhman (1991) interprets an innovation as a
progressive change of a product, technology and
organisation of production, in which scientific
knowledge is materialised. Huczek (1992), adher-
ing to the wide approach, defines innovations from
functional, attributive and objective points of view.

151
 According to the functional approach,
innovations are regarded as a process of conscious
changes in methods, technology and labour organ-
isation. According to the attributive approach, an
innovation is considered as one of the possible
responses of enterprises to social needs. Accord-
ing to the objective approach, which is related to a
combination of products, procedures and methods
characterised by certain features, innovations are
associated with the introduction of a new tech-
nological process or procedure, the application of
new kinds of tools or new principles of using the
tool, the application of new kinds of raw materials.
3 RESULTS
It should be noted that the concept of ‘innova-
tion’ is broader than ‘new equipment’. Innova-
tions include all novelties in production, financial,
organisational, research and educational activities.
It is also necessary to distinguish between the con-
cepts of ‘innovation’ and ‘introduction’. Hereafter
we will interpret an introduction as an object which
is qualitatively different from a previous analogue
and introduced into the production process or any
other sphere of human activity as a result of con-
ducted scientific research or a discovery.
Innovation activity should not be limited to the
creation of new means of labour, technological
processes, methods of organisation and manage-
ment. The most important component of innova-
tion processes is the introduction of these elements
resulting in the renovation of current production
and its technical base. Therefore, in an extended
sense, innovation activity also includes best prac-
tices and the use of novelties in other areas.
Innovations should be considered not only from
the point of view of the functions of production
but also from the point of view of their quality
level. Consumers themselves choose preferable
consumer properties of introductions. Under mar-
ket conditions, producers should focus on the best
world analogues, the requirements of international
and national standards. Hence, innovations are
always the application of new knowledge in prac-
tice. The quality of innovations, newness is defined
as the degree to which they meet consumer and
market requirements.
Under market conditions, innovations should
be also described in terms of an innovative product
or good (novelty) intended for sale (e.g. intellectual
property). However, not all inventions become the
innovative product ready for sale. Such situation
can be explained by organisational, legal and other
reasons.
Thus, it is necessary to interpret the concept of
‘innovation’ in three ways:
152
− in a narrow sense: as the result of scientific
thought; a new idea, novelty, experience that are
not commodities;
− as an innovative product, i.e. a novelty intended
for sale, an innovative product as a commodity
on the market for innovations (for intellectual
property);
− as an introduction, i.e. innovation introduced
into the production process and applied in
industry.
Introductions are the result of the innova-
tion process, which is the organisational basis for
innovation activity. The innovation process can
be defined as a set of scientific, technological and
organisational changes during the introduction.
The set of innovation processes determines scien-
tific and technological progress (Valdaitsev 1995,
Valdaitsev 2005).
For activating innovation, it is required to stimu-
late the creation, use and diffusion of innovations,
and to create a modern efficient organisational and
economic mechanism of the activity (Pugina 2012,
2015a, b). Peculiarities of innovation processes,
which should be taken into account while creat-
ing an organisational and economic mechanism
of management, result from the prevailing type of
introductions forming these processes. Therefore,
an important stage in the analysis of innovations
is their classification. The need for classification
arises from the complex nature of innovations,
their many-sidedness, and a variety of spheres and
modes of application.
There exist the following criteria for classify-
ing innovations: innovation objectives; the signifi-
cance of introductions; spheres of application; the
object and scope of application of innovations;
causes of emergence; the nature of needs satisfied;
the attitude of enterprises towards innovation;
the place of innovations in the production system
(Ilyenkova 2012, Vodachek & Vodachkova 1989,
Zavlin et al. 1994).
Since these criteria do not make it possible to
fully reflect the essence of innovations, it is nec-
essary to add two more classification criteria: the
economic level of innovations (according to which,
as mentioned above, innovations are divided into
novelties, innovative products and introductions)
and the scientific and technical (qualitative) char-
acteristics of innovations (they are divided into
revolutionary (brand new quality), the most essen-
tial (qualitative changes) and insignificant improve-
ments similar to pseudo-introductions (changes in
appearance)).
Classifying innovations according to the men-
tioned criteria helps to choose the type of inno-
vation strategy of the enterprise, to design and
create organisational and economic mechanisms
of management, or to determine the position of
innovative products on the market and forms of
selling and promoting innovative products.
4 CONCLUSION
After studying the role of innovations in the
modern economy and specifying their economic
essence, it is possible to conclude that they are not
only characterised by newness but also have differ-
ent forms of economic implementation: innova-
tions as the result of scientific thought, new ideas
that are not commodities yet; innovative prod-
ucts as commodities on the market (i.e. novelties
intended for sale); innovations introduced into the
production process and applied in industry.
However, there remain many unexamined ques-
tions connected with innovations (e.g. the problem
of forming an efficient organisational and eco-
nomic mechanism of innovation activity), which
determines the choice of further research topics.
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© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Problems of establishment and development of start-ups in Russia

I.B. Teslenko & O.B. Digilina

Federal State-Funded Educational Institution of Higher Education, “Vladimir State University named after
Alexander and Nikolay Stoletovs”, Vladimir, the Russian Federation

ABSTRACT: This paper contains definition and analysis of the main problems hampering the
development of small innovation business in Russia. On the basis of the analysis of Russian literature
on the topic, the authors define that the main obstacles in the formation of start-ups in Russia are the
following: gaps in the existing investment legislation; lack of the institutional environment for the forma-
tion of clear and transparent funding schemes for the projects at their “sowing season” stage; lack of
tax privileges; and mismatch of interests of the state and subjects of innovative activity in the process of
investment into innovation activities. The authors conclude that the existing system of start-ups develop-
ment in Russia does not allow creation of synergy effect in realization of innovation policy.

1 INTRODUCTION repeatable and scalable business model [5]. In the

The 21st century, characterized by the strengthen-
ing role of innovations in the economic and indus-
trial development of countries, pushes the national
economies to their continuous development.
The business community is aware of the need to
develop innovations. Innovations are a catalyst for
sustainable development of countries; improve-
ment of quality and standards of living of popula-
tion; improvement of micro- and macroeconomic
factors, conditions for business development, qual-
ity of raw materials and manufactured goods, and
quality of education; and improvement of scien-
tific approaches in solving any problems.
Under the current geopolitical and macroeco-
nomic conditions, including sanctions regime in
relation to the Russian Federation (which limits
the inflow of financial recourses and availability of
credit funds for the banking sector), it is necessary
to develop innovative ways of further development
of the country as well as ways of obtaining the
necessary scientific knowledge and experience for
building an innovative system. One of the ways of
innovation activity development is the development
of start-ups. Import substitution policy, which is
being realized in Russia, gives a good chance for
new business development.
Russian economic literature offers multiple
approaches to define start-ups. A start-up is a
company, which is only planned to be created,
or a just created company in the stage of growth
and development of its abilities [12], whose busi-
ness is based on either new innovative ideas or the
just appeared technologies [24]. S. Blank defined
start-up as an organization formed to search for a
most common sense, a start-up is the beginning
stage of formation of a small innovative enterprise
or a small innovative enterprise in the beginning
stage of its formation and development. In our
research, we define start-up as a small innovative
enterprise based on an innovative idea.
2 METHODS
In our research, we implemented statistical analysis,
analysis of Russian literature and expert opinions,
and analysis of experience of successful start-ups.
3 PROBLEMS
Several problems hamper the establishment and
development of innovative start-ups in Russia.
They are associated with many unresolved issues in
various fields: legal, financial, tax, organizational,
psychological, motivational, human resources, and
others.
1. The legal framework of start-ups in Russia is
not completely formed. There is no explicit con-
cept of a “start-up” or specific rules governing
its activities. The legislation regulating business
venture and investor protection are not worked
over [15]. The legislation on the protection of
intellectual property rights is not worked over
either. There are legal restrictions on the use
of property, which is in the operational use of
higher education institutions, which limit the
entry of technology parks into the authorized

155
 capital of the management company [19].
Crowdfunding is not enshrined in law as an
instrument of financing in Russia (in December
2014, State Duma held a meeting on informa-
tion support of the innovation activities and
improvement of the legislation, dedicated to
discussion of the future of “public funding”
in Russia. Suggestions were made for amend-
ments to the Tax Code and the formation of
the instrument of public–private partnerships,
including the creation of demand for innova-
tion from large corporations [8]; however, there
is no change in the legal framework yet). There
are many other problems as well.
2. Despite the fact that state programs for devel-
opment of start-ups are being implemented
in Russia, it is believed that the financial sup-
port from the government is insufficient. The
established institutions of development finance
already operate innovative businesses (except
funds, but they provide funding for rather big
projects and on the terms of co-financing). The
rate of growth of innovative start-ups is ham-
pered by limited resources [22]. If we compare
indicators, such as the ratio of the volume of
venture capital investment and GDP in different
countries, then, for countries with mature mar-
ket of direct and venture investment, it makes
tenths of a percent of GDP, while in Russia it
less than 0.01% [10].
Russian investors are interested in supporting
those companies, which are looking for funding to
expand an existing business. In particular, among
the nominees for “Startup of the year 2013” award,
there happened to appear the long-known compa-
nies in the field of information technology, which
were not start-ups by far. It turns out that the
already established groups absorb resources, which
are in store for start-ups [17], for the development
of which co-financing is often being used (i.e., the
funds come from many sources—public funds
(subsidies, grants), from venture capital investors
(business angels), crowdfunding resources). In this
case appears the problem of determining the con-
tribution of each investor of a project and his/her
share in the ultimate profit. Usually in such cases,
one of the participants (mostly the state) becomes
a donor, not attempting to seek commercial advan-
tage from the transaction, and working to achieve
a different kind of effects. [6]
A similar problem arises in the case of develop-
ment of syndicated lending. As a result, the com-
bination of different types of funding at each stage
of development of venture business can greatly
affect the final income of the investor [2].
The activities of some funds are very expensive
in nature. For example, IIDF, having in its staff no
156
experienced entrepreneurs spends a lot of money
for the maintenance of mentors, tutors, teachers,
and other teaching staff, which in most cases, too,
has no practical experience. These people cost
600,000 rubles for each start-up. Even the most
famous and successful accelerators of the world,
such as the Y-combinator, Techstars, Launch-
pad, and 500Startups, do not charge such a huge
amount, having in their teams the best mentors of
the planet [16]. This, of course, does not help rapid
establishment of start-ups.
The practice shows that the activity of crowd-
areas in Russia is lower than that in other coun-
tries. The function of acquisition of sponsors and
investors is fully vested on the project authors
(apparently, that is why only 13% of Russian
crowdfunding projects are successful) [21], inter-
est rates are quite high, awareness is not enough
(however, according to experts, 80% of entrepre-
neurs, who were able to understand the mechanism
of crowdfunding and prospects of its use for busi-
ness, decide on cooperation with Crowdfunding
platforms) [15].
Therefore, Russian startuppers seek access to
foreign sites, but to get the access it is necessary
to be a resident of another country and to register
as a legal entity. [18] That is, in view of these rea-
sons, many Russian startuppers either move to the
United States, or use the capabilities and resources
of the American (English-speaking) market in a
limited way. This is a good reason why the “emigra-
tion” of Russian start-ups became almost a natural
stage of their development. For example, the team
of Luka project (“smart” application, which is
able to pick out restaurants in accordance with the
tastes of the phone owner), when it came to fame,
moved to San Francisco, a successful start-up from
Moscow with a Stampsy project (an easy tool for
creating photo compositions) settled in New York
[18], and so on.
In general, because of the above mentioned and
many other reasons, the ability to attract external
funding in sufficient volumes is limited for small
companies in Russia.
3. Another problem hindering development of
innovative start-ups is a high tax load, which
together with the instability of their cash flows,
hampers the growth opportunities. There are no
real material tax incentives in Russia for small
innovative enterprises [2]. Start-ups pay taxes
(e.g., Simplified Tax System (STS) and Patent
System of Taxation (PST)). According to the
Federal Law 477-FZ, starting from 10.01.2015
until 2020, just registered individual entrepre-
neurs may benefit from tax holidays using spe-
cial regimes of taxation, such as STS or PST,
with tax rates for just registered entrepreneurs.
 The legislation does not provide tax holidays for
the whole country, but allows regions to pass or
not to pass a corresponding law. The amount
of tax incentive may vary. According to the law,
only three types of activity as stated in the char-
ter documents of an entity may qualify for tax
incentive: production, social activity, and scien-
tific activity.
4. The strategy and tactics of investment activity
play important role in the establishment and
development of start-ups. Many investors in the
seed stage of the project adhere to the aggres-
sive policy: they may take 30–80% of the busi-
ness, while investing money in amount, which is
enough for 1 year of work [7]. This makes quick
attraction of investors in the next step diffi-
cult, because the founders’ merit in the project
development is belittled. Investors, in their turn,
believe that the lack of “intermediate step” is
caused by the founders of the start-up and low
quality of their competencies.
There are times when the venture capital funds
are focused on a quick sale of a start-up and its
team to a corporate investor; in this case, they will
underestimate the value of the company, while
in the West investors pay 160–800  million rubles
solely for a promising idea or team.
There is one more problem. The early-stage
investors do not incline to fund start-ups outside
the major cities (Moscow, St. Petersburg). Over
the past few years, the Moscow business angels
and funds have made 80% of all the “seed” invest-
ments. Experts believe that investors will turn to
the regions only in case of high quality of their
projects, although now experts recognize the huge
potential of development in the Urals and Siberian
region [3].
Russian investors (as well as funds) prefer to
invest mainly in low-risk projects and in those
that can be established as soon as possible. Such
projects solve problems of rather small narrow
circle of people, and, as a rule, these are product
copies. All these reduce the motivation of entrepre-
neurs to create a start-up. There are not so many
applicants for grants, so there is almost no selec-
tion, and as a result, the low-quality projects are
funded [16].
Indeed, it is always difficult to develop and
implement innovative projects. It is easier to copy
successful projects, but this is unlikely to provide a
significant competitive advantage. Practice proves
this.
Therefore, the emergence of many companies,
which made their start in Silicon Valley, is due
to the emergence of an alternative solution to a
known problem. eBay has eliminated geographi-
cal restrictions on the purchase of various goods.
157
PayPal system allowed people to transfer money
to each other without risk and time expenditures.
Thanks to Tivo people got the opportunity to
watch television in their convenient time. Netflix
and Apple ITunes fundamentally changed the busi-
ness model in the field of entertainment. Together
with Google, it has become easier to search infor-
mation on the Internet. Alternative solutions of
these start-ups have been recognized and got a
large-scale application [18].
Most venture investors do not believe that a
Russian team can create something new, so they
prefer to invest in the “average” start-ups in the
West rather than in potential leaders in Russia.
Probably, this is caused by the fact that capi-
tal funds are managed mostly by business theo-
rists, who have no practical experience of creating
their own projects and technological start-ups
from scratch. That is why, it is difficult for them
to understand many ideas and take risky decisions
[16].
Problems of strategy and tactics of activity
are specific not only for investors, but they exist
among startuppers themselves. Some startuppers
have peculiar attitude to the investment: they see
getting the investments as the ultimate goal. After
receiving them, they relax or even find a new place.
Therefore, about 90% of start-ups die because they
perceive investments as an income and not as a
means by which they can start getting profits. [11]
Peculiarities of strategy and tactics of behavior
of both investors and startuppers lead to the fact
that domestic production of innovative goods and
services loses the best national high-tech projects
to foreign firms, which use the balanced foreign
market to obtain the necessary funds [9].
5. There are many unsolved organizational prob-
lems in the establishment and development of
start-ups.
Often, these problems are associated with the
lack of coordination between the state and non-
state venture participants. For example, IIDF pays
special attention to projects related to urban issues,
environment, education, social affairs, religion,
politics, legally restricted and excise goods, and so
on. However, the vast majority of these projects
cannot be monetized, converted to commercial
projects, and sold to strategic investors—compa-
nies. They lie outside the commercial sphere and
must be funded not by the companies, but by the
state. [17].
Contradictions between the decisions of the
participants interfere with the normal functioning
of start-ups. For example, in some programs, the
state supports innovation (217-FZ), whereas in
the other programs, it restrains them. Therefore,
the government has revised the key parameters of
universities toward the publication activity and
other research results at the expense of innova-
tions [13].
With the implementation of some infrastruc-
ture projects, the projects do not achieve the
goal for which they were started, and their gist is
emasculated.
Therefore, the project of industrial park in the
Russian regions is often not perceived as a project,
the criterion of economic efficiency of which is
the increase in the taxable base of its residents and
establishment (assistance in the establishment) of
new enterprises and high-performance workplaces,
but as an infrastructure project designed to gener-
ate profits simply by leasing premises and by prop-
erty management [19].
In the implementation of the project on estab-
lishment of technoparks, there is a problem of
coordination of efforts in establishment and func-
tioning of technoparks, because these issues are
at the same time dealt with by several ministries
(Ministry of Economic Development, Ministry of
Communications, Ministry of Industry and Trade,
Ministry of Education and Science). There is no
single governing body for this project at the level of
Government of the Russian Federation.
The activities of individual infrastructure ele-
ments are not always organized effectively. In the
framework of the ongoing Russian Federation pro-
grams on the development of technoparks, there is
no provided linkage of actions into a coherent and
harmonious system. There is observed separation
of activities for the development of research (the
formation of the material infrastructure of techn-
oparks) from the activities on the development of
innovation (service) infrastructure, which creates a
hostile environment for the commercialization of
innovative projects. Consequently, this leads to an
inefficient use of budget funds [19].
Thus, obstacles to the development of start-ups
occur almost at all stages. Initially, not all start-
ups overcome the selection stage, and the quality
of a project is not always the matter. Each selec-
tion committee for funding start-ups is composed
nearly of the same people. The acquaintance with
these people allows us to get public funding (a
grant of a fund), but for a good reason.
Approved projects order any services from com-
panies owned by the jury members, who, in turn,
are not competent in the matters of technology
innovation and do not act as potential consumers
of future products. This prevents truly worthwhile
and promising start-ups from starting their activi-
ties, billions of rubles are spent inefficiently [16].
There are difficulties in the withdrawal from
the business, as there is no developed mechanism
of sale of companies. Most Russian investors,
158
who have invested their capital into the project,
consider the project as their own new business.
They give shares to the developer but preserve the
control [14].
Another problem is the development of the
branch network. Russia has the following system:
if the entrepreneur operates in a different region
and hires employees there, he/she has to open a
branch or representative office there. If an entre-
preneur manages the company in Moscow and
wants to hire an employee from Moscow, he/she
cannot do this if the company is located in Nizhny
Novgorod. Otherwise, the entrepreneur can be
fined, as social security contributions must be
paid to the budget of the municipality, where the
employees work, which is very difficult [11].
For a number of subjective and objective rea-
sons, developers do not always incline to reach the
end—to commercialize innovations.
To universities and research institutions, com-
mercialization of innovation is an activity, which
is in a certain way contrary to the educational and
scientific functions.
A university or scientific organization is trying
to patent as much intellectual property as possible,
and after the patent registration, its promotion
stops.
The main purpose of patenting in Russian uni-
versities and scientific organizations is to include
the fact that the patent has been obtained into
reports on grants, FTP, and other programs of
public funding (in some cases, obtaining patents is
also a condition for participation and victory).
However, getting patents does not affect the aca-
demic career and does not allow getting income;
therefore, it is not perceived by employees as a key
task. Registered patents allow only increasing the
chances of winning the competition in the FTP.
As for employees of the universities, publication
of works in indexed foreign publications is impor-
tant. The amount of such works counts when the
rating of the university or the amount of financ-
ing is determined. This fact does not leave time for
patenting.
Transfer of rights under the license agreement
to a third-party entity (not the author of the pat-
ent) is currently poorly developed.
Therefore, for the Russian business, it is more
profitable and more common to order R&D on
economic agreements: it is possible to take over the
rights on the results of intellectual activity and put
these results on the balance sheet (and save on the
VAT). Thus, the company increases its capitaliza-
tion and does not make regular payments under
the license agreement. Developer is not motivated
to transfer intellectual property to a higher educa-
tion institution, and the assets of a university are
not realized.
 The complexity of reporting affects the motiva-
tion of companies to cooperate with universities
as well.
In Europe, the developers are dispensed from the
load on intellectual property issues, which allows
them to concentrate fully on the development of a
technology. All the issues of licensing, patenting,
and intellectual property management are included
in the scope of responsibilities of the office staff,
which is in charge for the implementation of tech-
nologies. A project developed is transferred to such
an office and its employees are in charge for the
further implementation of the project in a profes-
sional manner [13].
Apart from that, universities offer a variety of
financial incentives to researchers, such as lump-
sum payments; percentage of future revenues;
funding research crews and laboratories; supple-
mentary benefits; taking into consideration com-
mercialization success in the adoption of decisions
on awarding titles; and promoting in the academic
career. The rights on the invention in most cases
belong to the university, which transmits them to
the office for the implementation of technology.
Revenues from the commercialization are dis-
tributed in various configurations: in Belgium or
Denmark, the author gets 25% of revenue from
technology commercialization, and 90% in Swe-
den. At the same time, in Belgium, 40% is given
to a department or a laboratory, and in Denmark,
25% is given to the university and vice versa [13].
Russian universities are aimed at attracting
grants and other state funds instead of attracting
the investment of commercial funding (on aver-
age, about 6% of funding in higher education is
from off-budget sources). They do not want to
take responsibility for specific business results
of applied research and R&D, so business com-
petence in higher education is not developed. In
other countries, on the contrary, with the devel-
oped innovative ecosystems, the research and edu-
cation policy is aimed at a gradual reduction of
public funding of R&D. This forces universities to
work with industry. In the countries with the high-
est share of R&D expenditures relative to GDP
(e.g., South Korea, Israel, Finland, and others),
much larger funds are drawn from the real sector,
not the state [13].
Even in the program “Research and develop-
ment on priority directions of scientific-technolog-
ical complex of Russia” for 2014–2020 the block
“technology commercialization” was removed
in relation “with significant change in its goals
and objectives aimed primarily at improving the
effectiveness of research and development sector
in the creation of the scientific and technological
groundwork for further development of projects,
159
the demand for which is formed by the branches of
the Russian economy”. (RF Government Decree
dated May 2, 2013, No. 736-p).
It turns out that the financing of the innovation
ecosystem development in Russia is often directed
to the creation of a redundant infrastructure to
the detriment of quality. In particular, centers
associated with marketing and commercializa-
tion are considerably inferior to the development
infrastructure. As a result, the internal innovation
infrastructure may not be enough to build a full-
fledged process of innovation commercialization.
A number of links fall out, which entails a reduc-
tion in the efficiency of the entire ecosystem.
In the process of functioning of network struc-
tures in Russia, many problems occur regarding
the cooperation within innovation networks. In the
process of the formation of networks or alliances,
there is often a risk of such behavior of partners,
where each of them will seek to get as much benefit
as possible and to contribute as little recourses as
possible [1].
The innovative infrastructure in other countries
provides a sequence of stages of commercializa-
tion of innovation and close relations between
the subjects of the ecosystem. The priority is the
development of “soft” infrastructure and services
(computerized information, innovative property,
economic competencies) rather than capital invest-
ments [13].
6. There are development problems within start-
ups themselves. The reality is that not in all
areas the startuppers are competent (market-
ing, business planning), and they do not have
enough knowledge. Therefore, the quality of
projects is affected.
The distinctive feature of a start-up is that it
can change priorities in development, which do
not match with the desire of investors to have a
guarantee of some kind of stability. The start-up
market is arranged on the principle of “one of
10 survives”. Therefore, a number of projects ini-
tially start with the idea “Well, this amount will be
enough for a year, and then we will close”. Those
start-ups do not build far-reaching plans, and pur-
sue short-term interests [4].
There is an opinion that Russia lacks resources
and development [12]. This is not entirely true.
There are inventions, which can potentially become
world “stars”; in Russia, there are managers capa-
ble of writing a good business plan for a project.
However, this is not the main thing. For an inves-
tor, it is important to have both in the company
implementing the project. In this case, investors for
such a project will appear.
4 RESULTS
Nowadays, many objects of innovative infrastruc-
ture are created and various tools of innovation
activities support are being applied in Russia.
However, the Russian innovation system of start-
ups development is characterized by a low consist-
ency of actions of participants, inconsistency, lack
of targeted support tools, weak cooperation of the
participants, and so on.
Not all the elements of the innovation ecosys-
tem have been completely developed (there are
problems with the information support of inno-
vators, education, training, etc.). In addition, the
Russian practice of start-up development shows a
heavy reliance on state support.
A combination of all the above-mentioned fac-
tors does not allow creating synergy in the imple-
mentation of start-up development policy. Only
active and mutually beneficial cooperation of the
participants in all sectors and their effective man-
agement and coordination can provide a break-
through in the development of start-ups.
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ness and interoperability with regional institutions.
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data/2012/07/23/1265214441/16.pdf.
[23] Fomin I.V. On the public initiative in the develop-
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mode.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Rise and development of the ecosystem of innovative entrepreneurship

in Russia

O.A. Kornilova & N.V. Abdullayev

Vladimir State University named after Alexander and Nikolay Stoletovs FSBEI, Vladimir,
The Russian Federation

ABSTRACT: This paper deals with the authors’ understanding of innovative entrepreneurship ecosystem
and contains characteristics of constituents (subsystems) of such ecosystem in Russia. The authors pay spe-
cial attention to financial subsystem: they analyze both conventional tools of financing innovative start-ups
and innovations, which are new for innovation infrastructure. They underline that the main issue of ecosys-
tem development in Russia is the lack of coordination in actions of its participants, the absence of winning
cooperation, and the efficient intersector partnership.

1 INTRODUCTION stimulate private investments in priority sectors

Innovation entrepreneurship ecosystem combines
interdependent and mutually reinforcing techni-
cal and industrial systems, entities, firms, and
corresponding management systems necessary
and sufficient for the satisfactory performance
of pioneering work and innovation implementa-
tion. Rise of start-up establishment innovation
infrastructure (ecosystem) in Russia began in the
end of 1990s. Financial subsystem is its important
part (development institutions, venture capitalists,
venture funds, angel investors, crowdfunding plat-
forms, banks, etc.). This ecosystem also includes
the technological subsystem (technology parks,
business incubators, clusters, associations, etc.),
education and science subsystem (higher educa-
tional institutions, research institutes, scientific
laboratories, RAS, research departments of large
companies), information subsystem (information
centers and portals, conferences, trade fairs, advi-
sory agencies, etc.), and innovation transfer sub-
system (technology transfer centers, engineering
centers, experimental machine design bureaus, pat-
ent, inspection and certification entities, etc.). All
these institutions create conditions for innovation
entrepreneurship.
The purpose of this work is inventory of the
innovative entrepreneurship ecosystem institutions
existing in Russia and analysis of their sufficiency
for its development.
2 STATEMENT
One of the most important elements of the Russian
ecosystem is state development institutions. They
and economy spheres and create conditions for
creating infrastructure, which provides access for
enterprises of these economic spheres to necessary
financial and information resources.
Such development institutions include: Agency
of strategic innovations, Vnesheconombank, RVC
OJSC, RUSNANO OJSC, Moscow Exchange
Innovation and Investment Market, Russian
Foundation for Technological Development
Federal State Autonomous Institution, The Fund
for Infrastructure and Educational Programs,
Foundation for Development of Center for Devel-
opment and Commercialization of New Technolo-
gies (Skolkovo), and Foundation for Assistance to
Small Innovative Enterprises in Science and Tech-
nology [9]. They finance business projects and pro-
vide infrastructure support and R&D co-funding.
Programs of innovation development (IDP)
of joint-stock companies with public ownership,
state corporations, and federal state unitary enter-
prises are created in compliance with medium-
term (for 5–7 years) instructions of the President
and Government of the Russian Federation taking
the priorities of state research and technology and
innovation policy into consideration and include
a set of measures intended for development and
implementation of new technologies, innovative
products, and services, which comply with the
global level and for innovation development of key
industry fields of the Russian Federation.
Among the 60 companies with public owner-
ship, 47 companies implement innovation develop-
ment programs since 2011 and 13 since 2012. They
support approximately one-third of Russian indus-
try and comprise 20% of GDP. These companies
involve about 4 million people [16].

161
 One of the key state tools of building a national
innovation ecosystem is the fund of funds and
development institute of the Russian Federation—
RVC OJSC. Its main objectives are stimulation
of establishment of Russia’s own venture invest-
ment industry and significant increase of venture
fund financial resources. RVC operation is based
on public–private partnership attracting private
Russian and foreign investors to innovation seg-
ments of Russian economy by establishing funds,
including seed and pre-seed investments. Currently,
RVC OJSC has established 22 funds (including 2
funds on foreign jurisdiction with a total amount
of 31.9  billion rubles (the share of RVC OJSC is
$19.1 billion)) [9]. Since 2015, RVC OJSC has been
a project office for implementation of National
Technological Initiative (NTI)—a long-term strat-
egy of technological development of the country
aimed at creating new global markets by 2035. NTI
programs are created on the basis of network prin-
ciple and suppose development of new markets,
involving players who are not yet active partici-
pants and establishing the infrastructure.
RVC OJSC implements interprogram innova-
tion ecosystem development projects. In October
2011, The Russian Venture Company seed fund
and Foundation for Development of Center for
Development and Commercialization of New
Technologies (Skolkovo) entered into an agree-
ment for cooperation in the sphere of creation and
support of competitive environment for leading
studies with further commercialization of their
results and stimulation of development of the pro-
cess of investing private and state monetary funds
into innovation companies in Russia.
The main spheres of cooperation are the
following: cooperation for increasing efficiency
of activity in the sphere of technological entre-
preneurship; cooperation in project analysis and
transaction structuring, selection of the best pos-
sible schemes of finance and investment and other
support of innovation companies; co-funding of
innovation companies; double-expert assessment
of joint projects; information exchange on timely
projects; provision of the status of Skolkovo
Innovation Centre participant to innovation
companies; organization of training programs,
practical courses and special consulting; joint
organization of field and information events; and
so on [14].
The other intersector project is the GenerationS
Federal competition accelerator for technological
start-ups held since 2013. GenerationS is a federal
accelerator for technological start-ups. Along
GenerationS, the best projects chosen as a result
of multistage examination are developed inten-
sively and received wide opportunities for attract-
ing investments.
162
Since 2015, GenerationS resources have been
used for creating corporate and field accelerators
in cooperation with large Russian corporations.
Corporations directly participate in selection, pro-
ject examination, and acceleration of GenerationS
start-up-participants, according to their needs in
innovations. Search of innovation projects is per-
formed via GenerationS regional affiliate network,
which combines start-up-schools, business incuba-
tors, universities, public organizations, industrial
corporations, commercial companies, banks, and
other participants of the ecosystem working with
start-ups (more than 150 partners)[14].
Russian funds pay special attention to start-ups
in the sphere of IT technologies due to large online
audience and less cost-intensive infrastructure of
project support and investors’ interest in quick
return of invested assets. AddVenture is a pioneer
of institutional seed investment in Internet-projects
in Russia. The company manages four venture
funds. AddVenture invests in the companies, which
could bear the risk: started up the project individu-
ally, probed the business model in practice, and are
ready to establish a billion companies.
Angel investment entities play an important
role in Russian innovation business. These include
National Business Angels Association (NBAA),
an all-Russian field association of venture inves-
tors for companies at early stages established in
2009 by leading Russian organizations of indi-
vidual venture capitalists with the assistance of
and active cooperation with Russian Venture
Capital Association and Rusnanotech State Cor-
poration. NBAA’s main objectives are protection
and promotion of interests of its members and
development of the market of venture investments
for companies at early stages. According to the
Association’s estimates, the volume of individual
venture investments only at the Russian market
exceeds 15 billion rubles. This is the main and the
most significant source of capital for Russian com-
panies at early stages.
Another organization is the National Union of
business angels, a noncommercial partnership of
legal entities and individuals, private and institu-
tional investors investing innovation hi-tech com-
panies and entities, which provide services in the
sphere of investments and innovations. The Union
was established to support acceleration of innova-
tion development of the country and to increase
GDP on the basis of this innovation element. It is
aimed on developing angel investment by creating
advantageous conditions for the activity of angel
investors [15].
Business Angels Private Capital national net-
work, a noncommercial organization, is an asso-
ciation of private investors (angel investors) who
invest their own funds into companies with a
significant potential for growth at early stages of
development usually without any pawn. Partici-
pants are aimed to sell their share in the company
in several years receiving income, which should
exceed the initial investment amount several times.
Crowdfunding platforms are a modern tool of
innovation start-up ecosystem. These online plat-
forms allow anybody to publish his/her project
and collect the first starting money form inter-
ested participants notwithstanding their location.
Crowdfunding projects in Russia are a new, but
fast-evolving phenomenon. In August 2015, they
included 710 directions: most projects belonged
to the “Society”, “Music”, “Films and video”,
and “Charity” (70–80 projects) sections. Speaking
about entrepreneurship, the “Business” sphere
included only six projects and “Social entrepre-
neurship”, four projects. The average amount of
an application at crowdfunding platforms in the
“Technology” segment in 2014 was the largest
(1.7 billion rubles); meanwhile, the average volume
of all projects comprised 600,000 rubles [7].
Online platforms organize joint projects with
corporations in association with state funds. For
example, Planeta.ru, a state platform actively
cooperates with development institutions, such as
Higher School of Economics, business incubators,
and charity funds. This is the evidence of the devel-
opment of intersector partnership in Russia (state
cooperation, business, household, noncommercial
sector), which is a positive trend.
Among the ecosystem technological subsystem
structures, clusters, business incubators, techno-
logical platforms, and associations should be
considered as mechanisms of interfirm network
cooperation.
A cluster allows balancing interests of various
market participants by involving small companies
into the network. It helps them to take their places
in the procedure of joint participation in regulat-
ing the cluster subjects and various market partici-
pants. A list of 25 regional innovation clusters was
approved in Russia.
Clusters are characterized by a combination of
global-level competitiveness of enterprises located
on their territory, which show a high dynamics of
production volume growth, with high scientific
and research potential of research and educational
institutions concentrated within the cluster. These
are clusters that specialize on technologies such as
“Nuclear technologies and radiotechnology”, “Air
and space craft manufacturing and ship construc-
tion”, “Pharmacy services, biotechnologies and
medical industry”, “New materials”, “Chemistry
and petrochemistry”, and “IT-technologies and
electronics”.
Among the participants of innovation regional
clusters, there are several leading Russian scientific
163
and educational institutions and enterprises,
including RAS and RAMS institutions, national
research and state scientific centers, national
research universities, federal universities, leading
higher educational institutions, leading mechanic
engineering, ICT-sector and biotechnologies’
companies, and large FEC and metallurgical
enterprises.
Technology parks play an important role in
subsystem operation. According to the definition
given by the International Association of Science
Parks, a technology park is an expert-led organiza-
tion aimed to increase the prosperity of the local
community by promoting innovation culture and
competitiveness of innovative business and scien-
tific institutions. To achieve this aim, technology
parks stimulate and manage information and tech-
nology flows between universities, scientific and
research institutions, companies, and markets. It
simplifies establishment and growth of innovative
companies be means of incubation and spin-off
processes.
In Russia, technology parks first appeared in
the end of 1980 to the 1990s. Most of them were
arranged at high schools as structural subdivisions
of higher educational institutions. Later, technol-
ogy parks appeared on the basis of large scientific
centers, in science campuses, university towns on
the closed territories (Tekhnopark-Tsentr, Aerokon
technology parks (Moscow), and technology parks
in Puschino, Chernogolovka, Troitsk, Dubna,
Moscow-area university towns, etc.).
Technology parks belong to the so-called
umbrella patterns. These structures (which include
business incubators, innovation and engineering
centers, etc.) are intended for supporting first-time
entrepreneurs, scientists, developers, and engineers
for providing quick and direct development and
business plan implementation. Technology parks
specialize on scientific, constructive, and techno-
logical projects related with high technology.
Russian technology parks (except in rare circum-
stances) do not have functions of business incuba-
tor but act as peculiar “safety platforms”, which
protect the enterprises located on their territory
from aggressive external environment. The time of
staying of a small firm in a technology park is not
limited and currently comprises 10 years in average
(compared with the international standard, which
supposes the duration of the stay to be 2–3 years).
Clients of technology parks use telecommu-
nication services, accounting, regulators’ advice,
lawyers, and so on on privileged terms. To pay
for these services as well as to cover other costs
related with the project clients may receive a credit
from a technology park (sometimes it is provided
by banks or interested firms). These services
become efficient and begin to bring profit to the
technology park (its shareholders) when projects
become efficient and profitable.
In 2007–2014, Russia implemented the state
program “Establishing hi-tech parks in the Russian
Federation” aiming at accelerating the develop-
ment of hi-tech economy fields, creating regional
innovation growth points, environment, and eco-
system, where companies operating in these tech-
nology parks can share expertise and create joint
projects. While implementing the program, more
than 11 billion rubles were allotted from the federal
budget to the regions of the Russian Federation for
co-funding technological park construction [5].
As it has been demonstrated globally, it takes
6–10 years to start up a project of creating a tech-
nology park. Acknowledged success comes in
30–40 years. More than 97% of technology parks
in Russia are still being created or developed (some
of them bear the risk of liquidation).
Currently, there is no state program aimed
at developing and supporting both technology
park managing companies and their residents.
Unlike Russia, in other countries, the state directly
participates in establishing and developing tech-
nology parks.
The most similar organization to a technology
park in the organizational aspect is a business
incubator. It is an expressly commercial organiza-
tion for enlivening small entrepreneurship, so it is
often subsidized by the state. An incubator is not
exclusively hi-tech-oriented (which is obligatory
for technology parks), but can implement various
projects (e.g., trade). Most clients of technology
parks will never become entrepreneurs: they will
complete the project, implement their develop-
ment, and return to their scientific laboratories.
Incubators are aimed at preparing businessmen.
For a venture investor, it is more preferable to
cooperate with an incubator rather than with an
individual company because the state bears some
of the risks. Besides that, in hi-tech firms, incuba-
tor residents (most of all residents of incubators at
higher education institutions) possess technologies
and products (or their prototypes), the essential
technical affordability of which are usually con-
firmed by the existence of object of intellectual
property.
Technology Platforms (TP) serve as a commu-
nication tool aimed at activating efforts for devel-
oping prospective commercial technologies, new
products (services), engaging additional resources
for research and development on the basis of
participation of all interested parties (business,
science, state, civil society), improvement of regu-
latory framework in the sphere of academic and
technology, and innovation development.
Technology platforms play an important role in
the state scientific, research, and innovation policy.
164
They are based on private–state partnership for
working in the sphere of scientific, research, and
innovation development of the Russian economy.
The Strategy of innovation development of the
Russian Federation by 2020 approved by the Order
No.  2227-p. of the Government of the Russian
Federation of 08/12/2011 is the basis of the pro-
cess of the creation and development of technol-
ogy platforms. Technology platforms were created
for the most promising directions of scientific and
research development of Russian business: air
and space technologies, biotechnologies, natural
resource extraction and oil and gas processing,
information and communications technologies,
medical technologies and biotechnologies, indus-
trial technologies, agriculture and food industry,
metallurgical industry and new materials, trans-
port technologies, optoelectronics, environmental
development, electronics and mechanic engineer-
ing, energetics, nuclear technologies, and radio
technology.
The Russian innovation ecosystem includes
functioning partnerships and associations of the
ecosystem structure elements. One of such asso-
ciations is the Russian Venture Capital Associa-
tion (RVCA) established in 1997 as a professional
association of representatives of venture funds
and direct investment funds. RVCA activity is
aimed at establishing and developing the market
of direct and venture investment in Russia and cre-
ating the conditions for its development: attract-
ing investments to the Russian market, increasing
the level of preparation of investment companies
and adjusting them for the requirements of ven-
ture investors; and creating advantageous business
environment for venture investments.
Association of Hi-Tech Parks Non-Commercial
Partnership was established in 2011. Since 2012,
it has become a member of International Asso-
ciation of Science Parks (IASP). Since 2015, it has
been called “Association of clusters and technol-
ogy parks—KiT Association”. Its name reflects the
spectrum of its activity, including representation of
interests of regional clusters in the authorities and
development institutions and other organizations.
The association provides cooperation services to
partner organizations in solving social, economic,
scientific, and research and management issues
and represents its legal interests in relations with
the authorities and local government. The associa-
tion includes more than 40 organizations, Russian
innovation infrastructure subjects and small and
medium-size knowledge-intensive entrepreneurs
(business incubators, prototyping, nanotechnol-
ogy, engineering centers, and shared centers).
The education and science subsystem is repre-
sented by leading higher educational institutions of
the country (MSU, Higher School of Economics)
and scientific centers. Integration of high school
with science and real sector is seen in creating small
innovative enterprises, science and technology
parks, business incubators, and basic departments
at universities and engineering centers at universi-
ties, which would serve as an interface between the
higher educational institution, economy, and the
social sphere. For example, the following institutions
have been established at MSU: MSU science park,
innovative incubator, and technology transfer center.
The education and science subsystem includes
structures, which combine the efforts of all their
elements, for example, Association of state scien-
tific centers, which includes 48 Russian scientific
institutions and has the status of a State Scientific
Center of the Russian Federation (SSC) granted
by the Government of the Russian Federation.
Scientific centers are large scientific, engineering,
and technological complexes, which perform the
full work scope from basic and research studies to
create new machine samples and industrial technol-
ogies for national security and defensive capacity.
The innovation transfer subsystem plays an
important role in the last stage of start-up develop-
ment. One of its structure elements are engineering
centers.
To perform the instruction No.ODM-P8-3464
of the Government of the Russian Federation of
23 May 2013, and within implementation of the
Event plan (“roadmap”) in the field of engi-
neering and industrial design approved by the
Order No.1300-r of the Government of the
Russian Federation of 23 July 2013 (clause 12) in
September 2013, the Ministry of Education and
Science declared implementation of the project
for the establishment and development of engi-
neering centers on the basis of leading technical
higher educational institutions together with MIT.
In December 2013, subprogram “Development
of engineering activity and industrial design” as
part of state program “Manufacturing develop-
ment and increase of its competitiveness” was
developed. In 2014–2018, 5.1398  billion rubles
from budget funds and 27.717  billion rubles of
off-budget funds are planned to be allotted for this
subprogram. In December 2013, the Engineering
and Industrial Design Council was established at
the MIT of Russia.
The centers’ objectives are to provide engineer-
ing services for industrial companies operating in
various industrial fields: mechanical and mate-
rial engineering, optoelectronics, biotechnologies,
computing engineering, technology of working
with difficult mineral resources; training of engi-
neers and promotion of innovative development to
the market.
Innovation engineering centers can accumulate
the best native and foreign technologies, act as a
165
system integrator and a warrantor of successful
implementation of innovative projects for a client
and cover the full innovation cycle: from studying
the conjuncture of the target innovation product
market, feasibility of the project, development of
innovation projects to equipment package supply,
staff assistance and further maintenance service.
The Ministry of Education and Science supports
the development of engineering centers at higher
educational institutions.
3 CONCLUSIONS
The innovation ecosystem efficiency is based on
active participation of all interested parties in the
partnership. Only initiative and mutually profita-
ble cooperation of participants of all sectors (state,
business, and noncommercial entities) can cause a
synergetic effect.
Many tools for supporting innovation activity
and innovation infrastructure facilities have been
created in Russia. Nevertheless, they are not effi-
cient enough because of the lack in coordination
of activity and ignorance of potential synergy with
other players of the innovation market.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Exploring the appeals used in creative advertising: A conceptual theory

A.R. Rushdan
Open University Malaysia, Kuala Lumpur, Malaysia

I. Zulkifli & Fonny Dameaty Hutagalung

University of Malaya, Kuala Lumpur, Malaysia

ABSTRACT: In this paper, we examine the importance of advertising creativity and the various steps
in the creative process. We also discuss on how the message will be executed. It examines various appeals
and execution styles that can be used to develop the ad and tactical issues involved in the design and
production of effective advertising messages. The authors explore advertising appeals that are used to
structure advertising. They also look at how advertisements work and examine and analyze the advertis-
ing elements that attract consumer’s attention.

1 INTRODUCTION ability to generate fresh, unique, and appropriate

Advertising creativity includes the conceptuali-
zation and production of an object from new or
existing elements in a novel way that is also relevant
to the task in hand (El Murad and West, 2004).
Advertising is supposed to create a positive and
strong relationship between consumers and adver-
tisers. Consumers are informed about the features,
quality, availability, and affordability of products,
and when such products are similar, it is obvious
that the advertisement includes an appeal on the
basis of emotional intangibles through an effective
brand image (Fathi and Marwan, 2010).
Advertisement now is a crucial part of producing
a brand position in market as well as an in con-
sumers’ mind. The main purpose of this paper is
to explore the variety of advertising appeals that
are used to give an impact to consumers. One of
the most important components of an integrated
marketing communications program is the adver-
tising message. Although the fundamental role of
an advertising message is to communicate informa-
tion, it does much more. The commercials we watch
on television or hear on radio and the print ads we
see in magazines and newspapers are a source of
entertainment, motivation, fascination, fantasy,
and sometimes irritation as well as information.
Ads and commercials appeal to and often create
or shape consumers’ problems, desires, and goals.
From the marketer’s perspective, the advertising
message is a way to tell consumers how the product
or service can solve a problem or help satisfy desires
or achieve goals. Advertising can also be used to
create images, position a brand in consumer’s mind,
and transform the experience of buying or using
a product or service. Advertising creativity is the
ideas that can be used as solutions to communi-
cation problems. To be appropriate and effective,
a creative idea must be relevant to the target audi-
ence. Many ad agencies recognize the importance
of developing advertising that is creative and dif-
ferent yet communicates relevant information to
the target audience. Despite the fact that there is no
consensus on the definition of ad creativity, there
are two crucial components for ad creativity on
which researchers agree: divergence and relevance
(Ang and Low, 2000; Smith and Yang, 2004; Ang
et  al., 2007; El Murad and West, 2008; Smith,
Mackenzie, Yang, Buchholz and Darley, 2008).
Advertising creativity is not the exclusive domain
of those who work on the creative side of advertis-
ing. The nature of the business requires creative
thinking from everyone involved in the promotional
planning process. Agency people, namely account
executives, media planners, researchers, and attor-
neys as well as those on the client side as market-
ing and brand managers, require seeking creative
solutions to problems encountered in planning,
developing, and executing an advertising cam-
paign. Creative advertisement is a bridge between
the brand, target audience, and selling ideas. Many
people think creativity springs directly from human
intuition; however, the creative process is actually
a step-by-step procedure that can be learned and
utilized to generate original ideas. Some appeals in
creative advertising will be discussed further.
2 APPEALS IN CREATIVE ADVERTISING
Appeal in creative advertising is a valuable signifi-
cance of advertising component that has acquired

167
comparatively less attention. The same attack
message can be represented in two ways: rationally/
logically and emotionally (Kaid & Johnston,
1991; Kotler, 1994). Rational appeal ads por-
tray feature and appeal to evidence (i.e., statistics
and examples), the law, authoritative reports, or
deductions to corroborate an attack message and
convince the audience. Emotional appeal ads, by
divergence, allure to fury, alarm, despair, or other
affective subject matters aim to induce audience
affective reactions or impression to echo the posi-
tion of the attack message. Specifically, emotional
Asian Journal of Communication 491 appeals are
intended to elicit emotional responses from some
or all who receive them (Brader, 2005).
Emotional shapes involve a major function
in how people study, recollect, and imagine, and
natural series of changes estimate information as
well as risk-taking choices. According to feelings
as information theory (Schwarz, 1990, 2001), emo-
tional shapes affect an individual’s inspiration to
explore facts; the existence of dissenting emotions,
as compared with positive emotions. It indicates an
ultimatum to the accomplishment of desired goals
such that the situation calls for logical and acute
information processing. In addition, as differen-
tiated with positive emotions, negative emotions
are less integrated with cognitive capacity deficits,
allowing for deeper and more deliberate informa-
tion processing (Inness, Desmarias, & Day, 2004).
Moreover, the impacts of negative emotional
appeals are likewise reported in studies on advance
sorts: the differing semantic properties of the appeal
types are believed to affect the encoding, storage,
and retrieval of appeals in an unexpected way
(Bradley, Angelini, & Lee, 2007). The composure
of negative emotional substance in advertisement
messages significantly influences the objective of
the cognitive processing of these messages (Lang,
Newhagen & Reeves, 1996) and improves viewers’
memory of an ad (Lang & Lanfear, 1990). The
emotional content of a negative advertisement
may likewise prompt to more grounded emotional
reactions toward applicants (Garramone, Atkin,
Pinkleton & Cole, 1990). In addition, emotional
element can build an individual’s inspiration signif-
icance of a piece of information as well as inspire
a greater consideration (Lang, Bolls, Potter, &
Kawahara, 1999).
2.1 Sexual appeal
Sex appeal is characterized as messages, as either
brand information in publicizing connections or
powerful requests in showcasing settings, which
are connected with sexual information (Reichert
et  al., 2001). Specifically, sex appeal is the inten-
sity of nudity or sexual explicitness. (Reichert
168
et al.). Sexual appeals have been part of marketing
strategy since the establishment of modern adver-
tising, and the technique is commonly utilized in
coexistence with bandwagon mentality, repetition,
or alleged subliminal messages (Mooij, 2005).
Advertising is seen everywhere. “We are besieged
with commercials at airport baggage carousels, on
corporate telephone lines, on flashing screens at the
local market, etc.” (Cohan, 2001). Most advertise-
ments commonly highlight sexual appeal, and it is
used frequently for image-based products, such as
candies, liquors, cigarettes, jewelry, fragrance, cos-
metics, and fashion goods. Regardless of the target
audience, sexual appeal is constantly examined in
terms of ethics. Teenagers between 12 and 17 years
of age are progressively irresistible demand seg-
ment for advertisers, as their disposable revenues
are skyrocketing. These teens have the potential to
influence the purchase decisions of their parents
and friends and later will prosper a brand loyalty
and leads into adulthood.
2.2 Fear appeal
Fear appeals are enticing messages intended to
frighten people into doing what the message recom-
mends by delineating the frightful consequences of
resistance (Witte, 1992). A fear appeal plays upon
the real or perceived risks of either using or not
using the product or idea being marketed. If you
“don’t buy,” fear-based appeal suggests that you
will experience a negative consequence.
Thus, the cigarettes advertisement claims under-
mine viewers with the negative well-being conse-
quences they will experience if they do not abstain
from smoking. Appealing to fear is a generally uti-
lized persuasion strategy, but individual fear appeals
are not always equally viable. (Andrea, 2012).
Undoubtedly, both professionals and scholastic
have documented uneven persuasion as a result
of appealing to fear, and the subject of precisely
how fear claims work is still a matter of progress-
ing debate and investigation (National Institute on
Drug Abuse 1997; Prevention First 2008; Stainback
and Rogers 1983; Struckman-Johnson et al. 1990).
Fear appeals focus on the negative consequences
that can arise because of an action or inaction.
Advertisers use fear appeals to promote an imme-
diate behavior change, for example, eating health-
ier or not smoking. Another fear strategy involves
isolation. Consumer will buy a product to dodge
isolation from others because of terrible hygiene.
Deodorant and toothpaste ads often utilize this
strategy. Government agencies appeal to an indi-
vidual’s fear of death or incarceration to prevent
drinking and driving.
Fear appeals work when the recommended
action is specific, effective, and plausible. For
example, ads geared toward smokers can be
ineffective if the person does not believe quitting
smoking is within reach. An advantage of fear
appeals is that it tends to be very persuasive and is
great for capturing people’s attention; for example,
an eye-catching advertisement of an injured car
crash victim due to drink driving.
2.3 Guilt appeal
Guilt is an a posteriori passionate response, which
implies that it is an enthusiastic reaction, which
takes after a specific thought, activity, and prompts
the person to need to compensate for the offense.
Guilt turned into a feeling of exceptional study
in the 1960s, and it was then it came to be com-
prehended that blame emotions could be evoked
by others and utilized as a strategy for picking up
consistence. The impacts of guilt can be a capable
behavioral helper to a person.
For example, a recent antismoking ad featured
children appealing to their real mums and dads
to give up the habit. Both use consumers’ guilty
consciences about their bad behavior to encourage
them to change. Research has demonstrated that
encountering guilt can make people act in one of
two courses: (1) to maintain a strategic distance
from meeting with the wellspring of guilt and (2)
to “make up” for a wrongdoing by doing some-
thing considered great (Freedman, et al. 1970).
2.4 Threat appeal
Threat appeals have been utilized for a long time as
part of publicizing to impact people’s states of mind
and practices (Bennett, 1996). They are character-
ized as “convincing messages intended to alarm
individuals by portraying the horrendous things
that will transpire in the event that they don’t do
what the message prescribes” (Witte, 1992, p. 329).
It is a message methodology that expects to incite
a mental response by bringing out sentiments of
apprehension among people to invigorate certain
conduct or lessen unfortunate conduct (e.g., quit
smoking, don’t drink and drive) (Rotfeld, 1988). In
any case, these danger advances are fundamentally
concentrated on inside the setting of well-being
correspondence, while risk bids in a business show-
casing connection (e.g., for protections) have gotten
just restricted scholastic consideration (Hastings,
Stead, and Webb, 2004; Tanner, 2006).
In today’s jumbled promoting environment,
business advertisers are continually scanning for
approaches to draw in buyers’ consideration (Lee
and Lee, 2007). They may do this by receiving elec-
tive publicizing systems, for example, risk offers.
Specifically, business advertisers attempt to bring
out trepidation by accentuating the danger or loss of
169
chance of not utilizing their item or administration
(e.g., Sternthal and Craig, 1974; Vincent and
Dubinsky, 2004). Therefore, also to a well-being
correspondence setting, business sponsors trust that
this apprehension will affect people to modify their
conduct, and as needs be, buy their item (trying to
lessen the trepidation, i.e., peril control).
Two sorts of risk requests can be recognized
(Laroche, Toffoli, Zhang, and Pons, 2001): physical
danger offers that allude to the physical outcomes
of not embracing the advanced practices and social
danger claims that allude to the social dissatisfac-
tion coming about because of not utilizing the item
(Sternthal and Craig, 1974). In spite of the fact
that past concentrates for the most part centered
around the viability of physical risk appeals, recent
considers demonstrate that social danger advances
may prompt more versatile adapting reactions
and, in like manner, higher message adequacy (e.g.,
Dickinson and Holmes, 2008).
2.5 Scarcity appeal
Scarcity is a predominant part of economic behav-
ior. A scarcity appeal creates fear of missing out
by encouraging consumers to think that if they do
not buy now, they will miss out. Scarcity is based
on limitations. Scarcity appeal is often used with
fear appeals, to help in affecting buyers by miss-
ing out on a potential event. Products or services
that have constrained accessibility can actuate
customers to assess those items more positively
(Martin, 2008). As important products have inade-
quate supply, consumers construe that those items
are profitable (Jung and Kellaris, 2004). Scarcity
impacts on worth recognition have disclosed wide
empirical support (Lynn, 1991). Advertisers make
regular utilization of this impact and base special
cases on the principles of scarcity, utilizing phrases
like “limit one per customer”, “limited release”,
“only while stock last”, or “limited time only”. It is
expected that scarcity claims in mass media adver-
tising lead to an immediate impact on perceived
value and buying intention.
Advertisers frequently use scarcity appeals in
advertising with announcements, for example,
“limited quantities”, “until stocks last”, and “few
tickets left for this event” (Ashesh and Seung, 2016).
Scarcity appeals demonstrating restriction on the
amount accessible of an item. Previous research
has demonstrated that scarcity appeals regularly
increase product assessment in categories extend-
ing from detergent to automobiles (Aggarwal, Jun
and Huh 2011; Aguirre-Rodriguez 2013; Eisend
2008; Inman, Peter, and Raghubir 1997; Lynn
1989).
A theoretical approach clarifies that scarcity
effects are given by commodity theory, which
stated any commodity will be valued to the extent
that it is occupied (Brock, 1968). The underlying
system for this appeal is caused by individual’s
yearning for uniqueness and peculiarity (Snyder
and Fromkin, 1980). One potential wellspring of
uniqueness is the ownership of rare products, given
that their shortage is brought on by low supply as
opposed to popularity. Scarcity effects clearly rely
on two conditions: the products must be attrac-
tive and they should have the capability of being
controlled.
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© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Innovative thinking as a factor in the establishment of an innovation-

based economy in Russia: Spiritual and moral aspects

N.V. Manuilov, S.Z. Mekhdiev, T.A. Iskyanderova & I.N. Novokupova

Financial University under the Government of the Russian Federation, Vladimir, Russia

ABSTRACT: In this article, we explore spiritual and moral aspects of the development of innovative
thinking in the business community as factors in the establishment of an innovation-based economy in
Russia.

1 RESEARCH QUESTIONS 4 DISCUSSION

What kind of thinking accompanies the develop-
ment and establishment of a market economy?
What kind of thinking underlay Western European
movement toward market economies? To what
extent, and with which modifications, can that
thinking be developed in Russia?
2 METHODOLOGY
In our research, we employed the method of pro-
ceeding from the general to the particular, as well
as historical and logical methods.
3 INTRODUCTION
One peculiarity of the economic situation in Russia
is that any market economy that takes root there
must necessarily be an innovation-based economy
(Novitskii, N. A 2009. Innovatsionnaya ekono-
mika Rossii. Teoretiko-metodologicheskie osnovy
i strategicheskie prioritety. Moscow: Izdatel’stvo
Librokom.). In a rapidly globalizing world, Russia
has two alternatives: either a developed national
market economy, one based on innovation, will
ensure Russia’s place in the global economy, or
else Russia will remain on the periphery as a sup-
plier of raw materials to more developed countries.
Therefore, in Russia, an innovation-based econ-
omy constitutes a social-national good. In this
context, the idea of the common good takes on a
new meaning. The common good is no longer sim-
ply the satisfaction of people’s needs; it is, instead,
an innovation-based economy, which will neces-
sarily lead to the private good of Russia’s business
community.
Currently, there is a disjunction between the pri-
vate good of the business community and the
social-national good. Given that investments in
the innovation sector of the economy only pay off
in the long term, Russian business is unwilling to
commit itself (Manuilov, N.V., Mekhdiev, Sh. Z.,
Iskyanderova, T.A. & Seleznev, P.S. 2016.
Osobennost’ stanovleniya inno-vatsionnykh pred-
priyatii v Rossii: dukhovno-nravstvennyi aspekt.
Ekonomika. Biznes. Banki. No. 2, 43–58). This
demonstrates that privatization alone is not enough
to create a market economy in Russia; for that to
happen, the country’s business community must
deliberately turn to innovation economics as a
social-national good. Therefore, businesses must
radically change the way they think. We can rea-
sonably call thinking oriented toward the kind of
public good that innovation-based economy repre-
sents “innovative thinking”—and developing such
thinking is a matter of national survival. Failure to
follow this way of thinking would condemn Russia
to turn into a mine of raw materials and to produce
the layer of comprador bourgeoisie, which stands
for businessmen who handle the interests of the
foreign capitalists.
Innovative thinking, orienting people toward
an economy that serves the common good, is
essential not only for Russia. The thesis that such
thinking accompanies and supports the formation
of a market economy is universally applicable. It
should be formulated so as to preserve the distinc-
tion between the process of establishing a market
economy and the final result of that process. The
concept of the market “invisible hand”, which
means the capacity of the market economy to
guide an individual towards the common benefit,
was formulated by Adam Smith with the focus on

173
the findings of Western market economics (Smith,
Adam 1962. The Wealth of Nations, Moscow:
Sotsekgiz). According to his theory, people as eco-
nomic actors pursue only their own good, while,
unbeknownst to them, the invisible hand of the
market guides them to the common good. But in
the process of establishing a market economy, a
person cannot be guided to the common good, as
the invisible hand—that is, the market—has not
begun functioning. However, unless people are
guided to the common good, it is impossible to
establish a market economy.
Max Weber, who studied the formation of West-
ern market economies in great detail, addressed
this seeming paradox. Capitalistic entrepreneur-
ship, he believed, existed in its adventuristic aspect
in all economic systems in which money and the
opportunity to use it to make profit were present.
The development of market economies began with
the rational use of capital (its application toward
production) and the rational, capitalistic organi-
zation of labor (Weber, Max 1990. Izbrannye
proizvedeniya. Translated from German. Moscow:
Progress.). According to M. Weber, the process of
implementing of the capital into production dem-
onstrates profound changes in the way of human
thinking. The changes lie in the fact that an indi-
vidual is aimed at the common benefit which stands
for meeting human demands. The kind of thinking
that revealed the market economy as an effective
form of management is innovative thinking.
We must seek the source of this transition to
innovative thinking in the realm of spirituality.
For example, Weber identifies Protestantism as the
source of the West’s orientation to the common
good while market economies there were develop-
ing. For Protestants, the speculative use of capital
was discouraged as ethically impermissible. The
application of capital toward production, on the
other hand, was ethically approved.
The market economies that formed in the West
are an incarnation of Western European humanism,
distinguished by its innovative thinking. Western
European humanistic thinking in economics was
innovative in that it placed primary emphasis on
economic liberty. The basis of that thinking was
the spirituality of European humanism, which rec-
ognized the necessity of the “co-presence” of soci-
ety with each individual. “The ability of a spiritual
being to be co-present with another,” wrote Viktor
Frankl, “is a fundamental ability, the essence of
human existence and of spiritual reality” (Frankl,
Viktor, Gozmana, L.Ya. & Leont’eva, D.A.
(general editors). 1990. Chelovek v poiskakh smysla:
sbornik. Translated from English and German.
Moscow: Progress). The co-presence of society with
the individual in the economic sphere meant that the
private good of each individual—that is, economic
freedom—is accepted by society as a public good.
174
European humanism began with the faith that
the individual left to his or her own devices is capa-
ble of making independent decisions, not only in
an economic sense. The starting point was not the
discovery of this capability; instead, it proceeded
from a basic love of humanity. For it is love that
allowed the conception of that capability, which
was at that point still a mere possibility.
Without a doubt, the establishment of a market
economy in Russia demands recourse to the inno-
vative thinking of European humanism. However,
fundamental to that thinking is a spiritual tradi-
tion: a social orientation toward economic liberty.
Without that orientation, innovative thinking can-
not take root in Russia, no matter how far privatiza-
tion proceeds. The next question is whether Russia
has a spiritual tradition of respect for economic
liberty. Even if the answer is yes, circumstances are
such that establishing an innovation-based market
economy on the exclusive basis of European
humanistic thinking is impossible (Various authors
2011. Dukhovno-nravstvennaya ontologiya covre-
mennogo sotsial’no-ekonomicheskogo razvitiya:
monografiya. Moscow: Knorus).
The problem is that according to that think-
ing, which orients the individual to the common
good (the satisfaction of people’s needs), the pri-
vate good of profit dominates in a spiritual sense.
As Hegel wrote, in civil society, which includes
the economic sphere, “Each is his own goal, and
everything else is nothing to him” (Hegel, Georg
1990. Filosofia prava. Translated from German.
Moscow: Mysl’). The reason for this, according
to European thought, is that a person naturally
acts out of love of him—or herself, not for others.
For the individual, nature itself, society, and
other people have no value in and of themselves;
they are seen simply as means to an end. Here
we see the inconsistency of European humanism.
On the one hand, it attaches great significance
to the co-presence of society with the individual;
on the other, it utterly disregards the co-presence
of the individual with society.
Therefore, Russia must not only adopt the inno-
vative thinking of European humanism but also
deepen and expand it significantly (Vetoshkin,
A.P., Karateeva, N.A. & Minyailo A.M. 2008.
Dukhovno-nravstvennaya ekonomika: mono-
grafiya. Yekaterinburg: Izdatel’stvo UrGU).
Russian businessmen should be oriented toward the
social-national good—that is, an innovation-based
economy, which is simultaneously a private good.
The basis of that development of humanistic think-
ing must be the co-presence of Russian business with
Russian society—in other words, the spirituality of
the entrepreneurial class. The only possible spiritual
basis for the orientation of business leaders toward
the common good is faith on their part in the pos-
sibility of creating an innovation-based economy in
Russia and, relatedly, willingness to tie their fate
to this project. Such faith requires love of Russia,
which would allow the country to be seen as
intrinsically valuable. Does Russia have the con-
ditions necessary for the development of such a
spirituality?
To answer such questions, we must look to the
spiritual traditions of the various peoples that
compose the Russian Federation, and above all to
the spiritual tradition of the Russians themselves,
founded on Orthodoxy. Can that tradition serve as
the basis of innovative thinking in Russia?
In the Russian tradition, economic liberty is
linked to the individual’s spirituality in economic
affairs (Rodionovaya, N.V. (editor) 2012. Tsennost-
noe izmerenie khozyaistvenno-trudovoi deyatel-
nosti. Mezhdistsiplinarnyi podkhod. Rossiskaya
modernizatsiya: monografiya. Moscow: Yuniti-
Dana). This is characteristic of both religious
and early nonreligious currents in Russian social
thought.
The communal economic system conceived of
by the Slavophiles (representatives of the religious
current) is simply the manifestation of religious
solidarity (sobornost’) in the economic realm.
That system was not a reflection of contemporary
Russian conditions but rather a construction on
the basis of the concept of sobornost’: a national
spiritual community of people united by love, abso-
lutely free, in no way subject to external authority.
Sobornost’ confirms the spirituality of the indi-
vidual, including in an economic sense. Without
the individual’s conscious orientation toward the
common good (that is, the free taking of economic
decisions on a spiritual basis), such a communal
economic system is inconceivable—and of course,
it is impossible to take economic decisions freely
on any basis without economic liberty.
The essence of the nonreligious ideal communal
economy, too, was spiritual rather than empirical
in origin. For example, according to Alexander
Herzen, the individual’s spirituality should serve as
a gauge of social systems. A communal economic
system allows the individual to manifest his or her
spirituality in economic activity. It is an arena for
the free, conscious orientation of a person toward
the common good—and of course, it is impossible
to turn freely and consciously to the common good
(which is simultaneously a private good) without
economic liberty.
The European model of market economics was
rejected by nonreligious Russian social thinkers as
a form of economic alienation from personal spir-
ituality. Nonreligious thinkers mistakenly believed
that Russian society could realize a communal
economy. In this respect, their views coincided
with those of the Slavophiles, for whom Russian
society was the basis of the realization of sobor-
nost’ in the economic realm.
175
The breakdown of that society had great sig-
nificance for Russian social thinkers. In order to
preserve it, the nonreligious among them turned
away from economic liberty. For instance, accord-
ing to Pyotr Tkachyov, the decay of Russian soci-
ety would lead to its economic development along
Western European lines. Therefore, the process
had to be stopped by the forced expropriation of
privately owned means of production and their
rededication to public use.
In the context of the evolution of nonreligious
Russian thought toward an ideal social structure
with no place for economic liberty, especially as the
inevitability of social breakdown became apparent,
we can understand the turn toward Marxism and
the formation of Russian Marxism. The develop-
ment of capitalism would create opportunities for
a minority, relying on a proletariat deprived of pri-
vate property, to realize the ideal social structure,
in which economic liberty is rejected.
The consequences of this development allow a
deeper understanding of the significance of eco-
nomic liberty. They also cast light on the religious
current of social thought, which did away with the
notion of Russian society as the basis of economic
sobornost’ but retained the ideal of economic lib-
erty, linking it to the spirituality of the individual.
Religious thinkers did not reject market eco-
nomics, understanding well that without economic
freedom, the expression of spirituality in this
sphere is impossible. Vladimir Solov’yov believed
that private property, the foundation of economic
liberty, is in itself neither good nor evil. It becomes
one or the other as a consequence of the way it is
used. “But it is one thing to attack private wealth
as something evil in itself, and another to demand
that this wealth, being a relative good, accord
with the common good—that is, with the absolute
standards of morality; it is one thing to strive for
an impossible and unnecessary regulation of pro-
perty, and another to recognize the right of all to
those things required for a dignified human exist-
ence, while preserving the material advantages
of those who currently enjoy them” (Solov’yov
V.S. 1990. Sochineniya v 2 tomakh., Volume I.
Moscow: Mysl’).
In the Western tradition, a bias in favor of private
profit dominates, evident in the use of economic
liberty for private gain. In the Russian spiritual
tradition, private profit is not condemned, but
the bias is toward the common good. “Commerce
and trade in general,” wrote Solov’yov, “can lead
to private profit only on the strict condition that
they are first and foremost a public service, or the
fulfillment of a social function for the good of all”
[Solov’yov, 1990]. For people to work for the sake
of others, “they must be consciously turned to the
common good” (Solov’yov V.S. 1990. Sochineniya
v 2 tomakh., Volume I. Moscow: Mysl’.).
 Thus, the Russian tradition, oriented as it is
toward the spirituality of the individual co-present
with nature, society, and other people, can serve as
the spiritual basis for the establishment of inno-
vative thinking. The only basis for realizing that
orientation in the economic realm is the love of
Russian businessmen for Russia.
5 CONCLUSION
1. The only possible market economy for Russia is
an innovation-based one. Therefore, in Russia,
such an economy constitutes a social and
national good.
2. In order to establish an innovation-based market
economy in Russia, the country’s business com-
munity must consciously orient itself toward an
innovation-based economy as a social-national
good.
3. The thinking of the business community must
fundamentally change. It must become innova-
tive. We call that thinking “innovative” which
values private goods while giving priority to the
common good, represented in this instance by
an innovation-based economy.
4. The successful establishment of a market econ-
omy in Russia requires an understanding of
the innovative thinking of European human-
ism. The latter, however, must be deepened and
expanded to provide for the business communi-
ty’s conscious orientation toward an innovation-
based economy as a common and private good.
5. Only faith in the possibility of creating an inno-
vation-based economy in Russia, and a willing-
ness to tie one’s fate to this project, can serve as
a spiritual basis for the development of innova-
tive thinking. Such faith is made possible only
by love of Russia, which allows the country to
be seen as intrinsically valuable.
176
6. The Russian spiritual tradition, given its orien-
tation toward the spirituality of the individual,
can serve as the spiritual basis for the develop-
ment of innovative thinking in Russia.
REFERENCES
Frankl, Viktor, Gozmana, L.Ya. & Leont’eva, D.A.
(general editors). Chelovek v poiskakh smysla:
sbornik. Translated from English and German.
Moscow: Progress.
Hegel, Georg 1990. Filosofia prava. Translated from
German. Moscow: Mysl’.
Manuilov, N.V., Mekhdiev, Sh. Z., Iskyanderova, T.A. &
Seleznev, P.S. 2016. Osobennost’ stanovleniya
innovatsionnykh predpriyatii v Rossii: dukhovno-
nravstvennyi aspekt. Ekonomika. Biznes. Banki.
No. 2, 43–58.
Novitskii, N.A. 2009. Innovatsionnaya ekonomika Rossii.
Teoretiko-metodologicheskie osnovy i strategicheskie
prioritety. Moscow: Izdatel’stvo Librokom.
Rodionovaya, N.V. (editor) 2012. Tsennostnoe izmerenie
khozyaistvenno-trudovoi deyatelnosti. Mezhdistsipli-
narnyi podkhod. Rossiskaya modernizatsiya: mono-
grafiya. Moscow: Yuniti-Dana.
Savel’eva, I.I. (editor) 2013. Innovatsionnaya paradigma
ekonomicheskogo razvitiya: vzaimodeistvie gosu-
darstva, uchebnykh zavedenii i biznesa pri podgotovke
spetsialistov: monografiya. Vladimir: VIT-print.
Smith, Adam 1962. The Wealth of Nations, Moscow:
Sotsekgiz.
Solov’yov V.S. 1990. Sochineniya v 2 tomakh., Volume I.
Moscow: Mysl’.
Various authors 2011. Dukhovno-nravstvennaya ontologiya
covremennogo sotsial’no-ekonomicheskogo razvitiya:
monografiya. Moscow: Knorus.
Vetoshkin, A.P., Karateeva, N.A. & Minyailo, A.M.
2008. Dukhovno-nravstvennaya ekonomika: mono-
grafiya. Yekaterinburg: Izdatel’stvo UrGU.
Weber, Max 1990. Izbrannye proizvedeniya. Translated
from German. Moscow: Progress.
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Contemporary regional planning in Russia: Systemic problems and

development issues1

I.I. Saveliyev & T.A. Iskyanderova

Financial University under the Government of the Russian Federation, Russian Federation

ABSTRACT: The purpose of paper was consideration and analysis of the modern system of planning
and methods of development of the territory in Russia.
Methods of system analysis are widely applied in the research, including method of an expert assess-
ment and economic-mathematical modeling.
From the authors’ viewpoint there are fundamental problems in the creation of strategic goal when
planning development of the territory.
Identified are the main directions and necessary steps for the effective change of current situation.
Considered are the problems of the strategic planning system in Russia and the need of development
of blocks of functional and branch strategy. This paper provided the version of the functional block of
planning.
All problems of system of planning are divided into two blocks: fundamental problems and functional
problems. A more detailed considered of the decision of functional problems of planning, such as the
selection of priority areas for investment (import substitution), is crucial for modern Russia. It is proved
that in the preparation of a comprehensive investment management program portfolio investment pro-
jects, it is necessary to choose the task of forming from the offered options of action or some objects
of the best (optimum) selection satisfying to resource restrictions and logical conditions. In this paper,
a model for optimization of structure of the complex investment import substitution program was devel-
oped, taking into account possible risk. The received model is very useful for the beginning of the forma-
tion of the direction of functional and branch strategy at the choice of version of the functional block of
planning and the priority directions of investment (import substitution).

1 INTRODUCTION 61:06-8/100. (in Russian)). Transformation of

Economic globalization is an ongoing compli-
cated and contradictory process involving drastic
alterations in all systems of world and national
economies, reallocation of marketing outlets, and
competition for markets. Sometimes the competi-
tion becomes so fierce that it looks like “war”, the
Third World Economic War.
Focus on innovations in the economy and
search for the role of the country in interna-
tional division of labor amid globalization make
up the modern strategic paradigm of develop-
ment (Bochkarev S.A. Russian Regions Sustain-
ability amid Globalization: Diss. kand.ekonom.
nauk: 08.00.01 Tambov, 2005. P.168. RGB OD,
1
The project is under the financial support of Russian
Foundation for Humanities, registration number 16-12-
33003/16—Regional contest “Central Russia: past, pre-
sent, future” 2016—Vladimir region—“Development of
evaluation methodology of effective realization of state
programs (federal and regional aspects) for optimization
of budget planning and success of state management”.
social, economic, scientific, and technical pro-
cesses, which have been under way in the recent
decades, is reflected in the theory of postindustrial
economy. New technologies, scientific develop-
ment, information, and human capital assets are
their vital resources and most important factors.
Contemporary economic relations are charac-
terized by fundamental intangible assets such as
know-how, marketing, and interaction.
Modern system of regional planning should be
based on complex principles and rules of strategic
management and strategic marketing. Environ-
mental changes make it necessary to focus on reli-
able and clearly defined strategic opportunities of
the territory and constant monitoring of its exter-
nal environment for enhancing its ability to adapt
to changes. Strategic marketing is aimed at view-
ing the evolution of a certain market and defining
the existing and potential markets. Its function is
to aim know-how at strategic opportunities of ter-
ritories and adopt them to their resources. In other
words, strategic marketing is the most important
analytical tool of strategic management. It is based

177
on the marketing management technology, which
helps to create, represent, and promote the cus-
tomers’ most significant values.
Strategic management has taken shape in the world
practice as a tool providing competitive advantage
amid dynamic changes in both external and internal
environments of an economic entity (LapyginD.Iu.
Organizations Strategic Development. Moscow:
KNORUS, 2013.P.288. (in Russian)).
Planning (including strategic planning), based
on data and results in the period under review,
which was popular in the USSR, leads to stale
trends and lower ambitions regarding strategic tar-
gets. The gap between the desired result and the
one expected in the target period requires a great
creative effort on the part of employees as well
as search for additional resources offered by the
external environment: first of all human resources
and only then financial, physical, information, and
energy resources (LapyginD.Iu., LapyginIu.N.
Strategic Management : undergraduate and post-
graduate courses. Moscow: Eksmo, 2010. P. 432.
(in Russian)). That is why, when dealing with
strategic management, we should switch from
traditional planning to new tools, such as strate-
gic foresight method, work flowcharts, matrix of
innovative resources and demands, strategic man-
agement, and marketing in general.
Strategic foresight method may be viewed as a
method of long-term projection of region develop-
ment based on jury of opinion.
Developing and producing a road map may be
seen as a special method of presenting the foresight
results. Work flowchart is a visual step-by-step plan
of a certain object development.
Work flowchart helps to connect perspective,
strategy, and plan of a territory development and
schedules the steps of this process represented by
the past–present–future model. Work flowchart let
us consider not only possible scenarios but also
their potential efficiency and choose the best devel-
opment options.
Matrix of innovative resources and demands is
viewed as a tool for exploring information on the
subject. It includes multiple aspects of its activity
and assessment of both the need for innovative
development and available resources. Because of
a great number of aspects under study, it may be
complicated to describe and sum up the results of
analysis. Thus, it seems appropriate to present the
results in the form of matrix, with verticals show-
ing traditional problematic issues (who?, what?,
where?, how?, and why?) and lines denoting the cor-
responding basic directions of innovative activity.
Although modern approaches to planning seem
up to date and creative, there are quite a number
of problems in the field. We believe they may be
divided into several groups. Let us consider two of
them, being the most urgent in our view.
178
2 PROBLEMS AND METHODS OF
INVESTIGATION
Fundamental problems:
1. Modern system of planning is based on gen-
eral and territorial strategic management, with
the latter having insufficient legal regulations to
form a three-level (“state–region–city”) pattern.
2. In practice, we may see lack of coordination
between national and regional strategic plan-
ning in some cases, for instance, when region
plans fail to correspond to state strategic plans
in terms of time limits (Vladimir region), etc.
3. Besides, it should be emphasized that liberal
neoclassical economists’ complete negation of
best practice of the Soviet period State Planning
Committee does not benefit modern Russian
planning system. The statement is proved by the
current economic situation in Russia influenced
by international sanctions, isolating techniques
of our “partners” and “skillful” development of
our own economic system.
4. It should be mentioned that modern planning
depends on terms and priorities of budget, which
imposes limitations and establishes frameworks.
5. The potential of some professional experts and
scientists (including those from The Russian
Academy of Science) is ignored due to politi-
cal reasons. However, their knowledge could be
helpful for reviewing forecasts and plans in Rus-
sia nowadays. It is interesting to note though
that these scientists participated in building up
the system of planning in modern China.
Functional problems:
1. The drawback of strategic planning in Russia is
the low quality and value of forecasting. Note-
worthy is the lack of relation between formal
and informal forecasts. The latter is given pri-
ority, which means that much is decided and
«forecast» using methods of expert assessment.
2. There is a concept and methods to study “mar-
keting environment of an organization”, whereas
there is a need for concept and methods to study
“marketing environment of a territory”. However,
it is the concept of marketing environment of this
or that territory, which may improve the quality of
strategic planning and stimulate economic devel-
opment of not only a certain organization but also
pools (strategic partners) of integrated innovative
organizations on a certain territory.
3. It should be noted that no distinct sectoral strategy
is observed in this country. It is important to note
that flaws and low quality of system decomposi-
tion of economy management originate from the
decomposition of the planning system.
4. The latest economic trend of import substitution
requires identifying priorities, «growing areas»
 to be in focus of strategic planning. However, in being the most important among them. Hence, in
spite of sanctions having been in force for quite some cases, expenditures may exceed payoffs. In
a long time, there is no focusing yet. other words, there is nonzero probability that the
5. In developing priority areas, a lot depends on value (pi,j – li,j) may be negative.
allocation of investments generally based on Let us denote scope limitation of total financing
internal reserves (capital outflow is observed Cj within time period j. Every unit i may have dif-
and is likely to continue, welfare expenditures ferent amounts of financing. There is a nonlinear
being rather great). relationship between the amount of financing and
returns. There may be instances of considerable
The above information might reveal the
increase in returns with investment quantity being
authors’ criticism of the current planning system,
low and vice versa; there may be no returns with
while it also shows the desire to point once again
investment quantity being high.
to the things understood by most of «patriotic
The task is to present the financing options for
economists».
all units in the integrated investment program so
That is why some steps to be taken at this stage
that the probability of resource requirement may
are offered here.
not exceed the available limit of finance resources
in any time period with the combined effect of
innovative investment activity being maximal.
3 ANALYSIS RESULT It is a sophisticated mathematical problem. The
value (pi,j – li,j) is stochastic variable with dispersion
Distinct decomposition of modern regional devel- σ i2 j . Let us introduce a logical variable to make up
opment strategy into sectoral and functional units a mathematical model:
should be implemented. Special attention should be
paid to the following functions: marketing—seen ⎧ 1, where position i is specified
as analytical function, forecasting—seen as man- xi = ⎨ , i 1,..., n (1)
agement function (the authors’ view implies formal ⎩0, where position i is nott specified
forecast combined with the nonformalized one);
investment seen as the function of allocation and The total dispersion and the lump sum received
identifying priorities (which is especially impor- with the deduction of total investment may be cal-
tant in case of reduction in the national financial culated on the assumption that probability distri-
reserves and need for import substitution). bution laws are regular and independent:
This approach may become the basis for sub- n n
sequent study of the directions of functional and
sectoral strategies and may serve as a certain con- ∑ x (p
i=1
i i, j li , j j = ,...,
,..., m ∑x
i=1
2
i
2
i, j ,j 1 m.
tribution to improving the existing planning sys-
tem in the country. The limitation of total financing in the period
That is why we are presenting our view of the j has been denoted above as Cj. If we take confi-
functional planning unit for identifying investment dence coefficient α (which is usually α = 0,95), we
priorities (for import substitution). can calculate using the known formulae ψ(α) (if
When making an integrated innovative invest- α = 0,95 ψ(α) = 1,64).
ment program, managing portfolio of innovative The conditions of providing investment and
investment projects, or creating a reliable system, receiving payment are expressed by the following
we should complete the task of choosing measures set of inequalities:
and the best issues corresponding to resource lim-
its and logic criteria from the options available. n n
This paper considers the optimization model ∑x (p
i =1
i i, j li , j ∑x σ
i =1
2
i
2
i j +Cj 0 j = 1,..., m (2)
of integrated innovative investment program for
import substitution with regard to possible risk.
Implementation of the innovative investment The conceptual meaning of these conditions
program requires funding for certain categories of is in the fact that all the received investment
goods. Let us denote funding of a definite category payoffs, allocated in the period j, that is the value
n
of goods by unit i; within time period j, each of
them requires certain expenditures li,j and can bring ∑x (p
i =1
i i, j li , j ) together with the amount of
in pi,j. However, profit return (pi,j – li,j) is a random money available or in store Cj within the period
variable (seen as a parameter most possibly drawn j, must exceed the total «variability» of received
under random destabilizing factors), since both n
quantity of investment and expectation payoffs payments’ rate expressed by value ∑x σ 2
i
2
i, j with
are subject to considerable accidental and gener- i =1

ally unavoidable factors with market fluctuations specified confidence coefficient α.

179
 This condition implies ensuring that the subjects
providing investments will not go bankrupt; in
other words, money supply (Cj) would be sufficient
for planned investments even with the worst turn
of events when there was a considerable underpay-
ment. This requirement must be met with a prob-
ability of 95% with bankruptcy risk level being
5%. It is expressed with the value ψ(α), present in
formula (2).
The outpayment of all investments in all periods
should be maximized:
n m
max ∑ i ∑( p i, j − li , j )
i =1 j =1
All conditions taken together present a non-
linear Boolean programming problem. When
considering mean square deviation ξi2 j instead
of dispersion, this statement turns into a linear
statement. Thus, relation (2) takes the form:
n n
∑ x (p
i=1
i i, j li , j
G.V. Sovershenstvovanieorganizatsionnoistruktur-
yarkhiva, orientirovannogonauslugiatutsorsinga//
«Ekonomicheskienauki», No 3, 2008.).
On the whole, there is a linear Boolean program-
ming model for the maximization formed by a set of
formulae (1), (5)–(9). There are efficient algorithms
to solve the given linear Boolean programming
problem (Likhtenshtein V.E. Information Tech-
nologies in Business. Case-study: the Use of «Deci-
sion» system in macro- and microeconomy. /V.E.
Likhtenshtein, G.V. Ross. Moscow: Finansyistatis-
tika, 2008.). In particular, the instrumental system
«Decision» (module «Combinatoric») involves
(3)
optimization techniques based on evolutionary sim-
ulation method and dynamic programming algo-
rithm for solving Boolean problems. Data resulting
from the application of «Combinatoric» module
( ) are useful for considering the reassignment of funds
between rounds of financing as well as feasibility of
increasing of reducing funding in different years.
We consider this methodological approach to be
worth discussing and very helpful for shaping the
∑xξ
i=1
2 2
i i j + C j > 0, direction of functional and sectoral strategies when
choosing the functional areas of investment priorities.
(4)
j 1 m

Given that identity xi xi2 is true for the REFERENCES

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Let us denote Moscow: Publishing House Mejdunarodnyuniver-
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⎪ 0, ecru ( (6) na baze integratsii: problemy i puti resheniia [Inno-
i , j ) ≥ ψ (α )ξi , j
2
⎩ i, j
vative development of organisations in Russia based
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[4] Kotler F., Keller K.L. Marketing Management. /ed.
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By S.G. Zhiltsova. St.-Petersburg: Piter, 2012.
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[7] Likhtenshtein V.E. Information Technologies in
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Besides, since there is a chance of alternative in macro- and microeconomy. /V.E. Likhtenshtein,
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180
 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Employees’ personal potential as the main factor of the innovation

activity of a Russian organisation

R.N. Fedosova & Yu.I. Petrova

The Financial University under the Government of the Russian Federation, Moscow, Russia

Ye.V. Rodionova & Yu.Ye. Galkina

Murom Institute of Vladimir State University, Murom, the Vladimir Region, Russia

ABSTRACT: The article deals with topical aspects of the development of employees’ personal potential
with the purpose of increasing the innovation activity of organisations. The methodology of evaluation
of workers’ motivations for developing the innovation component of personal potential is presented; rec-
ommendations for improving the motivational mechanism are formulated.

1 INTRODUCTION are no Russian works. Therefore, the authors have

In the context of the innovation economy, the main
source of any enterprise’s intangible assets which
ensure getting the synergetic effect is its staff. The
dynamic development of technology, the change
of lifestyle, values and motivations have a strong
influence on an employee’s personal potential. As
a result, his/her awareness, activity, educational
and cultural level, creativity and self-fulfilment
increase. In this regard, the personal potential
of the modern staff, which is a set of capabilities
and competence to do a particular kind of work,
is constantly developing. Especially the impor-
tance of developing employees’ personal poten-
tial is growing in the innovation economy when it
becomes the main factor of the innovation activity
of an organisation.
The results of the gap analysis of studies exam-
ining the role of the staff in the performance of the
organisation are presented in Table 1.
The table shows that current research is mainly
devoted to the study of human capital in the organ-
isation as a whole. At the level of each employee
(including his/her personal potential), system
research is not carried out. This is especially true
for Russian companies which chose an innovative
scenario.
2 METHODS
The analysis of studies devoted to the evalua-
tion of the personal potential of the employees
of Russian organisations from the standpoint of
innovation activity showed that, at present, there
developed a methodology for the evaluation of
employees’ personal potential, which is based on
the marketing of employees’ internal needs. The
sociological method was used to gather informa-
tion in order to assess motivations for developing
innovation potential; statistical methods were used
to process questionnaires. Because of the necessity
of processing a large data array, the programme
and methodical complex “Marketing of employ-
ees’ internal needs” was developed. After a success-
ful introduction in Russian organisations by their
request, registration of a copyright on this result
of intellectual activity was carried out and a copy-
right was obtained.
3 RESULTS
An employee’s personal potential includes the fol-
lowing elements: psychophysiological potential,
labour potential and innovation potential. Mod-
ern production demands that employees develop
their innovation potential, which is determined by
knowledge, intelligence, creative and cognitive abil-
ities, as well as values. The main tool of inducing
employees to develop these aspects is motivation,
which is oriented to innovation in this case.
When managing the development of an employ-
ee’s innovation-oriented motivation, it is necessary
to rely on the reproduction approach, which means
that he/she is considered as a prerequisite, condi-
tion and result of production.
Special research shows that every person is
talented in one way or another, but he/she uses
only 8–10% of his/her potential in various forms

181
Table 1. The analysis of studies examining the role of the staff in the performance of the organisation in the world.

Researchers The main scientific idea Investigated aspects

Gildingersh et al. (2009)
Avsyannikov (2011), Gilding-
ersh et al. (2009), Kibanov
(2010), Ogoleva et al.
(2010), Armstrong (2012),
DeMarco & Lister (2007)
Gaponenko (2015), Kornitsky
(2000), Korchagin (2005)
Brooking (2001), Roos et al.
(2008), Prusak (2006), Stewart
(2007), Edvinsson & Malone
(1999)
Lukichyova (2006), Yakovleva
(2009)
Genkin & Nikitina (2013),
Genkin (2016), Gaponenko
(2015), Ivantsevich & Lobanov
(2006), Lukichyova (2006)
Yakovleva (2009)
Genkin & Nikitina (2013),
Genkin (2016), Doktorovich
(2003, 2006, 2012), Kapelyush-
nikov (2012), Yudin (2004)
The development of ways of forming and using Forming and using
high-quality human capital, motivation and employees’ human
stimulation of the innovation behaviour of the capital.
staff, creation of a favourable innovation climate
for employees, their total professional, intellectual
and creative efficiency in the innovation process.
Providing conditions for innovation activity and Using employees’
receptivity to innovations of the employees human capital.
whose human capital is the source of creative
solutions.
The aspect of human resource management that is The formation and
considered is the human resources formation and development of
development oriented to the innovative result. human resources of
an organisation.
Problems of the increase in the value of assets of Using and assessing the
an organisation, managing collective internal human capital of an
energy, the influence of intellectual human capi- organisation.
tal on innovative development.
Problems of managing employees’ intellectual abili- Using the human capital
ties and competence as well as intangible assets of an employee and
included in intellectual assets. an organisation.
Improving and searching for new methods of man- The development
agement, creating the conditions under which of the intellectual
intellectual abilities of the staff could develop, component of human
introducing management technologies, research- resources of the staff.
ing new forms of communication with external
and internal environments.
Problems of organising the management of the Using and developing
development of employees’ intellectual personal employees’ intellectual
potential. human capital.
Problems of planning, forming, developing, using Forming and transform-
and transforming a worker’s human capital into ing a worker’s human
the human capital of an organisation in the inno- capital into the
vation process. human capital of an
organisation.

of activities. Therefore, the process of the devel-
opment of personal potential should become a
constituent part of everything that is done in the
enterprise, workers’ way of thinking and mode of
behaviour encouraging creativity, initiative, search-
ing for innovative ideas and their implementation.
In order to assess motivations for developing
innovation potential, the authors used the pro-
gramme and methodical complex “Marketing of
employees’ internal needs”, which includes:
– a list of factors affecting employees’ internal
needs for innovation activity;
– sociological survey questionnaires;
– a programme for processing survey results;
– recommendations on forming conditions that fur-
ther activating employees’ innovation potential.
The list of factors affecting employees’ internal
needs for innovation activity comprises:
– factor A: general conditions characterised by
the work schedule of the enterprise, earning
opportunities, social benefits, promotion pos-
sibilities, conditions for professional develop-
ment, realising the fact that an employee’s work
is necessary for somebody;
– factor B: working conditions, occupational
safety, observance of sanitation and physiologi-
cal standards for gas pollution, temperature,
noise, aesthetic conditions of the workplace;
– factor C: organisational and technical working
conditions characterised by the level of techni-
cal equipment of the workplace, the quality of
technological process development, the mainte-
nance of the workplace, a possibility of using
the knowledge, experience, abilities in the exist-
ing circumstances, the rhythm of work;
– factor D: job content determined by the com-
plexity of the work performed, the necessity of

182
 solving new and interesting problems, and the
presence of control elements;
– factor E: the organisation of labour remunera-
tion, the system of labour remuneration, the
rate of remuneration, the order of bonuses and
dividends distribution;
– factor F: organisation of work of the social
infrastructure of the enterprise characterised
by the organisation of work of the canteen, the
condition of the amenity space, medical service,
possibility of acquiring a pass to a resort, a
place in a sanatorium, rest home, or boarding
house, and other services;
– factor G: interpersonal relationship determined
by the nature of communication with colleagues
at work and outside work;
– factor H: the moral climate in the group, which
is largely dependent on the preservation and
observance of traditions of the enterprise, the
people’s customs.
For the quantitative assessment, a five-point
scale (from 0 to 4) is used. Qualitative character-
istics of the importance of each factor are deter-
mined according to the following scale:
– from 0 to 2: a low degree of satisfaction (a criti-
cal area);
– from 2 (inclusive) to 3: a satisfactory degree;
– 3 (inclusive) to 4 (inclusive): a high degree of
satisfaction.
At present, this method is used in 28 Russian
organisations and can be used in other countries.
4 CONCLUSIONS
According to the results of the analysis of social
programmes, a large amount of investment is often
not required to solve the problems that impede the
development and realisation of employees’ innova-
tion potential. However, the effect can be high. In
the whole world, investment projects for the devel-
opment of the personal potential of the staff are
high-yielding.
5 RECOMMENDATIONS
In order to improve employees’ motivation mecha-
nism and to increase innovation activity, Russian
organisations should:
– put diagnostics of employees’ motivation into
the practice of organisations to innovate;
– create a knowledge base;
– create organisational conditions furthering the
realisation of employees’ innovation potential
and formal and informal knowledge sharing;
183
– develop bonus regulations in order to stimulate
the innovation activities of each employee of
the organisation.
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Avsyannikov, N.M. 2011. Innovation Management. Mos-
cow: RUDN.
Brooking, A. 2001. Intellectual Capital. Saint Petersburg:
Piter.
DeMarco, T. & Lister, T. 2007. Peopleware: Produc-
tive Projects and Teams. Moscow: Symbol Plus
Publishing.
Doktorovich, A.B. 2003. Socially Oriented Develop-
ment of Society: Theories and Methods of Systems
Research. Moscow.
Doktorovich, A.B. 2006. Personal Potential. Moscow.
Doktorovich, A.B. 2012. Sociological Analysis and the
Methodology of Evaluation of Intellectual Potential
Development. Moscow  State  University  Bulletin 1:
143–154.
Edvinsson, L. & Malone, M. 1999. Intellectual Capital:
Realizing Your Company’s True Value by Finding Its
Hidden Brainpower. Moscow: Academia.
Gaponenko, A.L. 2015. Management Theory. Moscow:
Yurait.
Genkin, B.M. & Nikitina, I.A. 2013. Human Resource
Management. Moscow: Norma, INFRA-M.
Genkin, B.M. 2016. Motivation and Organisation of Effi-
cient Work. Moscow: Norma, INFRA-M.
Gildingersh, M.G. et  al. 2009. Innovation Management.
Saint Petersburg: SPGUEF.
Ivantsevich, D.M. & Lobanov, A.A. 2006. Human
Resource Management. Moscow: Delo.
Kapelyushnikov, R.I. 2012. How Much Is the Human
Capital of Russia? Moscow: Higher School of
Economics.
Kibanov, A. Ya. 2010. Human Resource Management.
Moscow: INFRA-M.
Korchagin, Yu. A. 2005. Russian Human Capital: a Fac-
tor of Development or Degradation? Voronezh: TSIRE.
Kornitsky, A.V. 2000. Introduction to Human Capital
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Moscow: Omega-L.
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Moscow: INFRA-M.
Prusak, L. 2006. Creating Value with Knowledge: Insights
from the IBM Institute for Business Value. Moscow:
Alpina Publisher.
Roos, G. et  al. 2008. Managing Intellectual: Capi-
tal in Practice. Moscow: The Graduate School of
Management.
Stewart, T.A. 2007. Intellectual Capital: The New Wealth
of Organizations. Moscow: Pokoleniye.
Yakovleva, Ye. V. 2009. The Intellectual Potential of the
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Analysis of the current situation of the production structure of the

dairy industry of the Russian Federation regions: Optimization reserves

G.V. Jazev, J.F. Anoshina & V.P. Tretyak

Moscow State University of Technologies and Management named after K.G. Razumovskiy, Moscow, Russian
Federation

ABSTRACT: The problems of the Russian domestic dairy industry are similar to the other elements of
the Russian agro-industrial complex: low level of technological development, poor infrastructure, insuf-
ficient level of trade government protection, and low protection of domestic producers. They have led to
the dominance of foreign companies, including those in the infrastructure sectors, particularly in packag-
ing. Therefore, the search for reserves of modernization of the production structure of the Russian dairy
industry is an actual and urgent problem. The aim of this paper was to detect the reserves of improving
the production structure of the Russian dairy industry by identifying the key factors of such reserves,
starting from 2012. In this study, the following methods were used: (1) correlation analysis; (2) the method
of expert evaluations; and (3) methods of scenario analysis.
As a result, this quantitative research has identified the main factors significantly affecting the current
state of the dairy industry of the Russian regions. This analysis can be used for strategic planning of the
development of the Russian regions in whole or for the creation of new development instruments of the
dairy sector in particular.

1 INTRODUCTION development, poor infrastructure, insufficient level

Before the 1990s, Russia had the world’s largest
herd of dairy cows—more than 20  million; how-
ever, high quantitative indicators of the industry
existed simultaneously with low-quality indicators,
reflecting a lack of integration of modern innova-
tive technologies. Furthermore, the Russian pro-
ducers are losing much even on domestic markets.
For a long time, foreign companies own them, and
the share of foreign companies is not less than
20%.
The expenses of Russian companies in the milk-
processing field are two to three times higher than
those of EU companies. It is due to their outdated
technological base. Insufficient development of
logistics, lack of organized ways of milk marketing,
and the radius growth of its delivery are increas-
ing the transportation costs and their percentage
in the total production expenses significantly. The
costs of treatment also increase due to the insuffi-
cient development of dairy logistics infrastructure
(refrigeration chain, transport expenses), as well as
with insufficient adjustment of trading activity in
Russia.
The problems of the domestic dairy industry
are similar to other elements of the Russian agro-
industrial complex: low level of technological
of trade government protection, and low protec-
tion of domestic producers. They have led to the
dominance of foreign companies, including those
in infrastructure sectors, particularly in packaging.
Therefore, the search for reserves of modernization
of the production structure of the Russian dairy
industry is an actual and urgent problem.
Questions of agro-industrial development in
general and the development of the dairy industry
in particular were considered in various aspects in
the works of scientists worldwide. In particular, it is
necessary to mention the questions of trade protec-
tion and state of infrastructure. The most common
aspects of their consideration are the possibilities
of Russia’s integration into competitive environ-
ment of the World Trade Organization.
The main issues of the agricultural sector were
discussed in the scientific works of the following
economists: Goncharov (2011), Ivanova (2011),
Terentyev (2004, 2013), Yashin (2012) and others.
The research of the specific problems of the dairy
industry was reflected in the works of Birman
(2011), Gusev (2013), Magomedova (2013), and
others.
Alexandrova (2014), Anichkina (2013),
Bogdanov (2013), Gaidarenko (2013), Nikonorova
(2013), Ognev (2014), Proskurin (2013), Smertin

185
(2009), and others paid special attention to
methodological basis issues of a dairy industry
situation analysis.
However, many issues of improving the produc-
tion structure of the dairy sector in relation to the
conditions of modern Russian economy require
further study and deeper research.
The aim of this paper was to detect reserves
for modernization of the dairy industry produc-
tion structure of the Russian Federation regions
by identifying the key factors of such reserves,
starting from 2012. In general, such reserves
were found in the leader regions: Tatarstan and
Udmurtia.
2 METHODOLOGY
We consider the following analysis scheme of pro-
duction structure of the Russian regions’ agro-
industrial complex to be the most efficient.
First, such analysis should be carried out sepa-
rately for each industry of the agro-industrial com-
plex, which will determine the regions, which are
the points of growth for each industry. It gives an
opportunity to identify the most promising direc-
tions of production specialization.
Second, it seems to be logical to limit this research
by those regions, where food balance of analyzed
industries is positive. In other words, we should
explore the regions that can ensure food security of
its population and have the ability to export food
surpluses to other regions and abroad.
We propose to analyze the following groups of
indicators: (1) volumes of raw material production
(e.g., the gross of particular cultures harvest); (2)
production of processed products (e.g., bakery
products); and (3) efficiency of agricultural pro-
duction (e.g., harvest productivity, value of milk
yield, or pig fat).
As a model for comparison with other regions
of the Russian Federation, we propose to take the
region with the largest positive values of the food
balance in each industry. On the one hand, it will
allow determining the ratio of different points of
growth, to carry out their ranking within the coun-
try. On the other hand, it will allow discovering
its possible flaws, if a number of indicators grow
faster in other areas than in model regions.
Strategic risk factors were evaluated in several
stages:
1. Preliminary evaluation of particular indicators
of particular agro-industrial complex branch
situation in particular region;
2. Clarification of the ratios found by experts
by using the significance coefficients for each
group of indicators;
186
3. Ranking of the final level of the produc-
tion structure situation of a particular agro-
industrial region;
4. Evaluation of the final level dynamics of
the production structure situation of agro-
industrial complex in the particular region.
3 RESULTS
The Russian dairy industry should be analyzed by
the following groups of indicators.
First, raw materials production. This group
includes: 1) volumes of milk production; 2) vol-
umes of high-quality milk realization; 3) volumes
of the first-grade milk realization; and 4) volumes
of the second-grade milk realization.
Second, production volumes of recycled prod-
ucts. This group includes: 1) production volumes
of whole milk products; 2) production volumes of
condensed milk products; 3) production volumes
of butter products; and 4) production of cheese
and cheese products.
Third, the efficiency of agro-industrial produc-
tion. This group includes: 1) milk yield per cow in
agricultural organizations; 2) total consumption of
feed for milk production in the agricultural organi-
zations; and 3) production volumes of the cooled
milk.
According to the results of each indicator,
group ranking of regions based on scoring ranks
will be made. Grade A corresponds to fove points,
B—4, C—3, D—2, and E—1. Grade A means that
the region in question is ahead of the model region
by more than 10%. Grade B means that this region
is even with the model region (+—10%). Grades C,
D, and E mean that this region is behind the model
region by 11–25%, 26–50%, and more than 50%,
respectively.
The Altai region has the best food balance.
Hence, it was selected as the model region for the
calculations.
Let us turn to the first group of indicators—raw
materials production.
Main capacities of raw milk production are
concentrated in the Volga Federal District and are
contributing to nearly one-third of the total pro-
duction. Central and Siberian Federal Districts
provide equal shares—about one-fifth. This situ-
ation persists despite the negative dynamics of the
dairy sector, because this dynamic is inherent to
almost all the districts.
In the dairy industry, there are two obvious
leaders—Tatarstan and Bashkiria. They have
almost identical indicators. Bashkiria is ahead of
its nearest competitor by 25.4%. Other regions can
be divided into the three groups according to pro-
duction volumes. The first group includes the Altai
and Krasnodar regions. The second group includes Table  1. Regions-leaders in raw material production
the Rostov region. The third group includes the level in the dairy industry of the Russian Federation
other five regions. according to the Federal State Statistics Service data for
The shares of the analyzed regions in their dis- 2012–2014.
tricts are very interesting. Production volumes in Region Rank Place
the Volga Federal District are allocated over the
regions-leaders relatively evenly; however, in the Bashkiria 20 1
North-West and Siberian Federal Districts, there is Tatarstan 20 2
a distinct production concentration. In the Central Omsk region 18 3
Federal District, the situation is opposite. Almost Udmurtia 17 4
each of the 18 regions of the Central Federal Dis- Belgorod region 16 5
trict produces an average of 5.5–6% of the total Kirov region 16 6
production of raw milk. Kabardino-Balkariya 16 7
From the author’s viewpoint, the key factor here Vologda region 16 8
is the level of product quality. The shares of real- Mordovia 16 9
ized sold milk varieties are the most significant. Ryazan region 16 10
Here we have to underline the gap between Kursk region 16 11
Tatarstan and Bashkortostan. Tatarstan is the Voronezh region 13 12
leader of raw materials production group and is
the second largest producer of the highest-quality
milk, while Bashkiria is the third from the end We can see the difference between the raw
(although it is important to pay attention to spurt material-producing regions and the processing
from 2012 to 2013). Udmurtia, one of the leaders regions-leaders. Many of the regions do not have
in production efficiency, occupies the first place. sufficient levels of processing capacity.
In addition, we note a significant gap of the In the production of dry granular milk or other
Voronezh region from other three leaders. This solid forms of milk, the leaders are the same fed-
problem is largely due to an inefficient food supply. eral districts: Volga, Central and Siberian districts.
Particularly, insufficiently high level of raw milk A significant difference from the production of
quality stipulates the lack of the required quantity raw milk and whole milk is that federal districts
of high-quality fodder and the lack of balance in actually monopolize the market in this industry,
their composition (a significant content of rough- collectively producing 87.02%.
age, low content of concentrates, and premixes). Volga Federal District shows especially signifi-
However, we can underline the overall positive cant possibilities, producing almost a half of the
movement of the Russian dairy industry toward product in Russian Federation. The leadership in
improving the quality of products. the production of milk in solid forms belongs to
Regions with the most significant leap of quality Tatarstan and Bashkiria.
level from 2012 to 2013 (e.g., Bashkiria) are char- Analyzing the share of regions in their districts,
acterized by the decrease of the first-grade milk it can be noted that if regional capacities are dis-
share as shown on Table 1. In the second-grade tributed evenly relatively in the Volga region, the
milk, we can see a steady decrease of its realization market in other districts (Siberia and in particular
in all regions. It is a positive sign for the industry. the North-West) is mono- or oligopolistic.
There is also a certain stagnation of the dairy The composition of the regions-leaders in the
industry of Altay territory, consistently producing production of condensed milk products changes
mainly first-grade milk (and not high-grade milk). slightly. Central and Siberian Federal districts
Therefore, we can conclude that in spite of its lead- occupy the first and the second places, respectively,
ership in production volumes, the dairy industry in whereas the Volga Federal District, which was previ-
the region needs considerable optimization of raw ously considered for the positions of either the first
materials production. Leadership belongs to the or the second place, takes here only the fourth one.
regions of the Volga Federal District. Regional leaders of the production of condensed
Let us turn to the second group of indicators— milk products are very different from regions,
production volumes of processed products. which are leading in the production of both raw
Production of dairy products was considered in milk and whole milk or milk in solid forms.
the first place. Leading federal districts are almost The situation in the subsector of production of
the same as those in the production of raw milk. cheese and cheese products is not very different
Central and Volga Federal districts, respectively, from the production of condensed products and
occupy the first and the second place (the reverse butter. The main volume of production is provided
situation); in the fourth place is Siberian Federal by the Central, Siberian, Volga, and Southern Fed-
District (the third largest producer of raw milk). eral districts as shown on Table 2.

187
Table  2. Regions-leaders in terms of production of the basic requirements for a quality product in the
processed products in the dairy industry of the Russian dairy industry.
Federation according to the Federal State Statistics Serv- Udmurtia is the leader again. The situation in
ice data for 2012–2014. the Altai region is also noteworthy, where the level
Region Rank Place
of profile infrastructure development is insuffi-
cient. Perhaps, this explains why Altai Territory
Tatarstan 15 1 sales volumes of premium milk falls and the first
Voronezh region 12 2 grade grows as shown on Table 3.
Udmurtia 13 3
Bashkiria 12 4
Omsk region 12 5 4 CONCLUSION
Kirov region 11 6
Belgorod region 10 7 The aim of this paper was to detect reserves for
Kursk region 8 8 the modernization of the dairy industry produc-
Vologda region 6 9 tion structure of the Russian Federation regions by
Kabardino-Balkaria 5 10 identifying the key factors of such reserves, start-
Mordovia 4 11 ing from 2012. In general, such reserves were found
Ryazan region 4 12 in the leader regions—Tatarstan and Udmurtia.
We concluded that the leader of agro-industrial
complex of the Russian Federation dairy industry
Table  3. Regions-leaders of production efficiency is Tatarstan. It holds high positions in raw materi-
level in the dairy industry of the Russian Federation als production group. It also leads in the four of
according to the Federal State Statistics Service data for five types of processing.
2012–2014. Udmurtia has high potential. It leads in the two
Region Rank Place
of five types of processing, as well as in production
efficiency and development dynamics. It is a strik-
Belgorod region 14 1 ing example of high-efficiency production despite
Vologda region 14 2 the small population of the region. It takes the fifth
Voronezh region 14 3 place in Russia for the production of milk per cap-
Udmurtia 14 4 ita. Taking into consideration its strong position
Ryazan region 14 5 in the production capacity, the high potential of
Mordovia 14 6 Udmurtia seems to be certain.
Tatarstan 13 7 Other regions have clearly specialized infrastruc-
Kursk region 14 8 ture. For example, the Belgorod region is leading
Kirov region 13 9 in the production of condensed milk products, but
Bashkiria 13 10 has almost no capacity for butter production. In
Kabardino-Balkaria 12 11 addition to the Belgorod region, we can note Omsk
Omsk 8 12 and Bryansk regions.
In general, we can say that the following factors
are preventing more intensive development of the
Let us turn to the third group of indicators—the designated regions—points of growth:
efficiency of agricultural production.
1. Disparity of prices for livestock products and
Productivity analysis of dairy industry per cow
material and technical resources;
was realized. The leader in production volumes
2. Low-investment attractiveness and debt over-
of raw milk—Tatarstan—is in the middle of the
load of majority of milk producers are reducing
list. Noteworthy are the Voronezh region and
susceptibility to innovative technologies;
Udmurtia—the outsiders in raw material volumes.
3. The monopoly of processing and trade organi-
They occupy the top lines of both dynamics of
zations, which supports low purchasing prices
development and productivity of milk yield.
for raw milk, is reducing the overall profitability
Another important indicator of the production
of dairy companies.
efficiency is the feed consumption for milk pro-
duction. Leadership of Udmurtia seems very sig- Modernization of the reproductive processes in
nificant here. Its nearest competitor on the overall the dairy sector involves the growth of solvency
efficiency—the Voronezh region—loses in the effi- of economic entities. It can be done by reducing
cient use of forage. the level of price disparity, optimizing interbranch
To complete the analysis of the level of raw milk relationships by cooperation and agro-industrial
quality, let us look at the proportion of cooled integration, and developing market infrastructure.
milk in the total sales volume. Cooling is one of Further development of the dairy sector should

188
be carried out using investment and innovative
way of development on the basis of integration
and concentration of production. As a result, the
industry’s competitiveness will increase and the
process of import phase-out of dairy products on
the domestic market will be activated.
REFERENCES
[1] Birman E.V., Birman V.F. Stages of NTP in foreign
and domestic milk production. Bulletin of Don
agrarian science. 2011. N4. pp. 74–81.
[2] Bogdanova O.V., Nikonorova O.S. Current status
and trends of the world market of milk. Russian
Entrepreneurship. 2013. N4 (226). pp. 107–113.
[3] Gusev AY Priority areas for the effective develop-
ment of dairy cattle breeding. Diss. Voronezh, 2013.
[4] Ivanov V.N., Goncharov V.D. Rational use of
energy resources in the food industry. Economics.
2011. N79. pp. 110–114.
[5] Magomedov A-N.D. The conjuncture of the world
market of milk and milk products in the period
2000–2010. Regional problems of economic trans-
formation. 2012. N3. pp. 157–163.
[6] Magomedov A-N.D. Improving the system of prod-
uct distribution of milk and dairy products to the
Russian Federation. Diss. M. 2013.
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[7] Ogneva T.V., Alexandrov M.V. Monitoring the
global market of milk and milk products. Econom-
ics, Sociology and Law. 2014. N3. pp. 66–69.
[8] Proskurin Z.B., Anichkina O.A. Gaidarenko L.V.
Market monitoring of dairy products in Russia
and abroad. Economy and Entrepreneurship. 2013.
N12–2 (41–2). pp. 186–190.
[9] Smertin E.N. Foreign experience in assessing the
quality and milk production. Accounting and
Statistics. 2009. N16. pp. 82–87.
[10] Terentyev A.S. US Dairy Industry. Advances in
science and agribusiness technology. 2004. N8.
pp. 45–48.
[11] Terentyev A.S. Support for the US dairy sector.
Dairy Industry. 2013. N10. pp. 69–71.
[12] Yashin M.L. Foreign experience of state regulation
of development of cattle breeding. Agricultural sci-
ence and education at the present stage of develop-
ment: experience, problems and solutions. 2012. T.3.
pp. 255–262.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Competitive differentiators of money-and-credit institutions

of modern Russia

N.A. Amosova
Financial University under the Government of the Russian Federation, Moscow, Russia

A.Yu. Kosobutskaya & U.I. Treshevski

Voronezh State University, Voronezh, Russia

A.V. Lodyshkin
Ivanovo State University, Ivanovo, Russia

ABSTRACT: In this paper, we explore the problem of technological revolution and related institutional
transformations. These transformations have a significant impact on the banking markets and the compe-
tition in the banking sector of economy, namely on the composition of competitors, forms, and methods
of competition. According to our proposition, modern practice of banking competition requires alterna-
tive approaches for the evaluation of the following competition aspects: competitive positions of financial
institutions, change in the composition of competition participants, and management of competitiveness-
ensuring processes.
To substantiate this hypothesis, we investigated factors of competition promotion, deterrents, and
drivers of the process.

1 INTRODUCTION that could improve competitiveness in the banking

Technological changes caused fundamental trans-
formational processes in the field of bank competi-
tion. There are a number of studies wherein various
aspects of bank competition in these new, rapidly
developing and changing conditions are discussed
(Federal Antimonopoly Service 2016). However, con-
ventional methodological approaches to the study of
vulnerability factors of national banking systems,
essence of bank competition, its functions, princi-
ples, forms, methods, participants, and objects do
not always provide sound scientific result nowadays.
According to our proposition, modern practice of
banking competition requires alternative approaches
for the evaluation of the following competition
aspects: competitive positions of financial institu-
tions, change in composition of competition partici-
pants, and management of competitiveness-ensuring
processes.
The goal of this study was to evaluate changes
occurred in the field of banking competition due
to changes in the banking business environment of
the Russian Federation.
Research questions are the following: to spec-
ify the composition of competition participants,
mark out the main features of competition in the
Russian banking markets, and demonstrate ways
sector.
The scope of this study is limited to competition
in the banking markets. It is based on the materials
of the banking system of the Russian Federation.
Research methods such as formal analysis, facto-
rial analysis, benchmarking study, look back study,
grouping method, system concept, and process
approach were employed.
2 NATIONAL BANKING SECTOR
VULNERABILITY FACTORS
Technological revolution of the last decades led to
sweeping changes in the area of global specializa-
tion of labor and employment, the structure of eco-
nomic systems, visions of equipment capabilities,
the ratio of real to financial sectors of economy,
and the role of banks in economic systems. Eco-
nomic processes have become less predictable and
less controllable, while economic and administrative
borders have become more transparent. The behav-
ior of economic entities has changed, so have the
expectations from them. New forms of competition
have emerged. Government intervention in econ-
omy has become very expensive, yet markedly less
effective. The means of communication between

191
real and financial sectors of economy has changed.
Supply and demand in banking market, organiza-
tional and institutional composition of the banking
system and participating competitors, and forms
and methods of competition changed drastically.
We endorse views of the economists who believe
that not only banking services (as opposed to the
famous statement of Bill Gates), but also banks
are required (Lavrushin 2016). The Russian banks
of today have assumed functions that are irrel-
evant to their economic nature, that is, government
control functions. However, their new competitors,
various multiservice companies, for example, social
networks, refuse to take on the function. Business
independence is a great asset, but the official law
enforcement authorities are actually less likely to
cope with crime in the financial sector without par-
ticipation of the financial market institutions.
The chairman of the Bank of Russia E. Nabiullina
identified the following global economic challenges
at the International financial congress (2016): low
rates of world economy growth, growth of inequality,
request for populism, transition of the oil market to a
new balance with lower prices, slowdown in Chinese
economy, and extended period of quantitative easing
in monetary policy of the leading economies.
The list would be incomplete without mention-
ing the technological revolution and its effect on
the banking sector. Like any fundamental change, it
provides both new opportunities and challenges. The
question of what economic entity acquires the latest
technologies presents not only the issue of leader-
ship in the world economy, but also safety concern.
Disproportionate regulation, parallel banking
growth, and transformation of business influenced
by new technologies are the global challenges of
the banking sector.
The Bank of Russia faces the following specific
challenges of the Russian financial system: weak
economic dynamics that substantially narrows
down the potential of banks to have high profit-
ability; high debt load in sectors that are traditional
for bank crediting; remaining access barriers to for-
eign financial markets; the presence of weak market
players; financing of noncompetitive projects in
economy and businesses of financial institution
owners; and the lack of long-term loans in econ-
omy as a result of underdevelopment of collective
savings forms (Russian Bankers’ Association 2016).
3 COMPETITION AND
COMPETITIVENESS OF NATIONAL
MONETARY AND CREDIT
INSTITUTIONS
Evaluation of the competitive environment in the
Russian Federation is carried out by economic
192
entities, Federal State Statistics Service, Russian
Government Analytical Centre, Interstate Council
of Industrial Safety, Russian Union of Industri-
alists and Entrepreneurs, and national and glo-
bal rating agencies. Assessment of a competition
state is made by economic entities, Russian Union
of Industrialists and Entrepreneurs, and Federal
Anti-Monopoly Service initially.
According to our reckoning, the following
should be considered as a shift toward unrestricted,
healthy bank competition in Russia:
• bank number reduction;
• concentration of capital by large banks;
• nonuniform territorial allocation of banks and
their resources;
• local character of banking (credit, deposit,
investment, clearing and settlement, currency,
trust, consulting) markets.
The fact that affiliation with a financial group
or with a “family” is far more important than the
interest of the state for the majority of banks influ-
ences bank competition. Loss of national identity
by modern commercial banks is an important
factor that also affects character, forms, and meth-
ods of competition. Many countries choose to use
protective and protectionist measures without stat-
ing it explicitly (Government… 1999, 2006, 2015).
We believe that global competition, develop-
ment of new technologies of communication and
information processing, and growth of welfare and
economic culture of the population remain major
factors of bank competition strengthening.
Nature of competition is still defined by market
capacity, rate of its growth, entrance and exit bar-
riers, prices, process of product standardization,
and product lifecycle.
The influence of competition on the devel-
opment of the banking system of the Russian
Federation could be shown by the following: trans-
formation of the essence of commercial bank;
change of the purpose of bank activity; compelled
choice between universalization and specialization
of bank activity; shift away from individual bank
services and focus on complex banking products
and customer service packages; change of bank
competition priorities (from price to nonprice
competition); more obvious manifestation of the
intensive model of competition in the banking
market, contrary to the extensive means of the
past; sensible rise in the share and role of nonbank
financial and credit institutions; and the formation
of a new bank culture (inside a bank, with clients,
contractors, and competitors) (Korobova 2012).
The period of revolutionary changes in the
financial markets led to a transformation of com-
petition groups and competition itself. It demands
not only control from the Federal Anti-Monopoly
Service, but also management of competition
environment and of legal competition methods
(Ministry… 2003). Thus, it is important to atten-
tively monitor not only situation in the domestic
banking market, but also external expansion of the
banks. Controlled development of bank competi-
tion should be considered as a factor of stability,
preservation, and protection of national interests
of the country.
Nowadays, bank competition has become multi-
level, multicultural, and strongly pronounced.
Values and the so-called behavioral factors play a
special role among competition factors. Not only
adaptation, but also power model is actively devel-
oped among competitive strategies.
Internal factors of credit organization competi-
tiveness are quality and social status of the clients
served; staffing support degree; level and quality
of analytical procurement of banking business;
and the degree of banking safety ensured.
The external factors of credit organization
competitiveness that depend on the state are gov-
ernmental regulation of bank activity; current situ-
ation in the real economy; standard of living; and
investment activity in the economy. On the con-
trary, the density of competition; affiliation with
regional bank centers or with bank periphery; and
bank and nonbank institutes ratio substantially
depend on regional features. The group of external
factors of immediate surrounding includes public
confidence in a credit organization; commercial
bank customer loyalty; proximity of competitors;
and programs and products of the immediate
surroundings.
Geofinancial competition for some time has
been taking the form of geofinancial war. Sequen-
tial exclusion of a competing country and its
economic entities from world financial flows and
markets is evident (Value4risk 2016). It is arguable
that global competition is represented as a geofi-
nancial war today.
4 WAYS TO IMPROVE COMPETITIVENESS
OF RUSSIAN MONEY-AND-CREDIT
INSTITUTIONS
Russian banking system stability and competi-
tiveness will be notably increased if the following
characteristics are achieved:
1. Susceptibility to technological innovations and
keeping the institutional competitors ahead in
terms of supply-side economy. It is known that
many innovations are invented in Russia, but
only a few go to the point of implementation.
Unfortunately, positive results of scientific and
applied development made by Russian citizens
193
are most often used by competing countries,
whose economic systems welcome and adopt
them readily and quickly. The state, however,
attempts to make up for missed opportunities
and time. Such attempts are also made by tech-
nological, research, and business entities. In par-
ticular, attempts to create domestic analogs of
the world-class reliable communication systems
ensuring information security at the highest
level were undertaken in Russia. Therefore,
a group of scientists from ITMO University
(St. Petersburg) with the assistance of scientists
from Scotland developed for the first time in the
Russian competitive system of quantum commu-
nication with potentially unbreakable data trans-
mission over a distance of more than 250  km.
The speed and distance of the data transfer of the
system are comparable to the best world develop-
ments in the field. The first test of the system was
carried out by Gazprombank. Such innovations
will allow commercial banks to seize the product
initiative (to return leadership in this sphere) and,
perhaps, to close the technological gap between
Russia and more advanced countries in this and
other areas of scientific research.
2. Relative self-supply of long resources. Here,
along with internal investment resources, con-
centrated, for example, in pension funds, one of
the major priorities is not to allow the develop-
ing situation to deprive the banking system of
the opportunity to use the resources of internal
Islamic population. This opportunity is con-
sidered to be of great importance worldwide.
Great Britain is a long-term leader in this field.
There, the first so-called “Islamic counters” were
opened. Halallauncher service was launched
in Great Britain in 2016. It is an international
crowd-funding platform for Muslims, which was
developed by an immigrant from Russia. Only
halal, that is, appropriate to Islamic injunctions
projects, are placed to this platform. The main
objective of the project is “to supply halal pro-
jects with halal money” as venture investors
rarely invest in “halal sector”, and convertible
loans and conventional loans are prohibited in
Islam. It is clear that the UK banking system
is trying to maintain the global leadership in
this field (Money Maker Group 2016). On the
bright side, a similar approach is being adopted
in Russia. The regulator (the Central bank has
already started a project, “a work flow chart”,
on the development of partner banking and the
related financial services for 2016–2017), the
Government of the Russian Federation (a part-
nership of Russia and Pakistan in Islamic finance
was declared in June, 2016), and commercial
banks (the first Islamic bank was opened in
Russia in March 2016) started getting involved
 in the process. An Islamic banking center was
created on the base of Tatfondbank public com-
pany and Tatagroprombank LLC. This is the
first banking institution that is built completely
in accordance with the principles of partnership
funding (Banki.ru 2016), which is widely used
in many countries of Southeast Asia and the
Middle East. This issue is reflected in the annual
reports and resolutions of past Congresses of the
Association of Russian and regional banks. The
focus is to search an appropriate way to attract
and retain capital of internal Islamic population.
3. Regulated composition of the banking system
elements, well-defined institutional roles and
stability, including the evaluation of a number
of institutions of each kind required for the
optimum performance of the banking system,
and finally clear definition of degree of partici-
pation of foreign business capital in the banking
sector of Russia.
4. Combination of openness and protectionism in
terms of national economic interests: participa-
tion in the activities of international monetary
authorities; compliance with the requirements
for international financial institutions, while
sustaining a balance between self-sufficiency
and international cooperation.
5. State, public, and business confidence. Com-
mercial banks must ensure a maximum possible
level of confidence for public, business, and the
government. An example of that is the experience
of Sberbank that offered investment products for
a term of up to 50–60 years in 2016. The results
of the product launch are impressive: more than
1  billion rubles were invested within the first
5  months. The number of customers who can
invest or deposit more than 8  million rubles in
Moscow or 4 million in regions increased by 8%
and now exceeds 56,000 people, 36% of which
are rentiers (Ternovskaya 2016).
6. Safety. Unfortunately, Russia is an attractive
country (and a rather easy goal) for cyberattacks.
The United States and Great Britain spend sig-
nificantly more on protection against threats in
the cyberspace. As a result, they are much bet-
ter protected, According to the research con-
ducted by the Group-IB and the Microsoft, the
cumulative damage from cybercrime actions to
the Russian economy amounted to 203.5 billion
rubles in 2015. Aside from direct losses (it is
estimated at 123.5  billion rubles), 79.8  billion
rubles account for the costs of elimination of
the consequences of information security inci-
dents. According to the Central Bank, since the
fourth quarter of 2015, 21 banks were subjected
to cyberattacks; the attackers tried to withdraw
2.87 billion rubles. As a result, transactions that
amounted to 570 million rubles were suspended,
194
while additional 1.2 billion rubles were frozen on
bank accounts. In total, about 1  billion rubles
was stolen (Bank of Russia 2016). The Ministry
of Internal Affairs has similar statistics: attackers
tried to steal 2.81 billion rubles. The first embez-
zlement amounted to 30–60  million rubles, the
last ones reached up to 0.5–1 billion rubles. Lev
Hasis, the first deputy chairman of the Sberbank
Board, estimated general public, business, and
state losses to about 70 billion rubles in 2015. It
must be noted that outsourcing of cybersafety
measures does not also come to the banks cheap
(Losses 2016).
7. A fundamentally different institute of commer-
cial bank readjustment. The Bank of Russia
points out the following problems of the read-
justment institute: long existence of undercapi-
talized rehabilitated banks in the market, high
costs of readjustment, lack of consolidation of
the rehabilitated banks, increasing debt burden
on the Deposit Insurance Agency, a long term
of return of credit funds, and the use of the reha-
bilitated banks as “warehouses of bad assets”.
However, currently, there are viable suggestions
in terms of the bank readjustment reform. In
particular, there is a suggestion to move away
from “credit” readjustment to participation in
the capital and to the establishment of a Fund
of banking sector consolidation under control
of the Bank of Russia (Annual Report 2015).
Position of the Russian national banking system
in the world banking industry in the near future
remains, probably, fairly modest: Russia does not set
trends in the international banking development. The
degree of dependence on external negative impulses
has to decrease considerably as a result of measures
taken after the imposition of sanctions and their
reprisals. Probably, processes of convergence of the
three main types of banking systems will affect the
Russian Federation in full. As a result of systemic
transformation, our banking system will get some of
the features of the securitized and Islamic banking
systems in addition to the existing ones.
The differences between the ideal model of
the national banking system and the one actu-
ally formed will increase and settle unevenly, with
the accumulation of structural and technological
disproportions, due to resource constraints, and
sometimes—in favor of the overall improvement
of the banking system.
5 MEASURES TO BE TAKEN IN ORDER TO
IMPROVE THE COMPETITIVENESS OF
NATIONAL MONETARY INSTITUTIONS
In our opinion, in order to respond to external
challenges, overcome vulnerabilities, and increase
competitiveness of the national monetary and
credit institutions, it is necessary to mark the
following priorities.
1. Protection against cybercrime, establishment of
a domestic high-grade quantum cryptography
system, and development of standards that will
carry out implementation of this technology in
collaboration with government and commercial
entities.
2. Narrowing the information technology gap
between commercial banks and multiservice
companies as well digitalization of all business
processes. It is a difficult but vital task. Resource
constraints and delays, unfortunately, will result
in technological lagging in the near future.
3. Search for an appropriate way to attract and
retain long-term internal resources, including
Islamic population.
4. Conscious choice of a banking system regula-
tion model. In our opinion, the following should
be the main priorities in modern banking system
regulation:
a. flexibility and use of agile technologies,
b. preventive measures,
c. skillful usage of Big Data opportunities,
d. protection of national economic interests.
5. Decision on the matter of supervision of activ-
ity of financial organizations in the environment,
where a growing number of nonfinancial organi-
zations attempt to assume financial functions.
This requires, in our view, a transfer from “mega”
to spray regulators and appropriate supervision,
typical of the Anglo-American model.
6. Ensuring a maximum possible level of confi-
dence for economic participants. In the times of
radical transformations in the financial sector,
banks have to remain institutions most trusted
by the government, public, and business.
7. Overcoming institutional uncertainty: specifica-
tion of the institutional composition of bank-
ing the sector and areas of banking activity
exclusively (a total focus on poly-institutional
model); definition of operating conditions for
foreign capital in the banking sector of the
Russian Federation; and proper justification of
institutional composition.
8. Transfer of client service from offices to the
Internet and mobile devices applications. The
result should be a so-called “extreme efficiency”
based on new technologies, which is essential
to retail banking in the new conditions. One
of the most popular products of Swedbank,
the mobile application that is used by clients
30  million times every month, called “shake
your cell-phone to Status dial”, may serve as an
example of prototype products that may facili-
tate the transition.
195
9. Educating the state, public, and business agents
to use digital services in the conditions of
banking “digitalization”. The formation of a
digital banking business ecosystem in Russia is
required. The preparation for the new coming
reality, namely to the fact that artificial integ-
rity, block chain, and virtual and augmented
reality will change considerably the entire finan-
cial and nonfinancial world in the near future, is
required. It is of major importance to retain the
brightest developers and users who are readily
available to use digital technology in Russia
(unfortunately, a considerable part of the
professionals working in the top technological
entities in the Silicon valley, London, and Israel
are persons of Russian descent who preferred to
live elsewhere).
6 CONCLUSION
1. The bank competition is experiencing a period
of profound transformation. Composition of
banking system, participating competitors,
forms, and methods of competition changed
drastically.
2. This transformation has to be regulated with
the main goal of temporary limitation of out-
ward expansion of banks. This action has a
short-term action due to the deficiency of bank
long-term resources. Also, the economic sanc-
tions have not been removed yet.
3. The loss of national identity of banks has to
become a subject of study and must be assessed
with an aim of slowing the process down.
4. Unfortunately, global competition today, includ-
ing the banking markets, may be identified as a
geo-financial war. It is necessary for all parties
to understand what means of competition are
acceptable; what might be the consequences of the
war; whether there is an opportunity to not par-
ticipate it without losing catastrophically in terms
of own interests; who is in a position to make such
decisions – economists or politicians, etc.
5. Study of the competing parties is necessary to
re-define the nature and role of a bank. Practi-
cal evaluation suggests that the “public” aspect
of a bank is clearly inferior to the “private” and
“quasipublic” ones. In the conditions of geo-
financial war, it is a difficult initial position for
managers.
6. Traditional methods of competition intensity
estimation do not give an objective picture of
the current state of competitiveness. For exam-
ple, correlation and regression analysis of inter-
bank competition that are used virtually by all
banks as well as many other research methods
are unrepresentative today, as they reflect
 only the “bank–bank” line, while the center of
competition has shifted to another paradigm—
“Bank—multiservice company”.
7. Assistance in the development of intellectual
property market in the banking sector is not only
considered significant, but necessary and very
promising in the conditions of modern Russia.
Summing up the results, we note that especially
the following is required from the parties that have
the most significant impact on competition to
achieve the desired parameters of competitiveness
of Russian monetary institutions in the long term.
On the part of the legislator: organization of
efficient work to ensure the legislative transforma-
tion of the national banking system (Federal Laws
on the Central Bank of the Russian Federation,
banks and banking activities, deposit insurance,
mortgage securities, collectors, responsibility of
financial institutions owners, etc.)
On the part of the Government of the Russian
Federation, development of economic policy in the
banking sector must be conducted on the basis of
the changed global balance of power and the new
realities (technological, institutional, political).
This policy has to define inter alia the following
parameters: a banking system model; quantitative,
qualitative and profile composition of institutions
that provide banking services; range of regulators
and areas of their responsibility; and the nature of
interaction with international and foreign mon-
etary and credit institutions.
On the part of the regulator, the following needs to
be assessed: change of the outdated regulation meth-
ods; focus on the protection of national economic
interests; assumption of a certain degree of responsi-
bility for economic growth; justification of decisions
concerning quantity and composition of bank insti-
tutions; methodical assistance to commercial banks
at the choice of management model and in solution
of other questions, for example, of annuity payments,
activities in terms of personnel retraining to work in
new conditions, and data transmission safety.
On the part of systemic banks, the ability to
function normally even in the face of deep and
prolonged recession in Russia and in the world
needs to be achieved. Also, the banks need to rely
on government interventions to a lesser extent.
On the part of national development banks,
there needs to be an effective contribution to the
implementation of a new bank policy intended to
overcome the vulnerability of the national banking
system and create favorable financial conditions for
the implementation of national priority projects and
functioning of business, both small and medium.
On the part of multilateral development banks,
reliability in the implementation of general pro-
jects needs to be achieved.
196
On the part of commercial banks, the following
needs to be considered: smooth implementation of
their duties; recovering product leadership; process
improvement; brand management; and preserva-
tion and strengthening the degree of confidence of
both the people and businesses.
On the part of infrastructure institutions, services
need to be provided faster and with better quality.
These institutions should also provide assistance
to strengthening of competitiveness between the
national banking institutions and contribute to the
overall transformation of the banking system.
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© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Environmental activities in Indonesian Islamic commercial banks’

corporate social responsibility

Yuli Andriansyah
Department of Islamic Economics, Faculty of Islamic Studies, Islamic University of Indonesia, Yogyakarta,
Indonesia

Anggoro Sugeng
Institute of Islamic Studies, University of Malaya, Kuala Lumpur, Malaysia

Muhammad Iqbal
Master of Islamic Studies, Faculty of Islamic Studies, Islamic University of Indonesia, Yogyakarta, Indonesia

ABSTRACT: This paper aims to analyze environment-related activities conducted by Islamic commercial
banks in Indonesia. It is important to analyze such topic since the Islamic banking industry has grown in
Indonesia and most studies focused on its financial sector. On the contrary, studies on how Islamic banks
can contribute to nature and environment were very limited. This paper utilizes data from annual reports
of four Islamic commercial banks in Indonesia, especially in its corporate social responsibilities activities.
From the data, environment-related activities become the main corporate actions because it is believed
that social responsibilities should also be emphasized on natural-related awareness. The forms of activities
by which Islamic banks perform their corporate activities also reflect the management understanding on
the importance of environment from Islamic teaching. This paper also contributes to further suggestion
on how Islamic banks may be more concerned about the environment, through green Islamic financing.
This type of financing can be described as bank awareness of best practice in dealing with environmental
issues adopted by business before it gets financing from Islamic banks. Considering this type of financing
will allow Islamic banks play a significant role in promoting greener business in Indonesia.

1 INTRODUCTION obliged to perform the corporate social responsibility

Corporate Social Responsibility (CSR) has been
integral part within companies in its effort to
maximize value creation among shareholders and
society (European Union, 2011). CSR can also be
functioned to eliminate the social cost of devel-
opment especially in the context of industrializa-
tion related to local societies. Social conflict might
arise in community near forest after its exploration
for crude palm oil for example, and in this con-
text, CSR for local development might prevent it
(Marnelly, 2012).
For Indonesian context, CSR has its own legal
foundation and guidelines. Law No. 40 of 2007
regarding Limited Company stated that corporate
social and environment responsibility is part of a
company’s commitment to participate on sustain-
able economy development to enhance beneficiary
environment as well as living conditions for the
company, local community, and general society.
Furthermore, Law No. 25 of 2007 regarding Capital
Investment stated that every capital investor is
and respect local culture tradition of community
surrounding the location of the capital investment
business activity.
Article 15 paragraph b of Law of Capital Invest-
ment stated that corporate social responsibility is
inherent to each capital investment company to
continue to create harmonious and balance rela-
tionship and in accordance with the environment,
values, norms, and culture of the local community.
The importance of CSR as part of national regu-
lation can also be identified from several studies.
Azhar L (2014) found that board of commissioner
independency, audit committee independency,
institutional ownership, and managerial owner-
ship had significant negative effects on corporate
social responsibility disclosure of 28 banks enlisted
in Indonesia Stock Exchange. The result implies
that Corporate Governance structure elements do
not affect the disclosure of CSR in the context of
this study. Such finding can also be inferred from
a study by Kurniawan & Wibowo (2009), which
implies that CSR of 21 banks listed in Indonesia

199
Stock Exchange was not driven by internal motive
but by government regulation.
Other research related to Islamic bank as new
financial intermediaries in Indonesia also indi-
cates the trend in CSR report. Masykuroh’s (2012)
research results show that profitability does not
affect CSR disclosure in two Islamic commercial
banks in Indonesia. The research also reveals that
board of commissioners does not influence the
relationship between profitability and CSR dis-
closure as a moderate variable. Although Islamic
banks have been part of Indonesian financial
services for more than two decades, attention to
its CSR especially in environmental-related issues
is still limited. This paper aimed to contribute to
this field.
To ensure briefness, this paper is organized as
follow. The current section briefly introduced the
study along with its aims and relevant previous
works on the field. Section 2 describes the method
of research in general. Results of the study and its
discussion are placed in Section 3. Section 4 con-
cludes the study along with its limitations and sug-
gests further research recommendations.
2 METHODOLOGY
This paper analyzes environmental activities of
Islamic commercial banks in Indonesia through
its disclosure in annual report. The secondary
data from two latest edition of annual reports by
banks are analyzed: 2013 and 2014. To optimize
the result, the focus of this study was on the four
largest Islamic commercial banks in terms of asset:
Bank Muamalat Indonesia, Bank Syariah Mandiri,
BRI Syariah, and BNI Syariah. Descriptive analy-
sis was employed to the data to generate CSR prac-
tices of Islamic commercial banks in relation to
environment issues. Comparative analysis was also
utilized to enhance the result of this study.
3 RESULTS AND DISCUSSION
3.1 Bank Muamalat
Bank Muamalat (2014: p. 360 & 2015: p. 270) con-
siders CSR has very near relation to sustainable
development. For this reason, the bank activities
were intended not only to achieve financial realiza-
tion in the form of profit or dividend but also to
enhance social and environmental consequences in
the society life. In 2013, Bank Muamalat worked
together with other institutions, such as Baitul-
maal Muamalat, International Organization under
the United Nations, which specifically provides
humanitarian assistances to children (UNICEF),
as well as Senang Hati Foundatio to carry out CSR
200
programs. Bank Muamalat emphasized on four
aspects of CSR activities, namely environmental,
social development, employment, Work Health
and Safety (WHS), as well as the responsibilities
towards the consumer with details as shown on
Table 1 below.
Bank Muamalat’s CSR programs in the envi-
ronmental aspect included several activities,
such as Aksi Tanggap Muamalat, Aksi Sehat
Muamalat, and the construction of water tower
in Pekalongan. Aksi Tanggap Muamalat (ATM) is
a humanitarian program to help victims of natu-
ral disasters, such as earthquakes and floods. The
assistances given can be ongoing and not ongoing.
The victims do not only need assistance shortly
after the catastrophe, but also need help to restore
the postdisaster socioeconomic condition. In order
to help restore the condition of the victims after
the disaster, the ATM program includes funding,
repair, and recovery (rehabilitation and recovery)
of victims of disasters, such as sanitation improve-
ment (clean water) and fogging at the disaster site
(Bank Muamalat, 2014: p. 361).
Aksi Sehat Muamalat is an innovative program,
in which social assistance is given in the form of
healthcare, in other words, a social activity in the
form of free health services for the poor (Bank
Muamalat, 2014: pp. 361–362). The construction
of the water tower was based on the cooperation
agreement between Bank Muamalat Pekalongan
Branch and the local Government of Pekalongan
regarding the construction of clean water supply
facility for the community of Pekalongan. Water
is strongly felt by the community of Pekalongan,
which makes the construction of the water tower
to meet the needs of clean water shortages in some
villages in Pekalongan was considered very nec-
essary as shown on Table 2. The following table
describes location and fund for these environmen-
tal activities in Bank Muamalat CSR for 2013.
In 2014, CSR activities in environmental issue
has been part of the main activities with budget
of Rp 919,363,162, as described in Table  3. This
budget was allocated for the construction of three
public facilities: water towers, water well, and
public hydrant for drinking water. Bank Muamalat
Table 1. Bank Muamalat CSR Activities, 2013.
No Program Budget (Rp)
1 Environment 4.018.330.033
2 Social and community development 8.368.909.255
3 Workforce, work Health and Safety 4.798.998.000
4 Responsibility to the Consumer 1.417.705.064
  Total 18.603.942.352
Source: Bank Muamalat, 2014: p. 360.
Table 2. Bank Muamalat environmental program in CSR Activities, 2013.

Program Activities Location Fund (Rp)

Aksi Tanggap Muamalat ATM Jakarta Flood Bukit Duri, Jatinegara Barat, 1,509,146,000
(ATM) (Emergency) Kampung Pulo, Grogol
ATM Jakarta Flood Petamburan, Pondok Bambu,
(Fogging) Kayu Putih, Pulo
ATM Jakarta Flood Kebon Baru, Cengkareng,
(Medical Services) Penjaringan
ATM Cililin Landslide Bandung 539,835,000
(Emergency)
ATM Demak Flood Demak, Jateng 536,408,133
(Emergency)
Aksi Sehat Muamalat ASM Perbanas Perbanas Institue, Jakarta 110,053,400
(ASM) ASM Cataract Surgery Pekalongan, Jateng 229,575,000
Water tower Construction of Pekalongan, Jateng 1,093,312,500
water tower
Total 4,018,330,033

Source: Bank Muamalat (2014: p. 361).

Table 3. Bank Muamalat CSR activities, 2014. other programs. The funds allocated for the
program was Rp 500,800,000.
Program Budget (Rp)

Environment 919.363.162 3.2 Bank Syariah Mandiri

Social and community development 10.695.270.261
Workforce, work health and safety 126.000.000
Responsibility to the consumer 55.577.000
Special Program “Bersama Muamalat 84.505.800
Merajut Nusantara”
Total 11.880.716.223
Source: Bank Muamalat (2015: p. 270).
constructed five water towers in Yogyakarta,
Semarang, Pekalongan, and Brebes. This construc-
tion absorbs Rp 338,659,000 of environment funds
in CSR and benefits 217 families or 6,429 persons
(Bank Muamalat, 2015: p. 270).
Bank Muamalat also built a water well to pro-
vide decent and clean bathroom facilities for vil-
lagers. The location of the water well was in the
village of Legok Cikadu Mekarjaya, District of
North Sumedang, Sumedang Regency. This pro-
gram was conducted by volunteers of Rumah
Zakat, a socio-religious organization, along with
the villagers for 40 days. It takes Rp 79,904,162 of
CSR fund (Bank Muamalat, 2015: p. 271).
Construction of public hydrant for drinking
water was aimed to meet the need of appropri-
ate drinking water for the people of Kampung
Harapan Maju, District Tabalar, Berau Regency,
East Kalimantan. The objectives of the program
include meeting the need of drinking water for
appropriate public consumption, and the economic
value generated is used for the continuation of
Bank Syariah Mandiri applies profit, people and
planet balance, or the widely acknowledged triple
bottom lines approach in carrying out its CSR
activities (2014: p. 275). It also considers that CSR
has very near relation to sustainable development
(2015: p. 270). For this reason, the bank activities
were intended to not only achieve financial reali-
zation in the form of profit or dividend, but also
enhance social and environmental consequences
in the society life. The bank attempts to achieve
“triple bottom lines” balance in achieving its pur-
pose that will be able to provide added values to
the Stakeholders (Bank Syariah Mandiri, 2014:
p. 275).
In 2013, CSR activities in relation to environ-
mental development program were carried out,
namely through clean facility and MCK (public
toilet) construction). The activities are carried out
by both head office in Jakarta and branch office
all over Indonesia. These activities are carried
out along with public health, which covers health,
blood donation, mass circumcision, and other
donations as shown on Table 4. The following table
describes activities and its area, total recipients and
fund usage.
In 2014, CSR activities in environmental issue
had been part of the main activities with a budget
of Rp 919,363,162 (Bank Syariah Mandiri, 2015:
p. 250). Activities in that year included assistances
for clean water and sanitation, environmental pro-
gram of institutions, and green office program.

201
Table 4. Public health improvement and environmental program in BSM CSR, 2013.

Activity Area Total recipients Nominal (Rp)

Clean water and public toilet facility construction Indonesia 44 institutions 996,900,000
Clean water facility construction Indonesia 36 institutions 380,600,937
Public toilet facility construction Indonesia 19 institutions 644,146,900
2 Unit public toilets construction at Jantho Aceh 2 institutions 80,000,000
2 Unit public toilets construction Jadebotabek 2 institutions 80,000,000
Permanent waste bin donation Dumai 1 institution 50,000,000
Mangrove planting assistance in Tanjung Benoa Bali 1 institution 50,000,000
Garbage Transportation donation in bone Makasar 1 institution 21,000,000
Other environmental development program Indonesia 16 institutions 259,194,000
Total 2,561,841,837

Source: Bank Syariah Mandiri (2014: p. 282).

Table  5. Environmental program of institutions in
BSM CSR, 2014.
Description Rp
Assistance for RSUD waste cans 7,000,000
Assistance for ornamental plants 10,000,000
cultivation & pot nami farm cipanas
A373886
Assistance for business capital for waste 10,000,000
bank of Pondok Sejahtera Yayasan
Harapan
Assistance for RSUD waste cans 7,000,000
Assistance for waste motorcycle 10,000,000
procurement in Ciracas District
Assistance for waste motorcycle 28,900,000
procurement in RSUD Sulthan Radja
Assistance for flowerpots in Jalan 50,000,000
protokol of branch office Palembang
Assistance for waste cans in Kepulauan 22,500,000
Meranti Regency of supporting branch
office Selat
Assistance for 1 waste motorcycle in 30,500,000
Ponpes Al Ittihad Branch Office Cianjur
Total 175,900,000
Source: Bank Syariah Mandiri (2015:253).
Assistances for clean water and sanitation
were distributed throughout Indonesia, such as
sanitation in praying locations, local government
offices, and other places with the disbursed costs
of IDR2.62  billion as shown in Table 5. In envi-
ronmental program of institutions, BSM granted
its assistance in relation to environmental activities
to many institutions as described in the following
table. BSM has also assisted renovation of houses
in Cibinong, Bogor, Ponorogo, and Klaten with
a total cost of IDR118,572,600.00 (Bank Syariah
Mandiri, 2015:253).
Implementation of green office program in
BSM is conducted through corporate policy to
implement various savings, such as paper-saving,
which maximized the use of e-mail (soft copy), use
of used papers or double-side printing, electricity–
saving, and water-saving through socialization and
advices. The bank believes that such program can
contribute to real benefits such as decrease of oper-
ating costs, increase of efficiency, and improve-
ment of corporate image (Bank Syariah Mandiri,
2015:253).
3.3 BRI Syariah
BRI Syariah values business in terms of not
only profit in financial aspects but also benefit
for society as its obligation. For this reason, the
implementation of corporate social responsibility
is manifested through a number of programs cov-
ering education, health, economy empowerment,
dakwah and building worship infrastructure, pub-
lic infrastructure, and environment, including aids
for the victims of natural disaster. BRI Syariah is
also aware that the community around the business
environment is part of the business that will forever
interact with the company as one of the important
stakeholders (BRI Syariah, 2015:p. 117). These
ideas are also in line with the dream and commit-
ment of BRI Syariah to be a role model toward the
best, leading, healthy, and profitable Sharia Bank
giving benefit to all its stakeholders (BRI Syariah,
2014: p. 112).
In 2013, BRI Syariah focused on activities
related to public infrastructure and environ-
ment and participated in Bank Indonesia’s Green
Banking program, one of which is by presenting
plant seeds to customers making transactions on
the Customer Day, 4 September 2013. In addi-
tion, BRI Syariah gave assistance for the construc-
tion of clean water reservoir in Ngalik Hamlet,
Kalipucang Village, Grabag Subdistrict Magelang,
Central that will keep provisioning clean water for
local residents even during dry season as shown on
Table 6.

202
 In 2014, BRI Syariah cooperated with IPB to supply system in the areas affected by the Mount
perform hygiene conscious activities by providing Kelud disaster (BRI Syariah, 2015:118).
trash bins in the areas around the campus. Mean-
while, planting trees for reforestation was carried 3.4 BNI Syariah
out in cooperation with Riau University (BRI
BNI Syariah (2014: p. 220) focused on the ideal
Syariah, 2015:p. 118). Realization of funds chan-
implementation of social responsibility, which
neled reached Rp 2.72 billion for CSR programs,
covers the aspect of social and community devel-
as described in Table 7 (BRI Syariah, 2015:118).
opment; environmental management; practice
BRI Syariah also focused on handling natural
of employment, occupational health, and safety;
disasters. Many activities involve the employees
and the responsibility toward product. BNI Sya-
and the community in handling disasters, such
riah was also aware of the compliance on four
as floods and volcanic eruption, at Sinabung and
aspects require significant improvement so that
Kelud. BRI Syariah also conducted postdisaster
the company is committed to improve and expand
activities, one of the activities is the repair of water
the scope of CSR activities. In 2013, BNI Syariah
carried out CSR under theme “Commitment for
Humanity” with focus on education, economic
Table 6. CSR Activities of BRI Syariah, 2013. empowerment, environment, and health.
BNI Syariah expands the focus on these fields as
Activity Total (Rp) Percentage (%) three main pillars of themes: commitment for educa-
Assistance for 303,750,000 10%
tion, commitment for economic empowerment, and
education commitment for environment and health. Commit-
Assistance for health 496,270,718 17% ment for environment and health is reflected in CSR
Assistance for 308,900,000 11% programs that improve the quality of environment
public facilities and community health, among others, through the
and environment development of plants in barren regions, water sup-
preservation ply, and so on (BNI Syariah, 2014: p. 221).
Donations and 1,204,510,000 41% Activities related to commitment for environ-
assistance for ment and health can be traced from several pro-
hardships and grams such as local culture empowerment in Setu
natural disasters Babakan, Jakarta (March-December 2013), devel-
Religious teaching 616,200,000 21% opment of disaster-ready tends conducted in all
and assistance for
places of worships
branches (March-April 2013), organizing mass
Economic 0 0%
marriage at Masjid At-Tin, Jakarta (April 2013),
Empowerment and blood donor activity which is organized regu-
Total 2,929,630,718 100% larly twice a year in all branches (June and Decem-
ber 2013) (BNI Syariah, 2014: p. 224). Specific
Source: BRI Syariah, 2014: p. 116. amount of fund was not mentioned on environ-
mental activities; however, in general, CSR funds
distributed by BNI Syariah in 2013 reached Rp
Table 7. CSR activities of BRI Syariah, 2014.
1.441.736.870 (BNI Syariah, 2014: p. 222).
In 2014, as business develops, BNI Syariah consid-
Activities Amount Percentage ered that a greater number of the social activities must
be carried out. Therefore, BNI Syariah appointed
Educational assistance 250,000,000 9% Hasanah Titik Foundation (YHT) as a partner in the
Healthcare assistance 214,763,974 8% management of Company’s Zakat and distributor of
Public infrastructure 133,280,000 5% Zakat fund (BNI Syariah, 2015: p. 348). Previous pil-
and environment lars of CSR are still part of Hasanah Titik Fonda-
assistance tion, but with one additional pillar, namely social and
Donation and disaster 1,279,788,110 47% dakwah (BNI Syariah, 2015: p. 352).
relief CSR program, in relation with health and envi-
Religious teaching and 526,446,500 19%
ronment in BNI Syariah, was focused on provid-
assistance for places
of worships ing assistances that are suitable to the needs of
Economy 310,000,000 11% the local people. The implementation of the pro-
empowerment gram was deeply supported by the government to
Total 2,714,278,584 100% distribute free health assistance to the underprivi-
leged. Hasanah Village was on the program related
Source: BRI Syariah, 2015: p. 119. to environment. This program provided facilities

203
Table  8. Fund distribution for social activities in BNI
Syariah CSR, 2014.
Activities Rp
Economic empowerment 74500000
Education 1209578000
Humanity 1954920900
Disaster 607184467
Preach 3150465449
Health 46520000
Alms 567300135
Source of Fund: Company’s Zakat 7610468951
BNI Syariah (2015: p. 355).
and infrastructures for underdeveloped villages. Its
implementation was in the provision of clean water
sources (pipeline management) and provision of
toilet facilities for public, which were inappropriate
and unhygienic to use (BNI Syariah, 2015: p. 351).
The total fund for CSR in BNI Syariah for 2014
was Rp 7.610.468.951, with allocation for health
and environment reaching Rp46.520.000. Other
activity is worth mentioning: disaster program,
which was allocated about Rp 607.184.467 of CSR
fund (BNI Syariah, 2015: p. 355). The details are
given in Table 8.
3.5 Discussion
The descriptions about environmental activities
in Indonesian Islamic commercial banks above
reflect some notes, which will be discussed below.
In general, Islamic commercial banks in Indone-
sia have conducted CSR as part of its policy. The
banks in this study also show awareness on the
importance of CSR for its business success. Such
awareness can simply be seen from the availability
of specific funds for CSR purposes. However, the
way CSR activities are carried out varies among
banks, which reflects banks’ capacity in conduct-
ing its social obligation. In some banks, CSR is
implemented in relation with a special body of
bank or with an organization outside the banks.
For accountability and professionalism purposes,
such policy is inevitable and should be widened in
its scope.
Variations in CSR frameworks among banks
also imply in its environmental activities. Providing
public facilities for poor community seems to be
conducted by most banks as well as disaster relief.
However, in other types of program, banks take
different approach. A bank may focus on its activi-
ties in university, while others may conduct CSR in
schools and others. Such differences might increase
the consequences of banks’ mission in CSR. As
previously described, CSR can be an effective tool
204
for marketing and branding, which lead banks to
select their own type of activities carefully.
The way Islamic commercial banks define envi-
ronmental activities also differs in many aspects.
Some banks rely on water access and planting
seeds, and others might focus on less electricity con-
sumption as part of environment-friendly modes.
Although in general all activities benefit society
and company as well, a more rigid definition might
be a good solution to optimize CSR impact.
Considering that differences in CSR implemen-
tation for Islamic commercial banks may lead to
limited impact of its benefit, it is highly recom-
mended that a well-accepted standard should be
adopted. Such standard can also be referred to as
common guidance among banks to avoid clashes of
marketing strategy toward society as CSR subject.
Furthermore, Islamic commercial banks should
start a more grounded effort to implement its
awareness in environment issues through its financ-
ing. A more rigid standard on business compliance
with environmental mission should be banks regu-
lation regarding its financing policy. Such standard
will be an added value for banks’ contribution to a
greener Indonesian business environment.
4 CONCLUSION
The results and discussion above implied that
Islamic commercial banks in Indonesia have a
concern on the importance of CSR for community
and company. Environmental activities in Islamic
commercial banks practices show many variations
as consequences of different perspective in CSR.
This research suggests initiation and implementa-
tion of standard for Islamic commercial banks in
its environmental activities to optimize its impact.
Some limitations of this paper worth addressing
are additional data and scope of analysis in Islamic
commercial banks’ report of its CSR activities;
inclusion of other banks, which at present exceeds
20 banks; and comparison with Islamic commer-
cial banks counterpart, that is, conventional com-
mercial banks.
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Impact of small business sector on quality of life in Russian regions

D. Clark
Bloomsburg University of Pennsylvania, USA

N. Filimonova
Vladimir State University, Russia

ABSTRACT: The purpose of this paper was to examine the impact of several factors representing
the size, performance, and scope of Small and Medium-sized Enterprises (SMEs) on the Quality Of
Life (QOL) in Russian regions. Small business plays an important role in social, economic, and regional
development of modern society. Currently, small business participates in processes of social and economic
development of the urbanized Russian territories. However, compared with developed countries, Russian
SMEs do not actively affect QOL in Russian regions. Several factors measure the successful development
of small business. The research problem is to explore which factors have a significant contribution on
QOL in Russian regions. The objective of this research is to determine which variables chosen representing
the size, performance, and scope of small business in Russia had the most significant influence on QOL.
This paper explores which out of several factors related to SMEs has a significant impact on QOL, using
an empirical analysis and the multiple regression model. The result shows that revenue per employee in
SME and the number of state contracts with SME have a significant impact on QOL. The cluster analysis
revealed a highly disproportional distribution of sales of SME and number of state contracts with SME,
with big overweight of Moscow and Saint Petersburg compare with other regions. The data do not vary
between small business and start-up businesses, which perhaps limits its usefulness for startup companies,
and can be used for future work by researchers. Practical worth of this study is that the result can be used
for an informed government strategy in regional development. The strategy of increasing sales and num-
ber of state contracts with SME defines QOL to a significant extent for Russian regions. Furthermore,
the model can be used for federal programs of small business development, using multiple regression to
forecast QOL, measured as the ratio of the income per capita to living minimum. The paper uses original
data collected form official Federal sites of the Russian Federation, and the analysis will enable federal
and state officials to forecast and predict QOL on a regional level, which helps to form an optimal strategy
of social and economic development of Russian regions through potential of small business.

1 INTRODUCTION Researchers outlined the importance of small

Small business plays an important role in the social
and economic development of many countries.
Development of SME promotes a gradual crea-
tion of owners, whose worthy standard of QOL is
the basis of social and economic reforms, political
stability, and democratic development of society in
Russia (Sosnauskene et al. 2007).
Many researchers devoted their works to
problems of survival of small and medium-sized
enterprises in the period of crisis. Naidoo (2010)
indicated that small and medium-sized businesses
show a higher level of survival in crisis situations.
Studies conducted in Indonesia in 1997/1998 and
in 2008/2009 show that small and medium-sized
enterprises appeared to be in self-sufficient busi-
ness group with strong resistance to crisis (Ibrahim
2012).
business sectors and QOL (Bridge at al. 2009).
Some authors studied the impact of small business
development on QOL of a population on a regional
level. Fernández-Serrano J. and Romero I. (2013)
investigated the level of income of the population
in various provinces of Spain and drew a conclu-
sion that small and medium-sized enterprises make
less production, introduce less process innovations,
and are less involved in production cooperation in
regions with low income levels, although they are
more involved in marketing, distribution, and sales
processes.
According to the rating of QOL created by
Legatum Institute, Russia significantly lags behind
other developed countries and ranks 91  in the
world, between Guatemala and Laos, out of 142
countries reviewed in the world, measured by sal-
ary, quality of medicine and education, freedom

207
for conducting business activity, the safety level,
ecology, corruption level, and a personal liberty
(Delovaia jizn 2015). Russia is ranked 95  in eco-
nomic indicators, 88 in freedom of enterprise, 99 in
the level of corruption and effective management
of the country, 92 in safety, 35 in quality of edu-
cation, and 89 in the level of freedom of citizens
among the countries of the world. According to
National GEM Consortium (Global Entrepre-
neurship Monitor 2014), Russia ranks last (15) in
motivation for entrepreneurial activities.
Experience of the countries with the developed
market economy prove that the most important
condition of a high QOL and sustainable devel-
opment is a simultaneous functioning of large,
medium-sized, and small enterprises, and activities
based on a personal labor. Small business is more
accessible for a wide range of people because its
functioning does not assume large financial invest-
ments and does not demand big material and labor
investments; small business is more flexible, reacts
to changes of environment quicker, and creates
additional workplaces (Vetrova & Grishanova
2011).
In the period of economic crisis, small busi-
ness more than ever needs government support for
preservation and keeping stronger its positions in
the national economy. The strong state policy with
standard and legal base is the way to support small
business in Russia (Metelkin 2012). Unfortunately,
the volume of subsidies allocated from the Federal
Budget for SME, including farms, declined from
$40M to $38.1M in 2012–2013 (Rosstat 2015). In
Russia, SMEs make no more than 17% of GDP,
whereas in the developed European countries,
SME business makes up to 70% of GDP (Aleshkin
2010).
According to Rosstat and Federal Tax Service
(FNS) of Russia (Federal portal of small and
medium entrepreneurship 2015), the number of
SME in 2013 was 5.59  million, which decreased
by 8.7% compare to 2012. The main reason of
such reduction was a double increased in the fixed
insurance premium for mandatory pension insur-
ance for sole-proprietors. In the beginning of
2014, there was a positive tendency of growth in
the quantity of SME. In 2013, SMEs employed
17.8 million people, which is 1.9% less compared to
that in 2012. The share of employment in SME out
of total employment was 25% in 2013. The share
of revenue of SME was 25% out of total revenue
in the country. The revenue increased by 5.3% from
2012 to 2013 without inflation. With the inflation
factor, the revenue decreased by 1.2%. The volume
of investment into fixed capital at SME increased
from 729  billion rubles in 2012 to 778,9  billion
rubles in 2013 or by 6.8%. Although the volume
of investment into fixed capital of SME exceeds
208
the level of pre-crisis year, in medium-sized
enterprises, this indicator still considerably lags
behind the indicators of 2008.
Thus, the goal of this paper was to examine the
impact of several factors representing the size, per-
formance, and scope of SME on QOL in Russian
regions.
2 FRAMEWORK AND METHODOLOGY
Increasing the parameters of QOL attained by
other developed countries should become a pri-
ority for Russian government policy (Kononova
2014). This can be done through the development
of small business and entrepreneurship in Russian
regions. The goal of this paper was to determine
which factors related to the small business sector
(revenue per employee in SME; number of SME
per 1000 of economically active population; aver-
age employment in SME; investments in capital
assets in SME, and the number of state contracts
with SME) have the most significant influence on
QOL measured by the ratio of income per capita
to living minimum on a regional level. Several of
the smaller 83 original regions established in 2008
were combined, and the factors listed above were
considered in 78 adjusted Russian regions, includ-
ing Moscow and Saint Petersburg. The source
data were obtained from the official database of
Federal State Statistics Service of the Russian
Federation (Rosstat RF 2013) and programs of
social and economic development of regions
of the Ministry of Economic Development
(Ministerstvo ekonomisheskogo razvitia 2013) for
the period from 2008 to 2012. All definitions and
description of variables were according to Federal
Service of Statistics (Rosstat 2015) and Ministry
of Economic Development of the Russian Federa-
tion (Federal Portal of Medium and Small entre-
preneurship 2015).
Many researchers (Morris & Lewis 1991) meas-
ured QOL by different dimensions: economic,
health, social, technological, work, institutional,
and ecological. The decision was made to use eco-
nomic and social dimensions from several depend-
ent variables to measure QOL by a ratio of income
per capita to living minimum on a regional level.
According to Delovaia jizn (2015), the minimum
living wage was 8200 rubles across Russia, which
is 5.2% more than that in 2014 (6230 rubles). Con-
sidering regional features (level of consumer prices
and the size of salaries), the minimum income was
in Moscow and St. Petersburg (13900 and 8900
rubles for working population and 8500 and 6300
rubles for retired), and the minimum living wage
was in the northwest areas and the regions of the
North Caucasus.
 The minimal ratio of the income per capita to
living minimum for respectable level of QOL in
Russian regions should be 3:1 (Zayatc 2003). Even
though an average ratio of the income per capita
to living minimum in Russia is 3.5:1 (Rosstat RF
2014), these ratios are below minimum (3:1) in 52%
of the Russian regions. According to our calcu-
lation, the higher average is due to the higher
ratios in Moscow and Saint Petersburg (Clark &
Filimonova 2014).
Stepwise multiple regression and forward
method were used because the research is explora-
tory in nature. First, the SPSS program was used to
analyze the descriptive data and produce the statis-
tics shown in Table 1.
The number of SME per 1000 of economically
active population and the investment in capital
assets have the highest average values as well as
highest standard deviations. The number of state
contracts with SME has a mean of 783.93 and
standard deviation of 2900.06, which indicates that
there is a high variability in all variables among the
Russian regions during the period 2008–2012, as
displayed by their standard deviation values.
The research of small business sector and its
impact on QOL in Russian regions include a 1-year
time lag because of the impact on human and
financial investments (positive or negative), which
take place only over a period of time. Official sta-
tistical data were posted with 1-year intervals, and
hence 1-year intervals were used for the research
time lag in this study.
The starting point of 2008 was selected on the
basis of the fact that the criteria of small business
enterprises were changed in that year, and this
start point enabled consistent comparison data
samples.
The model formula shown below was employed
to conduct multiple regression analysis:
Y = B0 + B1 × x1 + B2 × x2 + B3 × x3 + B4 × x4 + B5 
× x5 + ei
where Y is the ratio of income per capita to the
living minimum (QOL); B0 is an intercept; B1 is
the slope/regression weight or the coefficient of the
function, which represents a relationship between
Table 1. Descriptive statistics.
Indicator Mean Std. deviation
SALES (X1) 255.88 564.27
QUAN (X2) 22144.33 32594.81
EMPL (X3) 142.21 196.50
INVEST (X4) 6480.78 8003.92
CONTR (X5) 783.93 2900.06
QOL (Y1) 163.44 63.32
209
dependent and independent variables; x1 is the
revenue per employee in SME, rub; x2 is the num-
ber of SME per 1000 of economically active popu-
lation; x3 is the average employment in SME; x4 is
the investment in capital assets in SME, mln rub;
x5 is the number of state contracts with SME; and
ei isthe error of prediction
Our study is exploratory in nature, so we used
a stepwise multiple regression method or statisti-
cal multiple regression (Aron & Aron 1999), which
helps to find out answers for a research question:
which of the five predictor variables (i.e., sales,
number of SME, employment in SME, investment,
and number of contracts) most significantly influ-
ence the QOL of Russian regions, and which of the
possible five predictor variables are included in an
equation for QOL. The stepwise multiple regres-
sion, forward selection, was used because there are
several independent variables and we want to know
which specific variables make meaningful influence
on QOL. Forward selection method calculates
bivariate correlation among all variables (Mertler &
Vannatta 2005).
The data set of 78 regions satisfies the model
cross validation, which implies about 15  subject
for every predictor (Stevens 1992). Before running
regression analysis, the data were tested for missing
items, outliers, and test assumptions. Outliers were
identifying by Mahalanobis distance or screening
boxplots. Data screening led to the elimination
of two cases. Scaterplot matrix indicates linearity
and normality; multivariate normality and homo-
scedasticity are assumed. We tested the data for
multicollinearity to check intercorrelation among
predicted variables. Review of the tolerance statis-
tics indicates that all but one of the independent
variables were tolerated in the model. Tolerance
statistic and the Variance Inflation Factor (VIF)
show an existence of strong linear association
between sales and employment in SME.
3 RESULT OF THE STUDY
The analysis of a matrix of correlation shows
that there is a strong positive correlation between
QOL of the population and sales and number of
contracts, which means the higher sales and the
number of state contracts and the higher ratios
of income per capita to living minimum (0.66 and
0.68, respectively). The correlation coefficients are
not summarized in a table due to space constrains.
Furthermore, there is a moderate relationship
between QOL and employment in SME and the
number of SMEs per 1000 of economically active
population (0.59 and 0.55, respectively). There is a
weak relationship between QOL and investment in
fixed assets in SME, which is 0.24.
 The next step was a multiple regression analysis,
which includes three major parts of the output:
model summary, ANOVA, and coefficient table
(Tables 3–5). The model summary displays several
correlation indices: correlation R, square correla-
tion, change in square correlation, and adjusted
square correlation.
The equivalent to the Pearson correlation, mul-
tiple correlation, R, shows how much dependent
variable QOL is contained in the combination
of all five independent variables. Test of signifi-
cance (F-test) determines whether the relationship
between variables is large enough to be meaning-
ful. Coefficient of determination R2 is the propor-
tion of variability in QOL that could be accounted
for by the combination of five predicted variables
(Levin & Fox 2000, Sprinthall 2000). According to
the forward method, a variable with the highest cor-
relation with the QOL entered first into the model;
the second variable with the highest contribution is
entered next, after ruling out the effect of the first
variable. This effect is measured by an increase in
R2 or Δ R2 (Stevens 1992, Pedhazur 1982).
Because the forward method was used, not all
variables were entered into the model. Regression
analysis indicates that only two variables should
be entered into the model. The model summary
(Table 2) shows a change in R2 (Δ R2), which indi-
cates that two variables significantly contribute to
the QOL in Russian regions: sales and contracts.
For the first step, sales were entered as it counts
the most significant variance out of all variables
(R2 = 0.438); the variables of the number of con-
tracts was entered in the next step, creating a model
that accounted 47.1% of QOL in Russian regions,
leaving 52.6% unexplained.
ANOVA table (Table  3) shows F-test for each
step or model. The analysis of results shows that

Table 2. Model summary.

Step R R2 R2 adj Δ R2 Fchg p df1 df2

Sales 0.662a 0.438 0.436 0.438 247.5 <0.001 1 318

Contracts 0.686c 0.471 0.466 0.014 8.409 <0.001 1 317

Table 3. ANOVA.

Model Sum of squares df Mean square F Sig.

1 Regression 559842.47 1 559842.4 247.54 0.000b

Residual 719182.724 318 2261.58
Total 1279025.15 319
2 Regression 602757.896 3 200919.2 93.884 0.000d
Residual 676267.255 317 2140.086
Total 1279025.15 319

a. Dependent variable: QOL (Y1)

b. Predictors: (constant), SALES (X1)
d. Predictors: (constant), SALES (X1), CONTR (X5)

Table 4. Coefficients for final model.

B β t Bivariate r Partial r

Sales per employee 0.053 0.470 2.329 0.662 0.130

Contracts 0.008 0.381 2.900 0.679 0.161

Table 5. Clusters’ parameters by okrugs.

Cluster Percentage Sales, rub Contract, numbers Membership by cluster

1 10% 4956.5 22517.8 Moscow

2 30% 98.16 335.02 Far East, North-Caucasus, North-West
3 40% 259.05 691.83 Central, Prevolgsky, Siberian, South
4 10% 538.52 1776.12 Ural
5 10% 1451.1 4085.16 St. Petersburg
Mean 266.54 715.09

210
the model has statistically significant calculated
F value, which is significantly more than critical
(3.02) for a p value of 0.00 with 314 degrees of free-
dom, which implies that the relationship between
independent and dependent variables is large
enough to be meaningful. The final model signifi-
cantly explains QOL, R2 = 0.471, R2 adj = 0.466,
F (3, 316) = 93.884, p < 0.001.
The summary of regression model is presented
in Table  4. In model estimation, the least square
solution concept (Stevens 1992) was used, which
provided the constant, regression coefficient (B),
and beta coefficients (β). In addition, bivariate and
partial correlations between each independent and
dependent variables are presented.
The table of coefficient is used to create an
equation for QOL. The equation below is gener-
ated using B weight.
Y = 144.44 + 0.53 × x1 + 0.08 × x2
On the basis of the statistical importance, a
multiple regression model explains the relationship
between QOL measured by a ratio of income per
capita to living minimum and five variables related
to small business sector for 78 Russian regions, Mos-
cow and Saint Petersburg for the period 2008–2012.
Regression result indicates an overall model
with two out of five variables entered into
the model: revenue per employee in SME and
the number of state contracts with SME. For the
association between sales, contract, and QOL, the
following indices were used: constant = 144.44 (it
shows that at zero value of sales, quantity, and
contracts in Russian regions, QOL takes the value
of 144.44), X1 = +0.53 shows that one unit change
in sales results in a 0.53 unit increase in QOL;
X5 = +0.08 shows that one unit change in contracts
results in a 0.08 unit increase in QOL. The result
indicates that there is an effect of two variables
in small sector (sales and contracts with SME) on
QOL with 47.1% possibility of those variables in
predicting the variance of QOL. Therefore, the
strategy of increasing sales and the number of
state contracts with SME defines QOL level to an
important extent for Russian regions.
A cluster analysis using SPSS was performed,
where 78 regions were divided by eight okrugs
(province or state). In addition, Moscow and
Saint Petersburg were kept separate, because these
two huge megapolices may throw off the data for
regions. Sales and the number of contract were
used as variables and okrug as an evaluation field,
and the result was five clusters displayed in Table 5.
Clusters are organized by okrugs with devia-
tions from means by either sides of sales and
the number of contracts. For example, Moscow
(Cluster 1) has the highest deviation of sales and
211
contracts from a mean of 266.54 rubles and 715.09
contracts, respectively.
There is a disproportional clustering by
okrugs presented in Graph One. The highest
sales and the number of contracts (largest devia-
tion from mean) belong to Moscow (Cluster 1):
4956.50 rubles and 22517.87 contracts, respec-
tively. The second place was for Saint Petersburg
(Cluster 5). Sales and the number of contracts
of Ural okrug (cluster 4) almost equal one
standard deviation from means (538.52 rubles
and 1776.12 contracts). Cluster 3 includes Cen-
tral, Prevolgsky, Siberian, and South okrugs,
which comprise 40% of the territory of Russia
and have sales and number of contracts almost
equal to means (259.05 rubles and 691.83 con-
tracts). Finally, cluster 2  includes Far East,
North-Caucasus, and North-West okrugs, which
represent 30% of the territory of the Russian
Federation and have the smallest deviations from
the means (98.16 rubles and 335.02 contracts).
The government policy of small business develop-
ment should be more focused on regions of clusters
2 and 3, which when combined comprise 70% of
the Russian territory. The results correspond to the
conclusions of rating agencies when Moscow and St.
Petersburg take the leading positions (RIA 2014) of
QOL in Russian regions. Also this result confirms
the Pareto principle (also known as the 80–20 rule),
which states that, for many events, roughly 80% of
the effects come from 20% of the causes (Bunkley
& Juran 2008). The analysis reveals that Moscow
and Saint Petersburg, comprising only 20% of clus-
ters, account a majority of sales among SME and
state contracts with SME. Development of SME
in peripheral areas is slow because of scarcity of
resources, undeveloped or even lack of infrastructure,
high cost of factors of production, and high concen-
tration of goods and services in large cities. All these
factors create disproportion and inefficiency in the
social and economic development of regions.
4 DISCUSSION
Practical worth of this study is that the result can
be used for an informed government strategy in
regional development. The result revealed that
there is a big possibility (47.1%) that variables such
as revenue per employee in SME and the num-
ber of state contracts with SME can be used in a
model predicting the variance of QOL. Therefore,
the strategy of increasing sales and the number of
state contracts with SME defines QOL level to an
important extent for Russian regions.
The steps of support of SME defined during
2013–2014 “Economic development and innova-
tive economy” are provided by the State program
of the Russian Federation (Federal portal of small
and medium-size entrepreneurship 2015) include:
(1) stimulation of an exit of SME from the infor-
mal sector of the economy (decrease in insurance
payments; introduction of tax holidays for first
2 years for newly registered SME); (2) creation
of conditions for the development of new market
niches by SME (expansion of access for SME to
governmental monopolies and companies with the
state participation contacts; (3) ensuring access
to the material and financial resources, which are
absent in the market for SME (privileged privatiza-
tion and loans for SME); and many other steps. For
realization of this program, 78 centers of support
of SME were created in 2010–2014 in each region in
the field of innovations and industrial production.
The model can be used for Federal programs of
small business development. Sales and contracts
as independent variables were positively related to
QOL (dependent variable); thus, multiple regres-
sion can be used to forecast QOL and measure
the ratio of the income per capita to living mini-
mum. The overall model reveals the influence of
small business factors (sales and number of state
contracts with SME) on QOL in Russian regions.
The model defines strengths between those fac-
tors, which helps to form an optimal strategy for
the social and economic development of Russian
regions through the potential of small business.
The cluster analysis revealed that the processes of
concentration of economic and financial resources
in Moscow and Saint Petersburg strengthen dis-
proportions in the development of regions of the
Russian Federation. It can be explained by a scar-
city of resources, high cost of factors of produc-
tion, and a saturated market of goods and services
in the large cities, which negatively affect the choice
of placement of SME in peripheral areas.
Available conditions and resources of the
regions serve as an incentive for SME development
in various geographical regions. These factors cre-
ate prerequisites to increase a territorial efficiency
to weaken a disproportion in social and economic
development of regions.
Currently, small business participates in processes
of social and economic development of the urban-
ized territories. However, scarcity of resources and
imperfection of the realized steps of the state support
do not allow SME to actively participate in the devel-
opment of regional economic life.
5 CONCLUSIONS
The importance of small businesses in social, eco-
nomic, and regional levels in modern society is
studied. However, compare with developed coun-
tries, Russian SMEs do not actively contribute to
212
a development of Russian regions. Several factors
measure successful small business development.
The research problem triggered a goal of our
work—to explore the factors that could improve
the QOL in Russian regions. This paper explored
which out of the several factors related to SME has
a significant impact of QOL, using an empirical
analysis and the multiple regression model. It was
found that revenue per employee in SME and the
number of state contracts with SME have a sig-
nificant impact on QOL in Russian regions. The
cluster analysis revealed a highly disproportional
distribution of sales of SME and the number of
state contract with SME, with a big overweight
of Moscow and Saint Petersburg compared to that
of other regions.
Overall, the findings are consistent with
other studies that prove the positive relationship
between different factors of SME and QOL. This
study was a continuation of the first part of an
ongoing project, where the influence of only one
factor, employment in SME, on QOL was studied.
This paper included other independent variables
(i.e., number of SME, share of revenue in SME,
investments in capital assets in SME, and state
contracts with SME) to strengthen the value of
R2, using multiple regression analysis. The data
do not vary between small business and start-up
businesses, which perhaps limits their usefulness
for start-up companies, and can be used for future
work. Also a cluster analysis was performed,
revealing a highly disproportional distribution of
sales of SME and the number of state contract
with SME, with a big overweight of Moscow and
Saint Petersburg.
The result of the research will enable federal
and state officials to anticipate and predict QOL
on a regional level, which helps to form an opti-
mal strategy of social and economic development
of Russian regions through the potential of small
business.
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 Managing Service, Education and Knowledge Management
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© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Model of innovation activities situation in regions

S.V. Shtebner & Y.N. Kochetova

Vladimir State University, Russian Federation

M.A. Shumilina & M.I. Lapshina

Autonomous Non-profit Educational Organization for Higher Education of Centrosoyuz of the Russian
Federation “Russian University of Cooperation”, Vladimir Branch, Vladimir, Russian Federation

ABSTRACT: Gearing the national economy towards innovation-based growth is currently the most
pressing issue in Russia. The level of innovation-based growth of a region depends on a great number
of factors. The hypothesis of the study is that in addition to research and development costs, the volume
of innovative products, work and services is seriously affected by other factors such as the proportion of
organizations performing technological, organizational and marketing innovations, and the number of
staff performing research and development work. The developed regression model shows that these fac-
tors are not distributed evenly across the regions of the Central Federal District, and the conducted cor-
relation study has made it possible to identify the existence of a relationship between the factor attributes
and the volume of innovative products, work and services, as well as the extent and direction of the
relationship between them. A sound innovation-based growth policy pursued in the regions will be con-
ducive to implementing the task of increasing the GDP volume and reinforcing Russia’s competitiveness
in global innovation-driven markets.

1 INTRODUCTION According to the rating of the world countries’

Gearing the national economy towards innovation-
based growth is currently the most pressing issue in
Russia.
It is not possible to implement the task of
increasing the GDP volume and reinforcing
Russia’s competitiveness in global innovation-
driven markets without using the high innovation
potential of the country based on its powerful
science sector (Chaykovskay, 2014).
The Global Innovation Index 2016  indicates
Switzerland as the innovation leader (66.3) (The
Global Innovation index, 2016). The other top ten
countries in this respect include Sweden (63.6),
the UK (61.9), the USA (61.4), Finland (59.9),
Singapore (59.2), Ireland (59.0), Denmark (58.5),
the Netherlands (58.3), and Germany (57.9). Rus-
sia (38.5) is forty-third in this rating list.
A crucial factor in innovation-based growth is
the amount of spending on research and intro-
duction of new technologies. R&D included three
basic areas of activity—fundamental research,
applied research, and experimental and process
development work.
The rating of the countries of the world in
respect of R&D costs is calculated as the total vol-
ume of public and private R&D costs expressed as a
percentage of the Gross Domestic Product (GDP).
R&D costs (UNESCO Institute of Statistics, 2012),
Russia holds thirty-second place (1.16%), with
Israel (4.4%) and Finland (3.88) topping the list.
According to the data provided by Goskomstat
of Russia, the domestic R&D expenses for 2015
amounted to 914669.1 million rubles or 1.13% of
the GDP.
Innovative products, work and services are the
products, work and services which are new or have
been subject to technological changes of differ-
ent extent within the last three years. In respect of
newness, two types of innovative products, work
and services are differentiated:
1. newly introduced (including principally new);
2. subjected to significant technological changes
or subjected to improvement.
The purpose of the research is to develop a
model of innovation activity and consider the situ-
ation in Russian regions.
The hypothesis of this study is that in addition
to research and development costs, the volume of
innovative products, work and services is seriously
affected by other factors such as the proportion of
organizations involved in technological, organiza-
tional and marketing innovations, and the number
of personnel performing research and develop-
ment projects.

215
2 RESEARCH METHODS
Statistical, reported and observed data are very fre-
quently used for the purpose of economic analysis
and forecasting.
In researching relationships between economic
indicators based on statistical data, a stochastic
dependence between them is often observed. It
consists in that an alteration to the distribution law
of one random variable occurs under the influence
of an alteration to another one. The relationship
between the variables may be complete (functional)
or incomplete (distorted by other factors).
In order to identify and determine the strength
and direction of the relationship between the fac-
tor attributes and the resulting attribute, the corre-
lation and regression analysis method is used.
This method was used for the purpose of this
study.
The correlation analysis is a quantitative method
of determining strength and direction of relation-
ship between selective variables. The correlation
analysis helps to:
1. find methods to verify that the obtained numer-
ical value of the analyzed relationship measure
is a true indicator of the existence of a statistical
relationship;
2. define the structure of relationships between
the researched attributes x1, x2, …, by matching
each pair of attributes to a response (‘relation-
ship present’ or ‘no relationship’).
Relationships between processes and attributes
are classified in terms of strength, direction and
analytical expression (Eliseeva, 2015).
In terms of strength, weak, moderate and strong
relationships are differentiated.
In terms of direction, uphill and downhill rela-
tionships are singled out. An uphill relationship
refers to an increase (decrease) in values of the
resulting attribute caused by an increase (decrease)
in the values of the factor attribute. A downhill rela-
tionship refers to a decrease (increase) in the value
of the resulting attribute caused by an increase
(decrease) in the values of the factor attribute.
In terms of analytical expression, liner and
non-linear relationships are differentiated. A lin-
ear relationship refers to the linear character of
dependence between two correlating attributes X
and Y. The liner correlation is most commonly
used because numerous practical dependencies are
close to liner ones. A non-linear (curved) relation-
ship refers to occurrences when the relationship
between processes is expressed by parabolic or
hyperbolic equations, exponentials, etc. In case of
a linear relationship between the factor and result-
ing attributes, a paired (linear) correlation coeffi-
cient is determined to define the relationship; in
216
case of a curved relationship, a correlation relation
is determined.
The regression analysis is a quantitative method
of determining the type of mathematical func-
tion in a cause-and-effect dependence between
variables.
The regression analysis makes it possible to
address the question of the quantitative measure
of influence of different factors; it consists in the
selection and solution of mathematical equations
describing the dependencies under study. The
regression analysis is used to study relationships
between a dependent variable and one or several
independent variables, determine the strength
of a relationship and mathematical dependence
between them, and predict the value of the depend-
ent variable.
The regression model is defined by using the
least squares method, which ensures the best
approximation of evaluation of the result deter-
mined by the regression equation to its factors.
The main factors determining the characteris-
tics of a model are considered to be:
1. paired correlation coefficients (showing the
strength of the relationship between two
factors);
2. a multiple correlation coefficient (determin-
ing the relationship between the result and the
factors);
3. a coefficient of separate determination (show-
ing the influence of the variation of argument
on the sought attribute variation);
4. a coefficient of multiple determination (show-
ing the relative weight of all arguments on the
sought attribute variation);
5. partial coefficients of elasticity (character-
izing the influence of the factors on the result
expressed in percentage terms in a single scale).
The following stages of the correlation and
regression analysis are differentiated:
1. preliminary (a priori) analysis;
2. data collection and primary processing;
3. model development (regression equation);
4. evaluating the strength of the relationship of
attributes, evaluating the regression equation
and model analysis;
5. predicting the development of the analyzed sys-
tem based on the regression equation.
3 ANALYSIS OF RESULTS
The following indicators have been selected for the
correlation and regression analysis:
• Y—the volume of innovative products, work
and services (million rubles);
• X1—the number of personnel performing
research and development work (people);
• X2—the proportion of organizations perform-
ing technological, organizational and marketing
innovations in the reporting year out of the total
number of organizations under study (%);
• X3—domestic research and development costs
(million rubles).
The domestic research and development costs
are the actual costs expressed in monetary terms
and related to performing research and develop-
ment work inside the country (including foreign
financing, but excluding payments made outside
the country). Their evaluation is based on the sta-
tistical recording of the cost of research and devel-
opment conducted by organizations by themselves
during the reporting year irrespective of the source
of financing.
The main source of such data has been the
Federal State Statistics Service of the Russian
Federation.
Since regions are starting to play an increas-
ingly important and sometimes even a critical role
in innovation processes, the regions of the Central
Federal District of Russia have been studied in
respect of their innovation-based growth (Zimin,
2016).
The dynamics of the change of the resulting
indicator (Y) for 2010–2015 across the regions of
the Central Federal District is shown in the table
(Table 1) (Rosstat RF. 2016).
These data show that the volume of inno-
vative products is increasing year by year. In
the Central Federal District, this indicator
changed from 290757.6  million rubles in 2010 to
1491536.1  million rubles in 2015. Based on the
data shown in the table, one can conclude that the
largest volume of innovative products, work and
services is observed in Moscow and the Moscow
region. Moscow and the Moscow region are far
ahead of the other regions of the Central Federal
District in respect of this indicator.
The input data for the Central Federal District
for the correlation and regression analysis are show
in the table (Table 2) (Rosstat RF. 2016a, Rosstat
RF. 2016b, Rosstat RF. 2016d).
A correlation and regression analysis for each of
the regions was conducted in a way which was sim-
ilar to that for the Central Federal District. Based
on that analysis, models showing the dependence
between the volume of innovative products, work
and services and the indicators of innovative activ-
ity (Table 3) were developed.
Based on the developed regression model, it is
necessary to determine correlation analysis indica-
tors for a more complete description of the direction
and strength of the relationship. The calculation
results are given in the table (Table  4). First, the
data for the whole Central Federal District are pre-
sented; then, the regions are ranked (from the low-
est to the highest) in terms of the importance of the
correlation coefficient of the dependence between
Y and factor attribute X3 as a key factor.
The results of the calculations for the Central
Federal District show that the strongest relation-
ship is observed between the research development
costs and the volume of innovative products.

Table 1. The volume of innovative products, work and services for 2010–2015.

Region 2010 2011 2012 2013 2014 2015

Central federal district 290 757,6 480 327,4 938 153,2 1 164 102,4 1 091 170,3 1 491 536,1
Belgorod region 9 391,6 15 457,4 21 683,4 21 246,5 23 098,3 29 348,1
Bryansk region 4 434,4 5 807,6 11 171,2 6 654,9 8 312,3 25 445,2
Vladimir region 4 958,0 17 029,9 26 496,9 24 829,9 22 782,1 27 015,3
Voronezh region 13 431,8 15 588,5 16 169,4 13 520,8 24 742,4 50 120,6
Ivanovo region 2 479,9 2 492,8 514,7 463,1 795,2 1 342,5
Kaluga region 7 190,6 15 667,6 19 439,8 15 924,8 13 724,3 14 833,8
Kostroma region 2 159,2 3 299,0 3 451,8 2 272,1 2 504,8 2 198,4
Kursk region 1 007,7 4 738,5 6 364,0 8 591,3 13 363,3 15 087,2
Lipetsk region 31 511,2 37 106,0 43 584,4 54 860,5 63 282,1 64 830,1
Moscow region 90 231,3 104 854,7 179 782,0 237 539,0 268 459,2 294 032,1
Orel region 5 868,9 5 288,8 960,1 1 143,8 885,1 748,5
Ryazan region 4 497,5 5 891,5 5 246,6 5 930,9 7 293,7 8 242,6
Smolensk region 2 367,0 2 400,2 3 152,0 5 334,1 10 438,8 5 539,7
Tambov region 2 104,6 3 667,2 3 533,8 2 624,3 6 278,0 7 165,4
Tver region 14 948,3 18 257,8 17 155,6 18 270,7 4 489,6 12 834,6
Tula region 8 395,6 39 152,4 50 684,6 35 378,7 41 881,3 63 110,9
Yaroslavl region 21 237,0 24 735,2 34 230,5 22 812,3 26 801,0 18 057,8
Moscow city 64 543,2 158 892,6 494 532,2 686 704,6 552 039,1 851 583,4

217
 The correlation coefficient of 0.9514  indicates work and the volume of innovative products,
that the relationship is strong and uphill, i.e. the work and services is weak in the Central Federal
volume of innovative products increases with the District, as the correlation coefficient is (−0.3125).
increase in costs. The determination coefficient of The negative value of the coefficient indicates a
0.9052 means that the volume of innovative prod- downhill relationship, i.e. the volume of the prod-
ucts is dependent on research and development ucts increases despite the decrease in the number
financing by 90.52% and on other factors by 9.48%. of employees performing innovative research and
The analysis of the correlation coefficient in development work.
respect of the X2 factor, i.e. the proportion of The correlation analysis indicators in respect of
organizations performing technological, organi- the X3 factor in the Moscow and Lipetsk regions
zational and marketing innovations out of the (0.9589 and 0.9539 respectively) are higher than
total number of organizations under study (%), the Central Federal District indicators; in respect
is 0.8226, which also shows a strong and uphill of the X2 and X1 factors, these regions also show a
relationship between the factors. The determina- strong and uphill relationship between the factors
tion coefficient of 0.6767  means that the volume and the resulting attributes. In the Moscow region,
of innovative products is dependent on the pro- the volume of innovative products, work and
portion of organizations performing technologi- services is dependent on the proportion of organi-
cal, organizational and marketing innovations by zations performing technological, organizational
67.67%, and on other factors by 32.33%. and marketing innovations by 37.67%, whereas in
The relationship between the number of per- the Lipetsk region—by 96.84%. The influence of
sonnel performing research and development the number of personnel performing research and
development work is 30.52% in the Moscow region
Table  2. The change dynamics of the correlation and and 59.22% in the Lipetsk region.
regression analysis indicators (in the Central Federal The lowest correlation coefficient in respect of
District). the influence of the X3 factor attribute (domestic
research and development costs) on the resulting
Y X1 X2 X3 attribute is observed in three regions: Yaroslavl,
Tver and Kostroma. The coefficient values are in
2010 290 757,6 381795 8,6 288960,0
the range of 0.3–0.7, which indicates a moderate
2011 480 327,4 380363 10,2 331758,9
strength of relationship between the attributes;
2012 938 153,2 373461 10,9 369069,5
2013 1 164 102,4 375087 10,7 398597,2
only 13.56–21.25% of the volume of innova-
2014 1 091 170,3 381047 10,9 447161,2
tive products, work and services are dependent
2015 1 491 536,1 380140 10,9 482660,8 on financing. The direction of the relationship is
downhill, i.e. in spite of the increase in research

Table 3. Models of dependence of innovation-based growth indicators in the regions of

the Central Federal District.

Region Model

Central federal district y = 19774268,42–52,97x1–161067,11x2+7,41x3

Belgorod region y = 831,31+13,16 x1–1124,01 x2+10,27 x3
Bryansk region y = −226792,65–82,38 x1+29909,32 x2+161,03 x3
Vladimir region y = −16327,64–3,98 x1+1311,16 x2+12,82 x3
Voronezh region y = −457218,54+13,45 x1+14616,01 x2+30,34 x3
Ivanovo region y = 8745,27–2,31 x1–309,15 x2–6,34 x3
Kaluga region y = −43982,41+3,43 x1+67,38 x2+2,38 x3
Kostroma region y = 14791,43–95,71 x1–195,89 x2+8,84 x3
Kursk region y = 99389,82–37,97 x1+997,44 x2+4,84 x3
Lipetsk region y = 30220,16–47,95 x1+937,5 x2+121,38 x3
Moscow region y = 445510,56–8,65 x1+5091,58 x2+5,06 x3
Orel region y = −3732,76–4,57 x1+1338,39 x2–8,33 x3
Ryazan region y = 11530,34–6,95 x1+158 x2+7,32 x3
Smolensk region y = 13959,55–10,05 x1–1722,92 x2+10,25 x3
Tambov region y = −39317,4+19,85 x1+632,98 x2+3,51 x3
Tver region y = −114482,58+25,11 x1+5059,05 x2–6,45 x3
Tula region y = 127625,3497–21,40 x1+3161,48 x2+14,38 x3
Yaroslavl region y = −24265,95+1,43 x1+3523,71 x2+0,46 x3
Moscow city y = 12547617,15–54,96 x1–56269,23 x2+7,85 x3

218
Table 4. Correlation and determination coefficients.

Cor Cor Cor

Region YX1 Det YX2 Det YX3 Det

Central federal district −0,312 0,097 0,822 0,676 0,951 0,905

Belgorod region 0,169 0,028 0,793 0,629 −0,368 0,135
Bryansk region 0,208 0,043 0,149 0,022 −0,427 0,183
Vladimir region −0,591 0,349 −0,147 0,021 −0,462 0,213
Voronezh region −0,692 0,479 −0,706 0,499 −0,617 0,380
Ivanovo region 0,230 0,053 0,819 0,671 −0,833 0,693
Kaluga region −0,443 0,196 0,812 0,659 0,458 0,210
Kostroma region −0,391 0,153 0,341 0,116 0,536 0,287
Kursk region −0,598 0,358 0,711 0,506 0,726 0,527
Lipetsk region −0,422 0,178 −0,221 0,048 0,728 0,530
Moscow region 0,530 0,280 0,544 0,296 0,793 0,629
Orel region −0,171 0,029 −0,538 0,290 0,861 0,741
Ryazan region 0,814 0,664 0,800 0,640 0,862 0,744
Smolensk region −0,476 0,227 0,461 0,212 0,877 0,769
Tambov region 0,436 0,190 0,729 0,532 0,893 0,797
Tver region 0,794 0,631 0,172 0,029 0,916 0,840
Tula region −0,195 0,038 0,720 0,519 0,917 0,842
Yaroslavl region 0,769 0,592 0,984 0,968 0,953 0,909
Moscow city 0,552 0,305 0,613 0,376 0,958 0,919

and development costs, the volume of innovative

products, work and services is decreasing. For
example, according to the Federal State Statistics
Service, the total research and development costs in
the Yaroslavl region increased more than twofold
from 3179.1 million rubles in 2010 to 6782.1 million
rubles in 2015, whereas the volume of innovative
products, work and services dropped by 15% (from
21237 million rubles to 18057.8 million rubles).
According to the Government of the Yaroslavl
region, the region’s economic development is cur-
rently faced with a few serious problems:
1. shortage of engineers, technical experts and
well-qualified workers;
2. innovators do not have adequate competence
and infrastructure to set up and develop small Figure 1. The change dynamics of the volume of inno-
innovative companies; vative products, work and services.
3. innovators do not have sufficient resources and
infrastructure to finance the research and devel-
performing technological, organizational and
opment stage of innovation projects.
marketing innovations by 62.94%, and on other
The correlation coefficient of the influence of factors—by 37.06%.
the X2 factor attribute (the proportion of organi- The influence of the X1 attribute (the number
zations performing technological, organizational of personnel performing research and develop-
and marketing innovations, %) in the Tver and ment work) in the Yaroslavl and Tver regions is
Kostroma regions is 0.1496 and (−0.1473) respec- weak—the correlation coefficients are 0.1691 and
tively, which indicates a weak relationship between 0.2084 respectively, and the relationship is uphill,
the attributes, and the direction of the relationship i.e. the volume of innovative products, work and
in the Kostroma region is downhill. services increases with the increase of the number
In the Yaroslavl region, this indicator is of personnel performing research and develop-
quite high—0.7933, i.e. the volume of innova- ment work. In the Kostroma region, the correlation
tive products, work and services is dependent on coefficient is (−0.5916), which indicates a moderate
the influence of the proportion of organizations downhill relationship between Y and X1.

219
 The changes in the volume of innovative prod-
ucts, work and services for 2010–2015 in the regions
with the highest (Moscow and Lipetsk regions)
and the lowest (Yaroslavl and Tver regions) influ-
ence of the X3 factor (domestic research and
development costs) on the resulting indicator are
graphically presented in the figure (Figure 1).
There are numerous factors influencing regional
innovation-based growth, among which one
can single out domestic research and develop-
ment costs, the number of personnel performing
research and development work, the proportion of
organizations performing innovative activities, etc.
However, apart from these factors, it is the sound
policy pursued in the region which plays a highly
significant role.
4 CONCLUSION
The choice of factors to be used in determining
the extent of influence on the volume of innova-
tive products, work and services is predetermined
by the term itself—‘innovative products are the
products, work and services which are new or have
been subjected to technological changes of differ-
ent extent within the last three years’. As far as the
level of newness is concerned, two types of innova-
tive products, work and services are differentiated –
newly introduced (including principally new) inno-
vations or those subjected to significant techno-
logical modifications and improvement.
The personnel performing research and develop-
ment work is the total of people, whose systemati-
cally performed creative work is aimed at increasing
the total amount of scientific knowledge and search-
ing new areas of application for this knowledge, as
well as those directly involved in providing services
related to research and development work.
In statistics, the personnel performing research
and development work is accounted for as payrolls
of organizations (respective divisions of education
institutions of professional education, industrial
companies, etc.) performing research and develop-
ment work.
For this reason, the following indicators of
innovative activity were selected for the study:
1. domestic research and development costs
(million rubles);
2. proportion of organizations performing tech-
nological, organizational and marketing inno-
vations in the reporting year out of the total
number of organizations under study (%);
3. number of personnel performing research and
development work (people).
The developed regression model has shown
that the factors across the regions of the Central
Federal District are not distributed evenly, whereas
220
the conducted correlation analysis has revealed
the existence of a relationship between the factor
attributes and the volume of innovative products,
work and services, and determined the strength
and direction of the relationship, which validates
the proposed hypothesis.
The strongest positive influence is exerted by the
financing of innovative activities in the regions,
with the X1 and X2 factors having a smaller impact
on the resulting attribute.
The findings of the study can be used for further
more detailed research into the causes of the exist-
ing situation, taking into consideration the specific
characteristics of each region not only in the Cen-
tral Federal District, but also in Russia as a whole.
A sound and effective state policy in the area of
the innovation-based growth of the country will
make it possible to increase the volume of innova-
tive products, work and services.
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 Managing Service, Education and Knowledge Management
in the Knowledge Economic Era – Lumban Gaol et al. (Eds)
© 2017 Taylor & Francis Group, London, ISBN 978-1-138-03517-1

Factors reducing a company’s value in the system of internal financial

control

S.R. Dreving
Department of Corporate Finance and Corporate Management, the Financial University, Moscow, Russia

L.Y. Khrustova
Post-Graduate Student of the Department of Corporate Finance and Corporate Management, the Financial
University, Moscow, Russia

ABSTRACT: This paper is devoted to the current central problems of the internal financial control in
companies. The issue of developing an effective system of internal financial control in practice becomes
very important on modern economic conditions. Therefore, the authors make a brief analytical review of
the existing scientific works on corporate financial control. They introduce the stages of developing the
system of controlling indicators, which forms the basis of the internal control. The idea of controlling
of the nonfinancial factors influencing the company’s value through the examination and estimation of
breaking points of destruction is presented in the conclusion.

1 INTRODUCTION company, as well as their quantitative evaluation

The process of making strategic decisions con-
cerning a company’s value-based management
becomes much more complicated in a rapidly
changing operating environment with systemati-
cally repeated bursts of business activity and the
economic downturns. To implement the financial
strategy of incrementing the company’s value, it
is required to identify the factors that have both
positive and negative effects on the value of the
organization clearly, to identify and quantify the
indicators characterizing the impact of these fac-
tors. In this context, the system of organization
internal financial control provides an information
base of management decision-making.
At present, the category of internal financial
control is expanding its borders. It is considered
by scientists in close integration with the issues
of integrated organizational management, the
implementation of its strategy, building an internal
corporate structure and solving private financial
management tasks (such as minimizing financial
risks, bankruptcy, and frauds).
An effective controlled parameters system forms
the basis of the company’s financial control. This
system should be constructed through identifying
the factors that have positive or negative impact
on the company’s functioning and subsequently
affects the increment value. This suggests the need
to identify the factors reducing the value of the
and establishing the threshold values of their
change.
Thus, forming an effective system of internal
financial control contributing to the increment
of a company’s value becomes one of the impor-
tant directions of the development of economic
thought in the study of financial control at the
moment.
The authors put forward the idea of nonfinan-
cial factors estimating and “information noise”
monitoring as a necessary and important compo-
nent of the internal financial control system. The
paper provides the theoretical development of the
existing approaches and models of financial con-
trol systems.
The aim of the research is to develop meth-
odological approaches of a transparent financial
control system formation focused on the achieve-
ment of strategic objectives of value-based man-
agement. The authors’ objectives are as follows:
to clarify the existing understanding of internal
financial control category; to determine the pro-
cess of the controlled indicators system construct-
ing; and to prove theoretically the necessity of the
assessment of nonfinancial factors and monitoring
of investors’ expectation in the system of internal
financial control.
The conclusions presented were made on the
basis of works introduced by scientists and experts
in the field of financial control. The methods of

221
analysis, formalization, modeling, system, and cost
approaches were used.
2 LITERATURE REVIEW: MODERN
UNDERSTANDING OF THE INTERNAL
FINANCIAL CONTROL CATEGORY
AND THE PROMISING AREAS OF THE
RESEARCH
Various aspects of internal financial controls were
considered by scholars such as W. L. Hill Charles,
T. Dănescu, M. Prozan, R.D. Prozan, Aldónio
Ferreira, David Otley, R. Ryan Harley, and A.
Trahan Emery. The authors who contributed to
the research in the field of corporate financial
control are A. Chambers, R. Greenwood, C. T.
Horngren, G. Foster. Financial control issues are
also widely investigated by Russian scientists, such
as N.D. Brovkina, A.A. Bol’shov, I.F. Vetrova, I.D.
Demina, A.N. Egiyan, N.A. Kazakova, ZH.A.
Kevorkova, O.V. Kurnykina, E.V. Kucherova,
M.V. Mel’nik, T.S. Stepanova, D.M. Tokun, A.E.
Turkina. It is worth noting authors such as V.
Zhukov and T. Serebryakova, who devoted many
works to the development of a common approach
to the construction and improvement of the inter-
nal financial control system.
The internal financial control category is cur-
rently ambiguously interpreted in the economic
literature, which leads to a misunderstanding of its
essence and the intersection of the concepts. It is
necessary to know apart the internal control and
internal audit, control and controlling. The finan-
cial activity control carried out at the initiative of
the organization is defined in various sources of
literature as internal or corporate. A brief analyti-
cal review of the existing works on the problem of
internal financial control is presented below.
The basis of the modern understanding of
internal financial control was presented by the
Committee of Sponsoring Organizations of the
Treadway Commission in the COSO model, which
suggests the need to focus control activities within
the organization on identifying the problems in
specific areas (the effectiveness and efficiency of
business operations, reliability of financial report-
ing and compliance with legal requirements). It
should be noted that this document introduces the
concept of “reasonable certainty”, which, at the
current economic instability, requires a specifica-
tion based on the specific characteristics of the
organization being audited.
Fundamental studies of Charles Hill (1988),
appeared in the 1970s and 1980s, established a link
between the financial results of the company, its
strategy, size, and corporate financial control. On
the basis of empirical analysis, carried out using
222
mathematical modeling, different types of internal
financial control were allocated, and their effec-
tiveness was evaluated.
Modern works on financial control consider the
category from divergent positions. According to
Ghosh and Lee (2013), all the latest studies in the
field of internal financial control can be divided
into two areas. Representatives of the first area
focus on the study of internal control problems,
their causes, and the main characteristics of the
companies with a weak system of internal finan-
cial control. The second direction is based on a
study of the financial control system imperfections
effects in the organization, including the estima-
tion of securities market reaction, financial perfor-
mance, and cost of capital.
Authors such as Dănescu, Prozan, Prozan (2015)
explored the issues of interaction and mutual
influence between the internal control, accounting,
and management structure of the organization.
Particular attention is paid to the possibility of
an integrated control tool in the financial sector in
order to minimize the financial risks and achieve
the strategic management targets.
The internal financial control is studied by some
authors (Ferreira and Otley (2009)) as one of the
elements of the whole organization performance
management system. The process of developing
such a system necessarily involves the allocation of
key monitoring indicators, including the indicators
of financial performance.
Bol’shov (2010) identified “cost parameters
in all spheres of activity of the organization” as
the key monitorable indicators. He also stressed
the importance of internal financial control in
terms of the management decision-making and
implementation.
Mel’nik (2014) identified three main directions
of the internal financial control contents examina-
tion. He analyzed the category as one of the stages
of the management cycle, as a separate business
process, as well as a form of providing feedback to
the controlling subject at all levels of interaction.
Zhukov (2015) pointed out that this economic
category combines the functions of accounting
and financial management of the company, the
effective combination of which in practice allows
solving many of the key issues and challenges of
the company. He argued that the financial control
serves as “a mean of assessing the cost-effective-
ness, evaluation and localization of financial risks,
monitoring, modeling, coordinating of adminis-
trative efforts.”
Many authors discussed on the correlation
between the concepts of “internal control” and
“internal audit” (Vahrushina (2014), Serebrjakova
(2016)). On the one hand, the internal audit forms
the basis of the internal control procedures, the
implementation of which allows us to achieve fully
all the set goals and objectives. On the other hand,
in accordance with International Standard on
Auditing 610 “Using the work of internal auditors,”
the purpose of the audit may lay in the process of
testing, estimating, and monitoring of the internal
control, that is, the system of internal financial con-
trol can be the subject of the internal audit itself.
The summary of the presented approaches
allows us to affirm that the internal financial con-
trol is one of the areas of administrative influ-
ence implementation within the economic entity,
which provides efficient achievement of the goals
and objectives set by the leader and is realized in
practice in a form of the constructed system of
interrelated elements, including subjects, objects,
methods, forms, and control principles.
The disadvantages of the existing approaches
are as follows: the absence of the common under-
standing of the studied categories content; the
lack of comprehensive approach to the internal
financial control constructing; the lack of practi-
cal understanding in financial control construct-
ing; the discrepancy between the existing theories
and modern management goals and objectives in
the sphere of financial control. This work is aimed
at overcoming the mentioned disadvantages within
the specified research area.
The analysis of existing works found the main
promising areas of research on the issue of inter-
nal financial control. They are searching for the
consideration of financial control in the context
of a systematic and cost-based approach, taking
into account the specific organizational character-
istics while developing the internal financial con-
trol systems (including industrial and structural
characteristics) and emphasizing the growing role
of financial control as a basis of making strategic
management decisions.
3 THE SYSTEM OF CONTROLLING
INDICATORS AS THE MAIN ELEMENT
OF INTERNAL FINANCIAL CONTROL
SYSTEM
One of the key approaches to the examination of
the company’s internal financial control at present
is a systemic approach, which considers financial
control in the company as an integrated com-
plex and an ordered set of interacting elements,
whose cooperation aims at achieving common
goals. The creation of the controlled parameters
system, including the most significant indicators
of the value-based management that signal about
the meaningful impact of a certain set of factors
on the company’s activity, forms the basis of the
internal financial control.
223
This approach was presented in the work of
Dreving and Lugovkin (2016) who formed the gen-
eral concept of financial control in a value-based
management approach in the organization. The
authors have defined the content of the strategic
financial control by expanding the scope of its
usual understanding. They also identified the main
directions (subject area) of the internal financial
control system in the organization. These areas
were identified as financial risk management, bank-
ruptcy prediction, fraud commitment monitoring,
and evaluating the value of the organization.
The other work of Dreving and Khrustova
(2016) reflects the current understanding of the
internal financial control category. On the basis of
the various modern scientific ideas about the con-
tent of the internal financial control, the authors
identify significant areas of financial control study.
They point out that the value-based management
approach in the sphere of financial control plays
an important role nowadays. This approach also
became the basis of constructing the system of
controlled indicators presented in this paper.
The analysis of opinions concerning the corre-
lation between the value-based management and
the internal financial control presented in contem-
porary literature led to the following conclusions.
The change in the value of the organization can be
influenced by both financial and nonfinancial fac-
tors. The change and the influence of financial fac-
tors, such as the amount of revenue, profits, equity,
and debt, can be measured directly and quantita-
tively, which simplifies the process of a system of
controlled performance building.
Nonfinancial factors that have an impact on the
change in the value of the organization include the
model of company management, intellectual prop-
erty and brand awareness, the level of corporate
culture, the degree of customer loyalty, quality and
novelty of the products provided, and the level of
social responsibility.
An erroneous choice of development strategy,
the conclusion of inefficient transactions, and
erroneous dividend policy will also be significant
drivers of nonfinancial category. These factors can-
not be assayed directly in terms of the impact on
the value change. Nevertheless, the impact of the
company brings real economic benefits or losses,
causes cash flows. This fact confirms the need to
develop a system of controlling indicators for non-
financial drivers of value.
The further study of this approach allows us
to speak about the necessity not only to assess
the impact of financial and nonfinancial factors,
but also to consider the influence of the investors’
expectations. The company’s value-based manage-
ment cannot be implemented without taking into
account the investors’ expectations and managing
those expectations. A separate area of financial
control should be devoted to the monitoring of
such signals and the “information noise” supplied
by the emerging market. Well-formed expectations
can provide through such signals the competitive
advantages in the capital market. Information
transparency, full and fair disclosure of informa-
tion about the financial condition and prospects of
development, and potential risks not only form an
important competitive advantage, but also allow
interested stakeholders to identify real changes in
fundamentals and “information noise” and take an
adequate decision on further cooperation condi-
tions preventing the destruction of value.
Thus, there are several basic steps of a system of
controlled performance constructing. Initially, we
need to identify the key factors affecting the change
in the value of the company. It is also important
to separate the financial and nonfinancial factors
clearly to simplify the subsequent phases of con-
struction of the system. In addition, it is necessary
to understand that an infinite number of drivers
can be identified as having an impact on the com-
pany’s value. That is why, at this stage, it is neces-
sary to build a clear system of priorities, that is, to
identify the most important drivers in this particu-
lar situation for a particular company. Factors will
vary depending upon the characteristics of distin-
guishing companies.
Further, it seems necessary to assess the direc-
tion of the influence of selected factors on the
results of company’s operation. Usually, in prac-
tice, we consider only those factors that ensure the
growth of its value. However, in modern economic
instability, it seems more relevant to talk specifi-
cally about the factors that reduce the value of the
company. In terms of internal financial control,
the competent identification of value destruction
points and their elimination is one of the primary
tasks.
The next step contains the selection of the key
indicators reflecting the impact of the identified
factors in the first stage. Financial drivers form
financial indicators of estimating the changes in
value so that they become the basis of the internal
financial control system themselves. Each nonfi-
nancial factor should be analyzed from the point
of influence exerted by them, and the financial
indicators that fully assess their impact on com-
pany’s value should be determined for them.
An important step in constructing a system of
controlled indicators is the process of defining the
boundary and threshold values of key financial and
nonfinancial drivers of the company, which influ-
ence the change in the value of the organization.
In the final stages of constructing a system of
controlled parameters, a regulation and a substan-
tiation of the control measures are carried out. In
224
Figure  1. Stages in the construction of a controlled
parameters system.
other words, it is the process of creating an organi-
zational and methodological framework for the
direct control of priority indicators, assessment of
identified deviations, analyzing their causes, which
form the basis for management decision-making
and implementation of measures of eliminating
the violations.
The main stages in the construction of a con-
trolled parameters system that forms the basis of
the internal financial control system are presented
in Figure 1. Thus, the authors have proposed and
substantiated the main stages of constructing the
system of controlled indicators in the internal
financial control of the organization.
4 THE CONTROLLED INDICATORS
OF THE FACTORS REDUCING THE
COMPANY’S VALUE
As already noted, the impact of financial factors
on the organization value can be directly quanti-
fied. In this regard, the process of managing these
factors became relatively controllable, and can be
realized through the changes in current projects
and the implementation of programs improving
operations and optimizing tax and capital. There-
fore, the subject of special interest became the defi-
nition of financial indicators measuring the impact
of nonfinancial drivers in the system of controlled
parameters that determine the future direction of
research.
Developing a system of controlled indicators for
nonfinancial factors reducing the company’s value
involves the implementation of the analysis of the
breaking points in the value creation, reflecting the
zero change in the value at a certain combination
of the company’s strategic performance. Break-
ing points can be the starting point for the deter-
mination of the boundary values of monitored
indicators.
Among the major breaking points, which can
curb the growth of the company’s value, we can
point out an inefficient cost management and
ineffective management policy in the sphere of
accounts receivable, the disproportional distribu-
tion of assets and liabilities of the organization
in terms of their liquidity and maturity, and the
increase in the Weighted Average Cost of Capital
(WACC). Under the influence of these factors, the
value of the revenue and operating profit and their
dynamics change, as well as the level of asset turn-
over in days declines and the liquidity of the com-
pany worsens. It should be noted that these factors
exert their influence at all levels of strategic man-
agement, ranging from the adoption and imple-
mentation of certain inefficient strategic projects
to incorrectness of the company’s development
strategy as a whole. This raises the question of how
to estimate the impact of the mentioned nonfinan-
cial factors, as well as how to set the boundary val-
ues of performance indicators in order to monitor
the value of the organization.
The measurement of nonfinancial factors can be
illustrated at the example of organizational fund-
ing policy estimation. If the company uses the bor-
rowed capital, it usually does not take into account
the influence of all possible internal and external
vibrations. Such steps can lead to the drop of such
indicator as return on equity, cause the growth of
WACC index, and, as a consequence, reduce the
value of the company, that is, its destruction. Thus,
the construction of a controlled indicators system
of nonfinancial factors of value destruction is nec-
essary to carry out a quantitative measurement
of these impacts through the analysis of the main
points of the value destruction.
According to the authors, the use of comparable
financial indicators to assess the impact of nonfi-
nancial drivers on the value allows to quantify the
inflow and outflow of funds generated by them.
Estimation of the discounted cash flow, in turn,
will be the basis for measuring the change in the
company’s value under the influence of nonfinan-
cial factors. It can be argued that such an account
of the influence of nonfinancial factors can change
existing opinion on the valuation of the company.
Thus, the company has exceeded financial outflows
over inflows in the short term, which may have a
higher value due to the implementation of long-
term strategically important investments.
5 CONCLUSIONS
The increasing complexity of the management
decision-making process in modern conditions of
the organizations functioning led to the increased
interest in the sphere of the practical construc-
tion of the internal financial control system. The
basis of the control is presented by the system
225
of controlling indicators that currently not only
signal the deviation of the actual results obtained
from the planned results, but also can reflect the
impact of the various financial and nonfinancial
factors on the change in the value of the company.
When building a system of controlled param-
eters, it is necessary to be aware of the factors con-
tributing to the growth of value and destroying it.
The authors proposed the basic steps of building
a system of controlled parameters, which include
the identification of the key factors that affect the
change of the value (financial and nonfinancial),
determining the direction of their impact, selecting
the key financial indicators for control, determining
their threshold values, as well as developing meth-
odological foundations of the control measures.
Developing the key benchmarks for nonfi-
nancial factors impacting on the value were con-
sidered in the context of the breaking points of
value destruction existence. The authors propose
a mechanism of valuation of nonfinancial factors
through the use of these breaking points.
In general, a conclusion can be made that, at
present, nonfinancial factors affecting the value of
the company practically are not assessed and not
included in the system of internal financial control.
In connection with the increase of the relevance of
this issue, it is necessary to modernize reporting
companies to assess the impact of nonfinancial
factors. Thus, the construction of internal finan-
cial control system should be based on the effec-
tive measurement of the impact of nonfinancial
drivers. The further study on the assessment of
nonfinancial factors and “information noise” mon-
itoring in the system of internal financial control
should identify and empirically prove the essential
elements of the system and the stages of its imple-
mentation. The controlled indicators of the factors
of different nature and direction should be speci-
fied and their quantitative restrictions should be
identified.
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Author index

Abazieva, K.G. 33 Iqbal, M. 199 Panyagina, A.E. 141

Abdullayev, N.V. 161 Iskyanderova, T.A. 173, 177 Petrova, Yu.I. 181
Amosova, N.A. 191 Pogorelova, T.G. 69
Andriansyah, Y. 199 Jazev, G.V. 185 Polzunov, I.S. 111
Andriashina, N.S. 59 Polzunova, N.N. 111
Anichkina, O.A. 33 Kapustina, N.V. 19 Posazhennikov, A. 81
Anoshina, J.F. 185 Kashitsina, T.N. 127 Potashnik, Y.S. 53
Antony, P. 131 Kholodnaya, A.K. 87 Pugina, L.I. 151
Antonyová, A. 131 Khrustova, L.Y. 221
Arkadeva, O. 81 Kizyan, N.G. 23 Rakhova, M.V. 105
Knyazkova, V.S. 99 Rodionova, N.V. 41
Basharina, S.M. 127 Kochetova, Y.N. 215 Rodionova, Ye.V. 181
Beliatskaya, T.N. 99 Kornilova, O.A. 161 Romanovskaya, E.V. 53
Bezdudnaya, A.G. 145 Kosobutskaya, A.Yu. 191 Rushdan, A.R. 167
Kozlov, I.V. 117 Ryakhovskaya, A.N. 65
Chaikovskaya, N.V. 151 Kozlova, E.P. 59 Ryakhovsky, D.I. 65
Chaikovsky, D.V. 151 Krylov, V.E. 47
Clark, D. 207 Kuznetsov, U.V. 23 Saveliyev I.I. 177
Kuznetsov, V.P. 59 Shapovalova, A.D. 41
Danilov, A. 81 Kuznetsov, Y.V. 19 Shtebner, S.V. 215
Digilina, O.B. 155 Kuznetsova, S.N. 53 Shultsev, V.A. 93
Donichev, O.A. 87 Shumilina, M.A. 215
Dreving, S.R. 221 Lapshina, M.I. 215 Soewito, B. 131
Lebedev, A.R. 137 Starikova, T.V. 7
Erhov, M.V. 65 Likhatskaya, E.A. 69 Starostina, O.S. 111
Lodyshkin, A.V. 191 Sugeng, A. 199
Fedosova, R.N. 7, 181 Loginov, A. 81 Sybachin, S.A. 1
Fedotova, M. 75 Loseva, O. 75
Filimonova, N. 207 Lovkova, E.S. 127 Teslenko, I.B. 145, 155
Filimonova, N.M. 111 Treshevski, U.I. 191
Fomenko, N.M. 37 Makar, S.V. 13 Tretyak, V.P. 33, 185
Fraymovich, D.Yu. 87 Malkerov, M.Y. 111
Frolova, I.V. 69 Manuilov, N.V. 173 Valeeva, S.V. 1
Maslova, E.V. 19 Yarasheva, A.V. 13
Galkina, Yu.Ye. 181 Matytsyna, T.V. 69 Yashin, S.N. 59
Gandelsman, I.A. 117 Mekhdiev, S.Z. 173 Yussuf, A.A. 7
Garin, A.P. 53 Melyakova, E.V. 23
Garina, E.P. 59 Morgunova, N.V. 121 Zakharov, P.N. 29
Goiher, O. 81 Morgunova, R.V. 121 Zakharova, J.A. 29
Goncharenko, L.P. 1 Zakirova, M.I. 105
Grachev, S.A. 87, 105 Nazvanova, K.V. 29 Zakrevskaya, L.V. 117
Grechkina, N.E. 53 Novokupova, I.N. 173 Zaytseva, I.A. 121
Gubernatorov, A.M. 145 Zulkifli, I. 167
Gundorova, M.A. 105 Omarov, M.M. 93
Omarova, N.Y. 93
Horshikyan, S.V. 1
Hutagalung, F.D. 167

227