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THE INTERNATIONAL CONFERENCE IN
ECONOMICS AND ADMINISTRATION
2012

THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
Editor:
Elena Druică
The organizers of ICEA 2012 thank to the scientific advisory board of the Economic and
Administrative Sciences Series of the Annals of the University of Bucharest, as well as to
the members of the editorial board of the International Journal of Applied Behavioral
Economics for their effort in reviewing the submissions. Independent reviewers have also
contributed to raising the scientific level of the registered papers.
ISSN: 2284–9580
ISSN-L: 2284–9580
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
Cuprins:
ORGANIZATIONAL CONFLICT. IMPORTANCE AND NECESSITY OF
CONFLICT MANAGEMENT SYSTEMS ……………………………………………..
Author: - Ardeleanu Anca Monica
STUDY ON THE AWARENESS AND PRACTICE OF VALUE MANAGEMENT BY
MALAYSIAN CONSTRUCTION PRACTITIONERS IN PENANG ……………
Authors: Nadzirah Arshad; Abdelnaser Omran
LEADERSHIP IMPORTANCE AND ROLE IN THE CONTEXT OF POLITICAL
MARKETING …………………………………………………………………………..
Author: Baban Eleonora Gabriela
THE INTERPRETATION OF EARLY PHILLIPS CURVE IN TERMS OF MODERN
ECONOMY OF UKRAINE …………………………………………………………….
Authors:- Baidala Viktoriia; Butenko Vira
THE ROLE OF THE CLIENT IN ACHIEVING EFFECTIVENESS AND
EFFICIENCY IN CONSTRUCTION CONTRACT IN NIGERIA …………………….
Authors: Bala Maiauduga Mohammed Jamilu; Omran Abdelnaser
ALBANIAN HEALTH CARE REFORM, A NECESSITY AND WAY OF NO
RETURN ………………………………………………………………………………..
Authors: Bello Majlinda; Gabeta Aida; Dhimitri Eva; Dollija Elda
THE APPLICATION OF COST-BENEFIT ANALYSIS FOR THE ESTIMATION OF
REMITTANCES EFFECTS WITHIN THE ECONOMIES OF ORIGIN COUNTRIES.
CASE STUDY – REPUBLIC OF MOLDOVA ………………………..
Authors: Belobrov Angela - Caraganciu Anatolie
POVERTY AND MIGRATION AS IMPEDIMENTS IN ACHIEVING THE EUROPE
2020 OBJECTIVES ………………………………………………………….
Author: Bonciu Cătălina
IMPROVING THE ACCURACY OF MACROECONOMIC FORECASTS IN
ROMANIA ……………………………………………………………………………...
Author: Bratu Mihaela
URBAN-RURAL MIGRATION IN ROMANIA AFTER 1990
Author: - Bunea Daniela
DESCRIBING THE WEB BASED BUSINESS BY THE CONTENT OF ITS
SEGMENTS …………………………………………………………………………….
Author: - Caraganciu Iulian
DECISION MAKING SYSTEMS – BUSINESS IMPACT OF INFORMATION
TEHNOLOGY SYSTEMS ……………………………………………………………...
Authors: Cojocaru Silviu; Cojocaru Camelia
WEB SERVICES– NEW TRENDS FOR CUSTOMER RELATIONSHIP
MANAGEMENT ………………………………………………………………………
Authors: Cojocaru Silviu; Cojocaru Camelia
WHY DO MUSEUMS MATTER? A CASE STUDY ON THE MARAMURES
COUNTY MUSEUMS …………………………………………………………………...
Authors: Coman Adela; Pop Izabela
THE DYNAMIC OF LABOR PRODUCTIVITY - A TOOL FOR ASSESSING
INCOME INEQUALITY ………………………………………………………………
Authors: Constantin Ionuţ - Dumitraşcu Raluca Bogdana
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
THE ROLE OF SOUTH EAST EUROPE PROGRAM IN THE POLYCENTRIC
DEVELOPMENT OF EAST EUROPEAN COUNTRIES. STUDY CASE:
POLYINVEST PROJECT ………………………………………………………………..
Authors: Constantin Ionuţ - Dumitraşcu Raluca Bogdana
AN ANALYSIS OF THE DIVERSIFICATION POTENTIAL OF INSURANCE-
LINKED SECURITIES FUNDS ………………………………………………………
Authors: Constantin Laura-Gabriela; Iamandi Irina-Eugenia
THE DEVELOPMENT OF SERVICES IN ROMANIA ………………………………..
Author: Danciu Lucian Alexandru
ENVIRONMENTAL TAXES PARALLEL BETWEEN ROMANIA AND
EUROPEAN UNION ……………………………………………………………………
Authors: David Oana; Mihai Maria Valia
PROJECT MANAGEMENT RISK ASSESSMENT WITHIN LARGE
CORPORATIONS ……………………………………………………………………….
Authors: Dirva Cristian; Dirva Anda Simona
THE USE OF E-BANKING BY THE BRANCHES OF SECOND-LEVEL BANKS IN
KORÇA (ALBANIA): OPPORTUNITY AND CHALLENGES ………………………..
Authors: Dollija Elda; Bello Majlinda; Furxhi Gentisa
URBAN TOURISM AND OPPORTUNITIES FOR IMPLEMENTING ITS GORJ
COUNTY ………………………………………………………………………………
Authors: Enea Constanta; Enea Constantin
RÂNCA RESORT - SKI AREA BEST OF CENTRAL AND EASTERN EUROPE …...
Author: Enea Constanta
EMPLOYMENT LAWS IN CONSTRUCTION PROJECTS: SOME EMPLOYMENT
LAWS ISSUES IN CHINA CONSTRUCTION PROJECTS ……………………………
Authors: Esmaeilifar Reza; Jinke Cao; Omran Abdelnaser; Hussin Abdul Aziz
THE SITUATION OF SMALL AND MEDIUM ENTERPRISES IN ALBANIA ……...
Authors: Gabeta Aida; Polena Esmeralda; Dhimitri Eva
GENERAL ASPECTS ON PUBLICITY AND ITS EFFECTS. CREDIT
CONSUMERS AND THE CONSUMERS OF EVENTS/MEGA-EVENTS ……………
Authors: Gheorghe Carmen Adriana; Andrei Ion
REAL ESTATE PUBLICITY IN THE LIGHT OF THE PROVISIONS OF NEW
CIVIL CODE ……………………………………………………………………………..
Author: Gheorghe Cristina
THE ROMANIAN UNIVERSITIES IN THE PARADIGM OF ENTREPRENEURIAL
UNIVERSITIES ………………………………………………………………………….
Author: Herman Radu
EXPLORING THE EFFECTS OF BOOK TRANSLATION IN HISTORY OF
ECONOMICS. EMPIRICAL EVIDENCE FROM A LLP-ERASMUS PROJECT ……..
Authors: Herman Radu; Nistor Cornelia
TORTS RELATING TO CONSTRUCTION INDUSTRY: NUISANCE ………………
Authors: Hussin Abdul Aziz; Gebril Abdel Wahab O.; Omran Abdelnaser
ROLE AND EFFECT OF STOCK EXCHANGE ON THE GROWTH OF
INVESTMENT AND ECONOMIC DEVELOPMENT RESULTING FROM STOCK
MARKET EFFECTS ON BANKING AND MONETARY SYSTEM …………………
Authors: Hamid Reza Izadi; Maryam Izadi
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
THE ECONOMIC APPROACH OF HU, AN CAPITAL THEORY AND
EFFECTIVENESS OF EDUCATION …………………………………………………...
Author: Josan Ioana - Julieta
HOW FLEXICURE ARE NEW EU MEMBER STATES? ……………………………
Authors: Laporšek Suzana; Dolenc Primož
THE ROLE OF SMALL MEDIUM ENTERPRISES (SME) ON THE NATIONAL
ECONOMY PROBLEMS AND CHALLENGES OF THEIR DEVELOPMENT ……
Author: Lipi Klaudia
POWER LAW AND SCALING ANALYSIS OF THE BUCHAREST STOCK
EXCHANGE ……………………………………………………………………………..
Author: Lungu Eliza Olivia
TARIFF EFFECT ON SMUGGLING IN THE IRANIAN ECONOMY ………………..
Author: Majid Maddah
DESIGNING CENTRE FOR LEADERSHIP OF THE UNIVERSITY OF
BUCHAREST (CL-UB) ………………………………………………………………….
Author: Marinescu Paul
CURRENT ISSUES AND THEIR CHALLENGES IN AUDITING THE PRIVATE
PENSSION FUNDS IN RROMANIA …………………………………………………
Author: Matei Simona
LEVERAGE AND OWNERSHIP: AN EMPIRICAL ANALYSIS FOR ROMANIAN
SME’S …………................................................................................................................
Authors: Mínguez-Vera Antonio; Vasilcovschi Nicoleta
A CHALLENGE FOR THE MARKETING STRATEGY – PRODUCTS IN THE
ELECTRONIC COMMERCE ENVIRONMENT ……………………………………….
Author: Mityko Delia Sorana Varvara
THE PRESENCE AND THE INFLUENCE OF THE FRENCH INVESTMENTS IN
THE ROMANIAN ECONOMY …………………………………………………………
Author: Nistor Cornelia
THE IMPACT OF THE TRANSLATIONS FROM HISTORY OF ECONOMIC
THOUGHT AND HISTORY OF ECONOMICS ON LEARNING PROCESS OF THE
STUDENTS AND ON AVAILABLE TEACHING MATERIALS ……………………..
Authors: Nistor Cornelia - Herman Radu
CAUSES AND EFFECTS OF INCESSANT BUILDING COLLAPSE IN NIGERIA …
Authors: Segun Olojotuyi Bamidele; Omran Abdelnaser
NATIONAL STUDENT ENROLLMENT REGISTRY. A REAL HELP FOR
EMPLOYERS AND UNIVERSITIES …………………………………………………...
Author: Olteanu Cosmin Cătălin
MATERIAL DELIVERY TO CONSTRUCTION SITE: ISSUES, PROBLEMS AND
THE WAY OUT ………………………………………………………………………….
Author: Omran Abdul Aziz Hussin Adelnaser
TIME INCONSISTENCY AND PUBLIC POLICIES. CASE STUDY: THE PUBLIC
PENSION SYSTEM IN ROMANIA …………………………………………………….
Author: Papuc Răzvan
ECONOMIC CRISES AND TRANSITIONS OF CAPITALISM ……………………
Authors: Platis Magdalena; Bucur Ion
TOWARDS A CONVERGENT MODEL OF CULTURAL DIMENSIONS …………...
Author: Ploae Cătălim
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
A SYNTHETIC REVIEW ON EFFECTIVENESS IN INTERNATIONAL AND
NATIONAL SOCIETY …………………………………………………………………..
Author: Popescu Angel Iulian
GLOBAL CRISIS – AN ECOLONOMIC APPROACH ………………………………...
Authors: Popescu Constantin; Taşnadi Alexandru; Ciutacu Ileana.
THE REAL ESTATE MARKETPLACE – A THEORETICAL BACKGROUND
APPROACH ……………………………………………………………………………...
Authors: Popescu Veronica Adriana; Popescu N. Gheorghe; Popescu Cristina Raluca
SWEETS CONSUMPTION IN ROMANIA AND THE IMPACT ON ROMANIANS
MONTHLY BUDGET – THE PERSPECTIVE OF THE YEAR 2012 …………………
Authors: Popescu Veronica Adriana - Popescu N. Gheorghe - Popescu Cristina Raluca
A STRATEGIC ANALYSIS OF THE ALBANIAN YOUTH EMPLOYMENT ……….
Authors: Pulaj (Brakaj) Enida- Cipi Amali
A CASE STUDY ON THE ORGANIZATIONAL CLIMATE AND STAFF
MOTIVATION IN AN OPERATIONAL STRUCTURE OF THE POLICE …………
Authors: Purda-Nicoară (Netotea-Suciu) Valeria-Liliana-Amelia; Manolescu Aurel ;
Dorobanţu Maria-Roxana ; Lungeanu Emil
EMPLOYEE MOTIVATION - A PREREQUISITE FOR SUCCESS …………………..
Authors: Purda-Nicoară (Netotea-Suciu) Valeria-Liliana-Amelia; Manolescu Aurel ;
Dorobanţu Maria-Roxana ; Lungeanu Emil
FOREIGN DIRECT INVESTMENTS AND THE ECONOMIC GROWTH IN ROMANIA …
Author: Rădulescu Magdalena
GERMAN INFLUENCE ON THE COMPETITION POLICY OF THE EU FROM
THE HISTORICAL PERSPECTIVE ……………………………………………………
Author: Romana Mikhel
CONTRACTORS, SUBCONTRACTOR, PAYMENT AND COMPLETION …………
Authors: San Yu Chuah; Omran Abdelnaser; Hussin Abdul Aziz
THE IMPORTANCE OF BRAND IN CONSUMER’S DECISION MAKING ………
Author: Sandu Mihaela
MULTINATIONAL VERSUS LOCAL ROMANIAN ENTERPRISES - DIMENSION
AND PERFORMANCE ……………………………………………………………….....
Authors: Dumitrescu Corina; Scalera Francesco
THE IMPACT OF INFORMATION TECHNOLOGY IN THE DECISION MAKING
PROCESS IN HIGHER EDUCATION, WITH PARTICULAR EMPHASIS AT THE
UNIVERSITY OF PRISTINA …………………………………………………………
Author: Sertolli Osman; Tafili Arta
DEINDUSTRIALIZATION AND ITS IMPACT ON POPULATION ………………….
Authors: Sima Cristian; Bonciu Cătălina
CONSIDERATIONS ON SIMPLE CONTRACT OF ASSOCIATION, UNDER THE
NEW CIVIL CODE ……………………………………………………………………
Authors: Spasici Camelia; Gheorghe Anca Nicoleta
THE ROLE OF ENVIRONMENTAL ACCOUNTING IN ENVIRONMENTAL
REPORTING: CASE OF THE REPUBLIC OF SERBIA ……………………………….
Authors: Stefanovic Danka; Milojevic Marko; Dzamic Vladimir
EMPOWERING PEOPLE COOPERATION. SOCIAL INNOVATION & SOCIAL
NETWORKS ……………………………………………………………………………..
Author: Suciu Marta-Christina
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
CONVENTIONAL AND JURISDICTIONAL IN DISPUTE SETTLEMENT. THE
LEGAL NATURE OF THE TRANSACTION CONTRACT …………………………
Authors: Tărâţă (Spîrcheyi) Georgeta-Bianca
E-GOVERNMENT ON LOCAL LEVEL - CASE STUDY: MUNICIPALITY OF
KORCA …………………………………………………………………………………..
Authors: Teneqexhi Marinela; Vangjeli Eleni; Furxhi Gentisa
THE EVOLUTIONARY PATH OF CORPORATE SOCIAL RESPONSABILITY IN
THE LAST CENTURY ………………………………………………………………….
Author: Toma Sorin-George
ACCOUNTANCY REFLECTION OF SOCIAL AND ENVIRONMENTAL
PERFORMANCE – RESULT OF SOCIAL RESPONSIBILITY POLICIES …………..
Author: Ungureanu Mihaela
THE ROLE OF INTERNAL CONTROL IN AN ENTITY’S RELATIONSHIPS WITH
ITS TRADING PARTNERS ……………………………………………………………
Author: Ungureanu Mihaela
RISK PERCEPTION IN INVESTMENT DECISION MAKING ……………………….
Author: Virlics Agnes
DYNAMIC CAPABILITIES – KNOWLEDGE MANAGEMENT - BASED
CHALLENGES OF ROMANIAN FIRMS ………………………………………………
Authors: Voica Orlando; Burcea Marin
ASSESSING AND MEASURING THE IMPACT OF GLOBALIZATION ON
PUBLIC POLICIES ……………………………………………………………………...
Author: Zulean Marian
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
ORGANISATIONAL CONFLICT. IMPORTANCE AND NECESSITY
OF CONFLICT MANAGEMENT SYSTEMS
Anca Monica Ardeleanu
University of Bucharest, Faculty of Business and Adminisration
ABSTRACT
Why is important to find out about workplace mediation? What is a conflict
management system and how it can help managers in their businesses? The answer to all
these questions is very simple and refers to the fact that there is a direct ratio between the
quality of relationships across the workplace and long-term business effectiveness and
success.
The purpose of this article is to analyze the particularities of the organizational
conflict, the conflict management style and also to show how management systems, in
general, and workplace conflict mediation, in particular, can fix these complex relationship
difficulties, so that good and respectful working relations can be restored for both employees
and employers. The article will be helpful to researchers, academics, mediators, interested
individuals and most of all to managers and organizations that are considering bringing
mediation into their work culture, practices and policies.
Key words Organizational conflict, conflict management, conflict management
system, mediation, workplace mediation.
1. INTRODUCTION
One doesn’t have to be a specialist in conflictology to know that conflicts are part of
human consciousness in all aspects of life. People cannot avoid conflicts, whether they are at
home, at school, at the office, behind the wheel or simply walking on the street. Even if is so
present in our personal and professional lives, the conflict is not something that we look
forward to deal with. In fact, the common approach of the conflict is avoidance because the
conflict is usually thought to be detrimental to our personal relationships or to the success of
the organization.
If we look closer into the organizational world, after reviewing the literature dealing
with this domain, the experts agree that conflict can be quite helpful. They say that conflict is
inevitable and even desirable: “To work in an organization is to be in conflict. To take
advantage of joint work requires conflict management” (Tjosvold 2008: 19). It is no wonder
that conflict management is receiving increasing attention from top managers and
policymakers across major corporations and non-profit organizations. Lipsky and Seeber
(2006) note that during the past 25 years, the organizations have changed their orientation
towards conflict management. In particular, organizations are more tempted to adopt “a
proactive, strategic approach to managing organizational conflicts” (ibid: 360).
The occurrence of conflicts has many implications for organizations. It has been
proven that managers may spend more than 40% of their time dealing with conflict-related
negotiations (Watson & Hoffman 1996). This task is very stressful and time consuming as
conflicts have the potential to affect and even deteriorate organizational well functioning by
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
inducing resignations, absentee-ism, accidents, and overtime (Meyer 2004) as well as
deteriorating individual health and well-being (De Dreu et al. 2004).
Authors have found it useful to conceptualize organizational conflicts broadly (e.g.,
Rahim 2002; Lipsky & Seeber 2006). Rahim (2002) defines conflict as “an interactive process
manifested in incompatibility, disagreement, or dissonance within or between social entities
(i.e., individual, group, organization, etc.)…Conflict can relate to incompatible preferences,
goals, and not just activities” (207). According to Lipsky and Seeber (2006), there are three
types of organizational conflict. (1) Latent and manifest disagreements refer to “any
organizational friction that produces a mismatch in expectations of the proper course of action
for an employee or group of employees (Lipsky et al. 2003: 8). (2) Workplace disputes are
conflicts “that ripen into formal complaints, grievances, and charges” (Lipsky and Seeber
2006: 363). (3) Litigation refers to lawsuits and charges filed with regulatory agencies. In
general, it has been underlined that conflict centers on three factors within the communication
field: incompatibilities, an expressed struggle and interdependence between two or more
parties (Putnam 2006).
Traditionally, conflicts are considered as impediments to organizational functioning.
Considering this point of view, conflicts need to be thoroughly controlled, because “social
interaction itself is a negative force, and this is so because human beings are incapable of
engaging in either social interaction or conflict without destructive consequences” (Bush &
Folger 2005: 247). However, other authors state that conflicts are vital for modern
organizations; they are “not only essential to the growth, change, and evolution of living
systems, but [are], as well, a system’s primary defense against stagnation, detachment,
entropy, and eventual extinction” (Ruben 1978: 206). Similarly, Aula (1999; 2000) argues
that conflicts are an important force in bringing out the differences among agents’ opinions,
logics and worldviews, which, in turn, leads to more creative and novel out-comes. Individual
level conflict interaction is crucial because it ultimately changes the whole social environment
(Bush & Folger 2005).
Even though conflict is often considered to be functional for organizations, most
recommendations relating to organizational conflict still fall within the spectrum of conflict
reduction, resolution, or minimization. According to Rahim (2002), insofar as it could be
determined, the literature on organizational conflict is deficient (with minor exceptions) in
three major areas:
1. There is no clear set of rules to suggest when conflict has to be maintained at a
certain level, when reduced, when ignored, and when enhanced.
2. There is no clear set of guidelines to suggest how conflict can be reduced, ignored,
or enhanced to increase organizational learning and effectiveness.
3. There is no clear set of rules to indicate how conflict involving different situations
can be managed effectively.
Given the importance of conflict management in organizations it is of most
importance to have, to develop and to implement valid measurements instruments to diagnose
conflict management strategies at work. According to Rahim (2002), if they are to be
effective, conflict management strategies should satisfy certain criteria. First, conflict
management strategies should be designed to improve organizational learning. Instead of
dealing with conflict “within the existing structure and processes of an organization” (ibid:
212), one should challenge the status quo by enabling organizational members to challenge
the underlying policies, assumptions, and goals. Second, strategies should be designed to
include “the right stakeholders to solve the right problems” (ibid: 209). Conflicts are often
complex issues that involve multiple parties. The involvement of all the relevant parties in
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
problem-solving activities leads to collective learning and organizational effectiveness.
Finally, conflict management should be ethical. That is, the design should enable conflict
management that leads to “ethical actions that benefit humankind” (ibid. 209) on the
leadership as well as on other stakeholder levels.
2. ORGANIZATIONAL CONFLICT – CONCEPT, CAUSES & DYNAMICS
The conflict is a certain status that became study object for organizational
management, and also for many other sciences, such as: psychology sociology, history, and
politology. This status can be analyzed from different perspectives, and can be described as a
particular aspect of individual, social or economic reality, or it can be seen from a much wider
perspective.
The dictionaries define conflict throughout various concepts and synonyms starting
with dispute, duel, war, and ending with moderate antagonism that offers the chance for
dialogue or even a negotiation. From an etymological point of view the term “conflict” comes
from the Latin word “conflictus” that is a derivative from the verb “confligere” and signifies
“to smash, to collide, to hold together by force”.
Some authors define conflict as a blocking of the natural decision mechanisms,
meaning the situation of an individual that has difficulties in choosing the way to react. The
conflict can be considered a particular type of competition, which escalates from a simple
opposition to a fight between individuals or groups, the entire situation being characterized by
opposite forces and tendencies, but of different intensity.
Commonly, the conflict means the fight or the competition between individuals or
groups in order to achieve the settled objectives. The conflicts between employees, union
representatives and the members of the managerial teams often start because of some
psychological influences.
There are managers that do not agree with this conceptualization of the conflict and
focus in finding other modalities and means to solve the conflicts they are supposed to deal
with. "Organizational theory” is seldom blocked because the managers think that the existing
problems that they have studied deescalated or were solved due to managerial methods more
than sociological or psychological methods. This is a very important point of view if we take
into consideration the fact that in the organization, the conflicts were considered by some
people as “mine fields”.
Nowadays, for managers the conflicts represent a problem that has to be immediately
solved and, considering this, all the reasoning that stand for the plurality and the inevitability
of the interests, motivations, purposes and attitudes of the parties in conflict can be addressed
in order to find the optimal solution.
We consider the conflict as a natural environment in the organizations, which is a very
important study object for the management, just as interesting as the cooperation, order and
stability. Conflicts appear each time when the parties have opposite interests. The natural
reaction inside the organization is to consider conflicts as dysfunctional forces explained by
unfortunate circumstances or causes that happened in a previous period. Frequently people
state or explain it by saying: “It is a matter of personality”, “They are rivals, so the fight was
inevitable”, “People from marketing and those from sales cannot get along together because
they have different objectives”, and “Everybody hates controllers and accountants”. These
examples confirm the fact that our entire behavior is influence by conditioning, experiences,
believes, and values that we took from others, and this behavior is enhanced by our own
templates and thinking processes that we use in connection with those that surround us. By
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
understanding our own way of thinking, but also those of the other ones, we can learn to
avoid conflicts, we can avoid disasters can we can focus the anger force toward positive
activities.
Once we defined the concept of conflict, with particular view over the organizational
conflict, and the ways this is perceived by managers and the employees, let’s determine the
causes of organizational conflicts.
In organizations, conflict appears when normal activities are disrupted between
individuals or groups so that it becomes difficult to see a task to completion (More &
Wegener, 1992). More specifically, organizations are faced with many forms of interpersonal
conflicts which can be disruptive to achieving organizational goals. According to More and
Wegener, the most common type of conflict exists between two individuals (1992). With
interpersonal conflict, problems arise due to differences in personality or because of confusing
role expectations (More & Wegener, 1992).
Another type of organizational conflict occurs when individuals interact with groups.
Often, conflict situations arise because individuals misunderstand the prescribed group norms
and violate these norms, causing group dissension and eventual isolation among members.
Conflict between individuals and groups can create a very tense work atmosphere and cause a
breakdown of group communications. Often individuals who fail to adhere to the group’s
expectations are shunned and labeled as deviant for failing to meet group norms. The intensity
of this type of conflict varies and is dependent upon many individual factors such as the
duration of the conflict and individual personality attributes.
The last type of interpersonal conflict is conflict between groups. In this type of
situation incompatible norms and goals are the main cause for group conflict. Various group
cultures are defined according to the shared goals, values and interests that are represented
within the group.
As social groups become more unified, they compete with surrounding groups due to
conflicting goals and values. Competing groups then polarize, and destructive inter-group
conflict results (More & Wegener, 1992).
The conflict that appears in the working environment can be a very complex matter. If
mismanaged, work related conflict can have detrimental side effects on employees’ physical,
emotional and mental well being. However, in the end, conflict doesn’t need to have a
destructive nature. In fact, when managed properly, the conflict can be quite beneficial for the
individuals involved in the conflict and ultimately can be beneficial for the organizational
structure as well.
Role ambiguity can be problematic when an employee is unclear of the exact details of
the job that he/she is expected to perform. Typically, role ambiguity occurs when
communication lines are hazy and supervisors fail to communicate guidelines for reaching the
organization’s goals. Conflict resulting from role ambiguity includes both misinformation and
absence of information which prevents the employee from performing his/her task well. Job
stress related to role ambiguity can result in psychological distress and job strain for the
worker (Cooper et all, 2001).
Role conflict occurs when those in supervisory positions communicate demands which
are incompatible with one another or when an employee may perceive a conflict of interest
between what he/she values as a professional (Cooper et all, 2001). Role overload is the
juggling of too many demands which places a strain on the individual who is attempting to
fulfill these various roles. All of these conflicts can be avoided with effective communication
between managers and their employees. The managers who offer consistent feedback and
discussion about what is expected and needed from employees will typically have fewer
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occurrences of conflict within the work environment. Furthermore, opening the lines of
communication for when problems do arise allows an opportunity for brainstorming and
creative conflict resolution between employer and employee.
Reframing the situation is beneficial in gaining a fresh perspective on how to manage
a conflict situation. As the text, Reframing Organizations: Artistry, Choice, and Leadership
discusses, there is no right or wrong way to handle a conflict situation (Bolman & Deal,
2003). Often it is necessary to restructure lines of authority or reorganize the composition of
the organization in order to increase employee participation. Employees who are encouraged
to actively participate in the decision making processes which affect their daily job routines
feel empowered and in control of their job functions. This restructuring technique is a
preventative measure against the occurrence of role ambiguity and role conflict (Cooper et all,
2001).
As we said already, a conflict can be of a constructive or destructive nature. In fact,
some managers purposefully place employees together who are from different professional
and cultural backgrounds so as to promote “creative abrasion,” or the brainstorming that
occurs from gathering differing viewpoints, experiences and perspectives in a group situation
(Caudron, 1998). According to Caudron, there are various ways that managers can encourage
constructive conflict and avoid destructive conflict within their organizations. For instance,
supervisors should encourage all employees to address conflict directly in order to increase
their comfort level when faced with difficult situations. Avoiding conflict is only going to
exacerbate the problem. Dealing directly with conflict is the best way to gain experience with
effective conflict management.
Another thing managers can do to encourage constructive conflict is to reward those
employees who demonstrate positive behaviors when handling conflict situations. Offering
rewards and compensation for good conflict handling will motivate others to emulate the
good behavior exemplified. Hopefully with time, techniques for good conflict handling will
develop throughout organizations, thus minimizing the damage that can occur from poor
conflict management.
In order to effectively manage organizational conflict, one must determine some of the
many different causes and sources of conflict.
One cause of organizational conflict is due to differences in power, status and culture.
In this instance, conflict is likely to occur because there are different levels of power and
status present resulting in power struggles among staff members. Furthermore, differences in
status between subordinate and supervisory positions can lead to conflict. Conflict results
when individuals with less status find themselves giving orders to those of higher status. This
is an unlikely situation but does occasionally occur.
Secondly, competition for scarce resources is a likely determinant of conflict within
organizations. Unfortunately, the reality is that no single organization is going to have all of
the resources that it needs at any given time. Typically, there is a close correlation between
the frequency and intensity of conflict in relationship to the degree of scarce resources.
Scarcity of resources is a strong predictor of conflict and can create a situation where latent
conflict escalates into overt hostility between individuals or groups. There is no easy way to
manage conflict which stems from scarce resources. Some suggestions include finding
alternative resources or politicking in order to secure financial support from the outside (More
& Wegener, 1992).
The third cause of conflict is a drive for autonomy and independence. Organizations
are highly structured so that members can effectively reach their goals. In addition, a
hierarchy exists to maintain this order and structure between the upper management and those
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in lower level positions. The usual protocol is for those in lower level status positions to
follow the directive of a supervisor. Conflict occurs when those in the subordinate positions
fail to follow this protocol and attempt to assert their independence. Challenging authority is a
fairly strong determinant that conflict will eventually ensue.
In order to understand completely the nature of conflict and to learn how to effectively
manage it before it escalates, managers must recognize that conflict passes through a variety
of stages. Knowing these stages will enable managers to identify conflict and evaluate how
properly to deal with it directly.
First stage of conflict is known as latent conflict and best describes a situation or event
which has yet to be identified as a potential problem. At this stage, the conditions are ready
for conflict but the conflict has yet to surface.
Second stage of the conflict - perceived conflict - describes a situation where conflict is
present and is recognized by at least one party involved in the respective conflict. Still, the
conflict situation is relatively minor as both parties may not readily recognize its existence or
view the conflict as something that needs full attention.
Third stage - felt conflict - describes a situation where the tension is rising and is
strong enough that at least one party is affected by its presence and its pressure.
The next stage, forth, is represented by the manifest conflict is a much stronger type of
conflict and demands a reaction not only from those who are immediately involved with the
situation, but affects outsiders as well. Overt behaviors and reactions are a result of manifest
conflict and can bring about feelings of apathy, avoidance, withdrawal and even aggression
(More & Wegener, 1992).
Finally, conflict resolution refers to an attempt to resolve the conflict so that all
individuals affected can reach their intended goals. Conflict aftermath occurs when conflict is
well managed and the conflict is resolved.
More and Wegener (1992) discuss three main approaches to successful conflict
management. These approaches include the traditionalist viewpoint, the human relations
phase, and the interactionist phase.
From a traditionalist perspective, conflict is seen as a negative thing and detrimental
to the individual or group in which it exists. According to this theory, conflict is a
dysfunctional result of deeper issues such as mismanagement, poor communications among
co-workers, and lack of trust. Traditionalists do not embrace or welcome conflict because they
do not see any potential for good resulting from conflict.
The behavioralist theory views conflict as an inevitable part of daily life and
something to be dealt with as it occurs. According to the behavioralists, conflict is a result of
personality quirks and human peculiarities. If left to escalate, conflict can become destructive
and harm individuals and group relations. Behavioralists appreciate the good that can come
from conflict if it is managed well and used wisely. Cooperative problem solving and creative
thinking are two benefits of well managed conflict (More & Wegener, 1992).
Finally, the functionalist viewpoint sees conflict as a necessary thing and something to
be discouraged only if the conflict seems to have destructive or harmful results for the
individuals or groups involved. Functionalists see the positive benefits that result when
conflict forces individuals and groups to take action to seek resolution. According to this
theory, conflict is a catalyst for promoting change and preventing stagnation and apathy.
However, the functionalists recognize that conflict can have either functional or dysfunctional
effects on an organization (More & Wegener, 1992). According to the cited authors, conflict
is functional when it is able to motivate people to be proactive in their approach to conflict
resolution.
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3. CONFLICT MANAGEMENT STYLES
All managers should understand that functional conflict is helpful in enabling people
to realize and strengthen their goals and drives. Furthermore, conflict is functional and
beneficial if it improves the communication lines and leads to higher awareness and
understanding. On the other hand, dysfunctional conflict is detrimental to the individuals and
groups that it affects because when mismanaged it disrupts regular routines and destroys
relationships (More & Wegener, 1992). In addition, dysfunctional conflict creates a tense
work environment and it drains employees of the energy needed to focus on the task at hand
in order to be productive. (More & Wegener, 1992, p. 458).
Considering all that before, and also considering that people are different – no matter
if we refer to managers or employees – authors identified five conflict management styles:
integrating, obliging, dominating, avoiding and compromising.
Figure 1
The Dual concern model of the Styles of handling interpersonal conflict
Integrative conflict management is effective when dealing with a complex problem or
when a resolution is elusive. This type of conflict management requires a contribution of
resources in order to reframe the situation and gather new perspectives. Integrative conflict
management technique is typically associated with a high concern for others and a low
concern for the self. It requires that individuals are open and willing to accept new ideas
(Rahim, 2001).
Obliging conflict management style is a useful conflict management technique when
the issues surrounding the conflict are ambiguous. For this technique to be effective, both
parties must be willing to give and take, in order to benefit and reach a resolution. Usually, for
this technique to work, one party is more powerful than the other, yet a relationship still needs
to be preserved.
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Dominating conflict management style is a very authoritative style of conflict
management and is not well liked by individuals with passive personality traits. This
technique is most effective when a quick resolution is needed or when dealing with an
unpopular course of action. Typically, the issues addressed are non-complex in nature and are
of some importance to the involved parties.
The final two conflict management styles are avoiding and compromising. Individuals
with passive and non-confrontational personalities typically choose to avoid conflict. Parties
of equal power and status with fairly compatible goals benefit from compromise. Overall,
compromising is considered to be the most effective conflict management technique to
practice because it involves both parties seeking a mutual gain and resolution that will benefit
both sides. Compromising is also the best technique to use when dealing with difficult valuesladen
issues (Rahim, 2001).
On the other hand, one’s personality and personal attributes determine one’s managing
style and how a supervisor approaches and handles conflict. More and Wegener identify the
five managerial styles as competitive, avoiding, accommodating, compromising, and
collaborating (1992).
A competitive manager is described as self-confident, aggressive and driven to achieve
personal goals no matter what the cost. Competitors use their power in order to intimidate and
dominate as a means to meet their personal needs. On the contrary, avoiders try to avoid
conflict whenever possible because they fear confrontation and will remain neutral in order to
meet the status quo. Accommodating managers are neither assertive nor aggressive and will
usually give in to conflict once the pressure builds. Accommodators go with the flow in order
to prevent an escalation of the conflict. Furthermore, compromisers apply short-term
solutions to long-term problems. A compromiser’s main goal is to meet a consensus. Finally,
collaborators embrace conflict and accept it as a normal part of human interactions. They
evaluate each conflict situation on an individual basis and attempt to find the best possible
solution according to the given circumstance. Collaborating is the strongest management
technique and tends to produce the most favorable results.
4. CONFLICT MANAGEMENT SYSTEMS
Conflict management system (CMS) refers to “a comprehensive set of policies
designed to manage workplace conflict” (Lipsky & Seeber 2006: 371). The concept of a
“system” was first adopted by conflict researchers and practitioners over two decades ago
(Constantino & Merchant 1996; Slaikeu & Hasson 1998; Ury et al. 1989). There is no one
clear definition of CMS; however, all the CMS definitions are based on the principles of
general system theory. For example, Constantino and Merchant (1996) indicated the
following characteristics of CMS: boundaries, purpose, inputs, transformation, outputs, and
feedback. Slaikeu and Hasson (1998) in turn based their model on principles that include
directives on various issues such as the preferred path, a template with internal and external
system components, checkpoints and evaluations.
CMS models are often centered on formal dispute resolution processes such as
grievance procedures and mediation. Although necessary, such processes are not sufficient
because “they usually address the symptoms of conflict, not the sources… An integrated
conflict management system addresses the sources of conflict and provides a method for
promoting competence in dealing with conflict throughout the organization” (Gosline et al.
2001: 8).
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CMS often consists of three types of conflict management options: rights-based
processes, interest-based processes and negotiated processes. Rights-based processes, such as
grievances and arbitration, involve third parties to determine the outcome of a conflict based
on laws, contracts or standards of behavior (Ury et al. 1989). Interest-based processes, such as
mediation and facilitation, include third parties that help participants reach agreements
without determining outcomes for them. Finally, negotiated processes cover “all efforts by
individual disputants to resolve conflicts for themselves, without any third-party
interventions” (Bendersky 2003: 645). Some authors underline that power-based processes
such as strikes and picketing can also be considered a type of conflict management; however,
they are generally not included in organizational CMSs. Typically, organizations utilize only
the rights-based processes systematically (Lipsky & Seeber 2006; Bendersky 2003).
According to Lipsky and Seeber (2006), a typical organization in the US “waits for conflicts
to evolve into litigation, and only then begins to manage ‘conflict’” (362).
The management of organizational conflict through a conflict management system
involves the processes of diagnosis of and intervention in conflict. Diagnosis provides the
basis for intervention. This process is shown in Figure 2.
Figure 2
Process of managing conflict
The first step in the problem solving process is diagnosis, meaning the problem
recognition, which involves problem sensing, and problem formulation. Failure in problem
recognition can lead to ineffective outcomes.
Identification or diagnosis of the problems of conflict in an organization must precede
any intervention designed to manage the conflict. Proper diagnosis of the causes and effects of
different types of conflict in an organization is important because its underlying causes and
effects may not be what they appear on the surface. Managers also need to know (a) whether
an organization has too little, moderate, or too much affective and substantive conflict, and (b)
whether the organizational members are appropriately selecting and using the five styles of
handling conflict to appropriately deal with different situations. If an intervention is made
without a proper diagnosis of conflict, then there is the probability that a change agent may
try to solve a wrong problem. This may lead to another kind of error.
A comprehensive diagnosis involves the measurement of conflict, its sources, and
effectiveness, and analysis of relations among them.
The results of diagnosis should indicate whether there is any need for and the type of
intervention necessary for managing conflict. The results of diagnosis should be discussed
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preferably by a representative group of managers, who are concerned with the management of
conflict, with the help of an outside expert who specializes in conflict research and training. A
discussion of the results should allow the managers to identify the problems of conflict, if
any, that should be effectively managed.
A proper diagnosis should indicate whether there is any need for intervention and the
type of intervention required. An intervention may be needed if there is too much affective
conflict, or too little or too much substantive conflict, and/or the organizational members are
not handling their conflict effectively.
Recent literature underlines that the current trend is toward the introduction of
"integrated conflict management systems" (Gosline et al. 2001: 8). An integrated conflict
management system (ICMS) introduces a systematic approach to preventing, managing, and
resolving conflict that focuses on the causes of conflict within the organization, and that: (a)
encourages employees and managers to voice concerns and constructive dissent early; (b)
integrates a collaborative problem-solving approach into the culture of the organization,
encouraging direct negotiation between those involved in a dispute; (c) provides options for
all types of problems for all people in the workplace; (d) coordinates a web of options and
structures enabling problem solving across areas and functions; (e) aligns conflict
management practices with each other and with the mission, vision, and values of the
organization, thereby contributing significantly to internal culture transformation; (f) is
understandable to all; (g) is flexible and user-friendly.
These systems promote a workplace that welcomes a diverse workforce by developing
a culture that encourages employees and managers to address their differences constructively.
An integrated conflict management system addresses the sources of conflict and provides a
method for promoting competence in dealing with conflict throughout the organization.
Effective integrated conflict management systems share these characteristics: (a) they
provide options for all types of problems and all people in the workplace, including
employees, supervisors, professionals, and managers; (b) they create a culture that welcomes
dissent and encourages resolution of conflict at the lowest level through direct negotiation; (c)
they provide multiple access points – employees can readily identify and access a
knowledgeable person whom they trust for advice about the conflict management system; (d)
they provide multiple options – both rights-based and interest-based – for addressing conflict;
(e) they provide systemic support and structures that coordinate and support the multiple
access points and multiple options and that integrate effective conflict management into the
organization's daily operations.
CONCLUSION
When implemented effectively, an integrated conflict management system decreases
the highly visible costs of conflict – government investigations, legal costs, and lost time
associated with defending against charges and lawsuits. It also addresses many less visible
costs of unaddressed conflict: loss of valuable employees due to transfers, stress leave, early
retirement, or movement to a competitor; loss of productivity; petty sabotage, waste, and theft
of intellectual property; increased health insurance claims; and loss of public confidence when
organizations are accused of allowing discrimination, harassment, unsafe working conditions,
fraud, or other unacceptable behaviors or conditions.
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ACKNOWLEDGEMENT
This paper is supported by the Sectorial Operational Programme Human Resources
Development (SOP HRD), financed from the European Social Fund and by the Romanian
Government under the contract number SOPHRD/89/1.5/S/62988”
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of Organizational Studies (2nd ed.) London: Sage, pp. 541-576
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15. Rahim, M.A. (2002) ‘Toward a Theory of Managing Organizational Conflict’,
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STUDY ON THE AWARENESS AND PRACTICE OF VALUE MANAGEMENT BY
MALAYSIAN CONSTRUCTION PRACTITIONERS IN PENANG
Nadzirah Arshad;
School of Housing, Building and Planning, Universiti Sains Malaysia
Abdelnaser Omran;
School of Housing, Building and Planning, Universiti Sains Malaysia
ABSTRACT
The implementation of VM concept is widely accepted by others countries but in
Malaysia is still in its infancy. This study attempted to study the awareness and practices of
value management in Malaysia where Penang State was targeted to be the case study.
Questionnaire survey was used to collect the data where 120 questionnaires were distributed.
Of these, 53 questionnaires were returned and analyzed. As results, several reasons
regarding the awareness of value management among the construction’s parties. Most of
respondent are known what VM is defined and its functions but they are not currently using it
because of lack of knowledge of VM
Keywords: Value management, Practices, awareness, Construction industry,
Malaysia, Penang State.
1. INTRODUCTION
Back in 1940s, the evolution of value analysis (VA) and value engineering (VE) were
introduced through World War II era which gives way for value analysis and was starting of a
systematic and functional approach to cost reduction (Macedo et al., 1978). In addition, the
VA started in the General Electric Company (GEC) during that era by Lawrence D Miles that
know as The Founder of Value Management (Che Mat, 1999). Internationally, Value
Management (VM) has been recognized as an emerging paradigm that focuses on
continuously increasing the value provided to the client and is widely accepted as an
important tool in recent management of construction projects (Ellis et al., 2005). However,
Watson, et al., (2008) stated that VM is also a strategy that aims to establish, at the
commencement of a project a plan, or a staged evaluation process by which project
development is optimized. Therefore, VM is an establish method that can seek the value for
money for any project intended to used this method. On the top of that, vary of the project can
apply the VM technique in any size of projects, type of projects or the timeframe and at all
stages throughout the life cycle of the project starting from the inception stage until the
completion stage. Nowadays in Malaysia, the VM was introduced on 1986 by Associate
Professor Roy Barton from Canberra University, Australia to the Department of Quantity
Surveying at Universiti Teknologi Malaysia (Torrance & Jaapar, 2005). In addition, VM is a
rigorous, systematic and innovative methodology with multi disciplinary approach to achieve
better value and cost optimization for projects, products, facilities, system & services without
sacrificing the required performance levels (CIDB, 2010). Plus, the VM able to give benefits
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to the Malaysian construction industry, but this study is to identify whether there is awareness
and practice among construction practitioner in Malaysia.
2. PROBLEM STATEMENT
The implementation of VM concept is widely accepted by others countries but in
Malaysia is still in its infancy (Jaapar, 2006). Therefore, to use the application of VM in
Malaysian construction industry, there is need an understanding from the respective parties
about the concept of VM which can give benefits in future.
“VM was first introduced in Malaysia in 1986 (Jaapar & Torrance, 2006).
Unfortunately, VM has not yet become widely practiced in the Malaysia. It has been
observed that due to some successful applications of VM in the Malaysian
construction industry, hence actions should now be taken to exert its full potential to
improve value for money for the clients of the industry…”
Che Mat (1999) stated that the client’s understanding towards the VM concept is
important as it is not just merely considering the cost but it considers the relationship between
value, function, quality and cost in a wider perspective leading to the fundamental
contribution of VM application whereby it eliminated the unnecessary cost which does not
contribute to the project’s value, system and facilities. Furthermore, it is said to deliver better
quality or functionality for the same cost. Based on statement above, it is conclude that VM
was giving benefits to the construction industry. Therefore, this study is to identify either the
respective parties aware and practice the VM concept in their current projects or in future
projects. Plus, the barriers of implementing VM also will be investigated through the
questionnaire survey. The aim of this study is to the awareness and practices of value
management in construction industry in Penang State within Malaysia.
3. RESEARCH METHODS
The data for the study was collected from two types of sources which is Primary and
Secondary sources. Primary data was collected through distribution of questionnaires form
(quantitative method) to several respondents (owner, project manager, architect, engineer,
quantity surveyor and contractor) whose were involve in construction industry which are from
government, property developer, consultant and contractor’s firm. However, secondary data
was gathered from articles, books, journals, dissertations, paper cuttings, conference
proceedings, related websites and others related information within the study scope.
4. DATA ANALYSIS AND FINDINGS
The empirical data generated were then analyzed using descriptive and analytical
statistical and appropriately interpreted. The output was further subjected to Relative
Importance Index (RII) to ascertain rating of the factors. As refer to the result, most of
respondent’s opinion said that VM can eliminate unnecessary costs, achieve optimum value
for money in satisfying the client and customer’s needs, and can optimize the overall
efficiency of the project which are ranked first, second and third respectively. While the less
prominent factors which can use VM were VM use to complete before or within the timeline
of the project, help in solving problems and VM can standardize and simplify the alternatives
design. On the other hand, the high factors of barriers which are the reason why respondents
are not implement VM because of lack of knowledge about VM, late initiation of VM
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approach and difficulty of changing the working culture rank as first, second and third
respectively. In contrary, costly to carry out VM, lack of confident to apply VM and lack of
needed information were not the reasons stated by respondents for refusing to implement VM
in their project.
CONCLUSION & RECOMMENDATIONS
The outcome from this study concludes several reasons regarding the awareness of
value management among the construction’s parties. Most of respondent are known what VM
is defined and its functions but they are not currently using it because of lack of knowledge of
VM. However, if the knowledge is expose more in their organization may practically improve
their basic knowledge until major all the VM approach and techniques of handle it in their
future projects. Based on the result from the study, it is recommended that the construction
firms should be more giving an opportunity in applying VM for small project until mega
project. This can benefit all parties in gaining the experience of VM appliances to the project.
Furthermore, the government sector also can conduct all government’s project to use VM in
achieving successful projects. This may benefits government from facing ineffective design,
cost overrun or delays to the project. On top of that, government also can provide more
seminars and conferences to the property developer, consultant, contractors, and education
institutions for exposing and explaining more details towards the style of VM approach in real
situation. This seminar and conference may conduct by inviting the Institute of Value
Management Malaysia and persons who are having longer experiences in VM or also from
international institute of VM to give a talk.
REFERENCES
- Che Mat, M.M. (1999). Value Management: Towards Achieving Better Value for Your
Money. Johor: Professional Centre for Value Management Sdn Bhd.
- CIDB (2010). Achieving Better Value in Construction Industry Through Value Management
& Life Cycle Costing - Enhancing Assets and Cost Optimization. CIDB Malaysia.
Ellis, R.C.T., Wood, D.G., & Keel, D.A. (2005). Value Management practices of leading UK
cost consultants. Construction Management and Economics, 23, 483-493.
- Jaapar, A. (2006). The Application of Value Management in the Malaysian Construction
Industry and Development of Prototype Value Management Guidelines. Universiti Teknologi
MARA, Shah Alam, Selangor.
- Jaapar, A., & Torrance, J.V. (2005). Value Management and its Current Status in Malaysia.
The Malaysian Surveyor, 39 (2): 14-25.
Macedo, M.C., Dobrow, P.V., & O'Rourke, J.J. (1978). Value Management For Construction
New York: A Wiley-Interscience Publication.
- Torrance, J.V., & Jaapar, A. (2005). Value Management and its Current Status in Malaysia.
The Malaysian Surveyor , 14-25.
- Watson, P., Gibson, D., Hanney, N., Rushforth, P., Smith, S., Walsh, C., et al. (2008).
Surveying and Engineering Principles And Practice. Blackwell Publishing Ltd.
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LEADERSHIP IMPORTANCE AND ROLE IN THE CONTEXT OF POLITICAL
MARKETING
Baban Eleonora Gabriela
Faculty of Business and Administration
University of Bucharest
Ph.D Student – The Bucharest Academy of Economic Studies
ABSTRACT
Nowadays, leadership is considered a managerial process that influences the activity
of the organizations, while being a creative and interpersonal activity that involves change.
Leaders are those who create vision, apply effective leadership styles and cause change. With
the ability to constantly adapt to various unforeseen situations that may arise in the work they
perform, thinking positive and being motivated by the achievement of goals, they undertake
actions in order to achieve the desired results.
The main objectives of the study are the following: 1). presenting political marketing
notions and leadership, as well as their main features in a contemporary context 2).
explaining the importance of leadership in the activity of non-profit organizations 3).
analyzing the main strategies used by political leaders in election campaigns, 4). explaining
the role of a party leader in political organizations in Romania. A good leader has an open
attitude, he is optimistic, fair and consistent in making decisions. He plays an important role
in an organization, because in terms of the responsibility vested in the office he can initiate
projects that lead to achieving the organization’s mission. Without doubt, the leadership style
used by the leader influences the performance of organization members, and therefore the
results and effectiveness of all activities. Therefore an important role in the management of
activities is the way in which leaders apply the leadership styles, as well as knowledge of the
system of values that coordinates the entire activity.
mix.
Key words: political marketing, leadership styles, political leader, strategy, marketing
1. INTRODUCTION
“Political marketing exists and gains a certain extent, not only in the U.S. or Western
countries, but also in Central and Eastern Europe, particularly in Romania. In order to carry
out his campaign any politician needs (or at least one who wants to win and is conscious of
the weight of re-conducting a victory) detailed research as well as a deep knowledge of its
electorate, to whom he needs to address using modern means of communication” (Zaiţ,
A.,2004, pp. 267).
This paper presents relevant aspects that define leadership style in the context of
political marketing. Also, the paper describes the notion of political marketing, with its main
features as well as the notion of leadership. It is important to identify the main styles of
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leadership, and how the activity of a party leader is affected by its application. A party leader
is in fact the president of the party who actually represents the party’s image. He issues
provisions, he coordinates the party’s activity and adopts decisions in order to achieve preset
objectives. Also, the leader represents the party when official summons with other parties in
the country or abroad are made, he participates in negotiations, and establishes strategies and
tactics that need to be applied in order to achieve objectives. Literature review identifies the
seven powers of the leader which are also presented in this paper. According to the power
vested in him, the leader manages to perform a role that offers him the responsibility of the
position he holds. The importance of the role that a party leader plays and the main strategies
that he applies in election campaigns are also presented in this paper.
3. POLITICAL MARKETING – CONCEPT AND FEATURES IN THE
CONTEMPORARY CONTEXT
Marketing is the ”process by which companies create value for customers and build
strong customer relationships in order to capture value from customers in return” (Kotler, P.,
2008, pp.5).
Political marketing, along with social marketing, is a component of non-profit
marketing. Marketing tools and strategies are used by non-profit organizations in order to
fulfill the customers’ needs and desires. “Many non-profits may view marketing as a business
activity” (Dolnicar, S.,Lazarevski, K., 2009,pp.277). In this respect, it is considered that
marketing has a central role in the non-profit organization structure. “The application of
marketing techniques to the non-profit environment has created a shift in the mindset from
realizing the advantages of applying marketing concepts and tools in the non-profit arena to
the emphasis of a more systematic approach through the help of strategic planning” (Dolnicar,
S.,Lazarevski, K., 2009,pp.277). Over time, non-profit organizations used marketing
techniques in their activities and this helped them to achieve their targets. “Marketing allows
political parties to address diverse voter concerns and needs through marketing analyses,
planning, implementation and control of political and electoral campaigns” (Thrassou,
A.,Vrontis, D., McDonald, M. H.B., pp.270).
Nowadays, in a world dominate by economical and tehnological changes, political
marketing appears like a growing phenomenon, because political parties, to obtain the succes
in an election, use one or more of its tools and strategies to compete in politics (Less-
Marshment, J., 2009). In this respect “political marketing can be used to help parties persuade
voters to support them or to sell a policy or leader, the general consensus in political
marketing literature is that parties who wish to win an election and gain control of
government need to be market-oriented and change what they offer – or the political product –
to suit market demands” (Lees-Marshment, J.,2009, pp.459).
PRODUCT POLICY IN POLITICAL MARKETING
In classic marketing, the components that define a product are the following: physical
components (refer to the merchandise attributes and the inherent characteristics of the product
and its physicochemical properties: structure, color, shape, size, weight, etc..); non-physical
components (refer to items not directly a material body, namely: price, brand, name, services
provided in connection with the product); communication components (refer to messages
submitted by manufacturers and distributors to current and potential customers regarding
advertising, merchandising, sales promotion, etc..); symbolic components (refer to the product
image, as mental representation of a cognitive, emotional, social and personal nature of the
product in the current and potential customer’s mind). In the context of electoral marketing, it
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is worth mentioning that the product is represented by the candidate who, by his actions, tries
to win over voters in an election campaign. A candidate who enjoys a favorable image and
notoriety among voters may have success in an election campaign. The literature review
identifies several categories of image, namely: the desired image, the image a candidate
would like to have among voters; the broadcast image, the image a candidate sends to the
electorate through an advertising agency; the received image, the image a target group forms
about a candidate; the actual image, also called real image as it reflects the way in which the
candidate is perceived by the electorate. An important component of the image is notoriety,
which is an important factor in the vote decision, and it is expressed as percentage of voters
who have heard of the respective candidate.
PRICE POLICY IN POLITICAL MARKETING
”In classic marketing, price is an important variable of the marketing mix through
which certain strategic objectives of the company can be achieved” (Manole,V., Stoian, M.,
Ion, A.R., 2011, pp.193). ”In the case of electoral marketing, the price of a candidate is the
degree of acceptance of that candidate, which depends on his or her credibility among the
electorate”(Zaharia, R., 2001, pp. 238). Thus, a candidate who makes no promise and fails to
win over the electorate is not voted by any elector, and, on the other hand, if he or she makes
too many promises, he / she will be seen as a demagogue who has no credibility. In the first
case, the price is too high for a poor product, and in the second case, the price is too low.
DISTRIBUTION POLICY IN POLITICAL MARKETING
”Bringing the product to the consumer is achieved through the distribution activity,
(…) and the way in which products are delivered to consumers is what can make the
difference between consumer perceptions regarding quality and value of different products ” (
Manole,V., Stoian, M., Ion, A. R., 2011, pp.211). ”In electoral marketing, the essential part in
distribution policy is the physical presence of the candidate wherever there is something
important going on. The product consisits of the candidate and his ideas, the most persuasive
form of distribution being that of direct contact between product (candidate) and beneficiaries
(voters)”( Zaharia, R., 2001, pp. 245-246).
ADVERTISING POLICY IN POLITICAL MARKETING
The future of a candidate should be known by voters, they must be in the spotlight,
they must have a wide audience, which means that that they need to have a good relationship
with the media. The means of communication include:paper-based communication support
(election campaign newspaper, election campaign letter, brochure, manifesto, poster,
armband, individual messages, prospectuses), reunions, visits, presence in public spaces
(Parlagi, P. A., 2004, pp. 58-63, 75).
According to the above-mentioned, one can conclude that marketing plays an
important role on the political scene, and the objectives of a party can be achieved only by
implementing efficient strategies that can lead to obtaining electoral success and satisfying the
voters’ desires. Moreover, it can be mentioned that a party exists only to satisfy as correctly
and ethically possible the desires of the voters. Through marketing campaigns, the
candidate/the party is brought into notice, manages to get closer to the public, creating the
image he/she wants in front of the electorate. Moreover, political marketing must come to
support the candidate and the message he/she wants to send to his public by implementing
strategic action directions.
The concept of leadership is a propelling factor for marketing channels. Marketing
channels, in addition to relationship marketing continues to influence the activity of any
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organisation. Marketing channel should function as a system in order to create an efficient
cooperation and an adequate distribution of tasks among the employees. A channel member
has the responsibility to initiate actions to influence the behaviour of other channel members.
In this way they can control different parts of marketing channel activities. If the channel
leader applies the adequate channel leadership he could obtain the expected success. He can
perform in his activity and, also, can establish favorable relationships with channel members.
A good leader should act with awareness and should be able to listen to others, and
empathize with them. It is important to notice the relevance of trust in a leader and in an
organisation. In the literature review trust is seen as “the willingness of a party to be
vulnerable to the actions of another party based on the expectation that the other will perform
a particular action important to the trustor, irrespective of the ability to monitor or control that
other party. This definition of trust is applicable to a relationship with another identifiable
party who is perceived to act and react with volition toward the trustor” (Joseph, E. E.,
Winston, B. E., 2005, pp.6-7). Those leaders, who embrace the communications practices and
act with integrity, could guide the employees to follow them, and in this way the benefic
results are inevitable.
In Joseph and Winston opinion “the relationship between leader behavior and
organizational behavior is well established as well as the relationship between leader behavior
and the values oforganizations” (Joseph, E. E., Winston, B. E., 2005, pp.8). They also
mention that trust in the organisation should include the responsibility, the clarity of tasks, the
favorable interpersonal relationships, the relevant action directions, the integrity and
honouring behaviour, the efficient communication. It is important that in an organisation the
leader should assume his position by acting with responsibility of awareness by how he/she
distributes resources in the scope of achieving the mission of the organisation.
In conclusion, it can be said that “the stated purpose of political marketing is the
knowledge of the needs, concerns, attitudes and opinions of a country’s population or of a
well defined geographical area, so that > is consistent with the
concerns and expectations of the electorate ( ...) “ (Zaiţ, A., 2004, pp. 267).
4. LEADERSHIP IMPORTANCE IN THE ACTIVITY OF POLITICAL
PARTIES
“Leadership in non-profit organizations relate to managing the delicate balance
between efficiency, effectiveness, mission and passion that drive non-profit organizations”
(McMurray, A.J., Pirola-Merlo, A., Sarros, J.C., Islam, M.M., 2010, pp.437).
It is important to distinguish between transformational leadership and transactional
leadership. The transformational leader practises an efficient leading style, leads his team in
the spirit of good practices, thus managing to obtain the expected performances. His
subordinates are constantly facing challenges, being necessary to continuously adapt to
changes from both the external and the internal environment. Being treated accordingly, with
trust and appreciation from the transformational leader, they outgrow themselves and obtain
functional results. Transformational leaders are the supporters of a leading style practised with
responsibility and charisma, being lead by great ideals. Transactional leadership refers to the
negotiation process between the leader and his subordinates, by which one reaches a reward
offered in exchange of the accomplishment of the established tasks. Literature review presents
two definitions of these two notions, as follows: 1).”transformational leadership as the process
of pursuing collective goals through the mutual tapping of leaders’ and followers’ motive
bases towards the achievement of the intended change; 2). transactional leadership is a
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process of exchanging one thing for another among leaders and followers” ((McMurray, A.J.,
Pirola-Merlo, A., Sarros, J.C., Islam, M.M., 2010, pp.439).
A political leader that takes responsibility for his position must take into account the
leading process, as it is very important how he interacts in terms of the authority he disposes
with respect to the members of the organization. Implementing managerial functions
(prevision, organization, coordination, training and control) at organizational level allows a
harmonious functioning of all the activities developed by all the members of the organization.
The leading process implies the application of specific methods by a good leader which allow
the coordination of the subordinates’ activities with the purpose of achieving the tasks in
superior conditions.
In literature, seven powers of the leader are identified, as follows: coercive power –
that confers the political leader the authority to sanction all those who disobey the rules
established at organizational level; relational power – a leader can capitalize the favourable
relations that he established throughout time with certain political leaders; the power of
competence – a political leader can prove his intelligence in certain fields through his innate
or acquired competences; informational power – if a political leader has complex information
in certain situations, his decisional power is obvious, thus drawing the esteem and
appreciation of all the member of the organization; the power of legitimacy – the political
leader is inaugurated according to the regulations in force; reference power – refers to the
qualities of the political leader and his ability to be brought into notice and appreciated by
those around him; the power of success – if a political leader uses the power he disposes of
correctly, he can but obtain very good results, being thus content with his activity for having
managed to successfully achieve the objectives of the organization (Parlagi, P.A., 2004,
pp.19).
Literature review presents four leadership styles, meaning: the authoritarian style -
emphasizes the leader's ability to evoke the objectives and trace the tasks leading to achieving
the objectives. He informs his subordinates what are his expectations regarding their work and
what results he expects to obtain; the condescending style - refers to the leader's ability to
focus on human relationships and to understand the personal problems of subordinates
providing a positive work environment; the results-oriented style - refers to the leader's ability
to act effectively in order to achieve objectives and to motivate and support subordinates
throughout the work in order to achieve the expected results; the participative style - refers to
how leaders take into account the ideas of the subordinates involved in the decision making
process. Along with members of the organization leaders establish the tasks that need to be
performed. Subordinates will make necessary efforts to fulfil tasks, because they were
themselves involved in establishing them (Parlagi, P.A., 2004).
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Figure no.1: Leadership styles
Source: Author
5. THE ROLE OF THE POLITICAL LEADER WITHIN POLITICAL
ORGANIZATIONS IN ROMANIA AND EFFECTIVE STRATEGIES USED
IN ELECTION CAMPAIGNS
A political leader must have the ability and the necessary training to meet the needs of
both the party he is a member of and the electorate. His activity must be governed by
effectiveness and competence, as a political leader must prove to be correct in making
decisions for the organization he leads. Fierce competition on the political scene is a key
element a political leader must take into account when he establishes his strategic objectives
and, moreover, it is necessary for him to act promptly, to offer his party colleagues the safety
and the confidence that they are united when facing challenges on the political scene. A
political leader should not be elected for his physical strength but for the intelligence, will,
and empathy he shows when establishing collaboration relations with his party colleagues.
“From the perspective of political management, the leader is considered to be the one who
leads the activity of an organization, with the purpose of achieving a social objective, and who
has the authority and ability to influence the members of the organization in order to act for
achieving the respective objective” (Parlagi, P.A., 2004, pp.13). The legitimate power a
political leader is invested, as well the competence, the control of the relations between the
organization and the political environment and the compliance of organizational rules and
norms are essential elements that can be used by him with the purpose of developing an
efficient activity at the level of political organization (Parlagi, P.A., 2004, pp. 14).
The role of the political leader is to meet the needs of the organization, to adapt to
various situations and to favorably accept the dares that occur throughout his activity.
Moreover, a political leader must engage in making decisions for all the members of the
organization that have the necessary competence to make prompt decisions. His role must be
that of a mediator of interpersonal conflicts, to ensure the good functioning of all the
departments of the organization by applying efficient strategies, to offer immediate feedback
to the members of the organization and to stimulate their interest to act for achieving the
objectives of the organization. The attitude of the political leader influences the good
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functioning of the organization’s activity. Thus, if a political leader is optimistic, friendly,
flexible, cooperative, then it is very easy for him to establish efficient interpersonal relations
with all the members of the organization. In contrast, if he starts with the premise that all
members of the organization are uncooperative and that they consequently need to be
constantly controlled, then he can only draw their hatefulness and consequently the daily
activities can be compromised.
Literature review presents, in the case of electoral marketing, different marketing
strategies according to the existence of the eight states of demand (Zaharia, R., pp. 194- 196):
1. negative demand – voters react negatively when the candidate’s name is brought into
discussion. Being firm in the voting decision, and emotionally involved against him, they
choose not to give him the vote; 2. absence of demand - the indifference of voters towards a
certain candidate is highlighted in this situation. The candidate is either not known or he is
seen as not being involved enough in the political activity, and thus he is not relevant to
voters; 3. latent demand - refers to the situation in which voters' expectations were not
fulfilled; voters await the appearance and involvement in politics of a skilled candidate that
meets the expectations of voters who are undecided or dissatisfied with the presence of other
candidates; 4. declining demand - occurs when the demand for a product decreases. In
electoral context, it occurs when there are no political innovations left, and therefore the role
of politicians in this situation is to come up with adequate innovations and strategies in order
to achieve electoral success, and if not, an honourable withdrawal is the best choice; 5.
fluctuating demand - in the case of electoral marketing, this situation is found only in theory,
and it can rarely be implemented because it requires significant resources, as the categories of
fluctuating voters constantly require an approach, not only during election campaigns; 6. full
demand - when there is a number of voters large enough to meet the objectives of political
organizations. In this benefic situation, the candidate must strengthen the relations with the
voters he drew on his side; 7. excessive demand - a rare case in politics. This situation occurs
when an organization decides to limit the demand, given that it cannot fully satisfy
conditions; 8. undesirable demand - in this case a candidate can refuse the support of a
specific consumer segment, with a poor image, in order for that image not to reflect on him.
A good party leader, who applies effective strategies, can achieve success in an election
campaign. Therefore it is important the way in which he chooses a particular strategy through
which he manages to position himself in the minds of the electorate, as well as in that of his
opponents.
Literature review presents the following typology of electoral marketing strategies
(Zaharia, R., pp. 203- 208), namely: 1). strategy to promote ideas – the candidate who chooses
this strategy promotes ideas, has a positive attitude or defends a case without jeopardizing his
opponents; strategy to maximize score – by applying this strategy, the candidate tries to
convince not only those who are willing to vote for him, but also acts in the discussion with
various political parties in order to negotiate appropriate alliances that can ensure success;
winning election strategy – this strategy allows the candidate to rank his electoral activity by
using all available resources, namely financial , material and human, and thus facilitating the
creation of a competitive framework highly specific to the electoral campaign; 2).
undifferentiated strategy – this strategy favours candidates who enjoy a positive image and a
good reputation among voters; applying it seeks to attract the majority of voters by bringing
forth political topics of general interest and by setting forth appropriate solutions;
differentiated strategy – it is an attack strategy, it implies high costs, it addresses various
segments of voters by bringing forth general issues and finding optimal solutions. It aims to
increase the candidate's credibility among each category of voters; focused strategy –
according to this strategy the attention is focused on a segment or on a small number of
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voters, being also used to attract the vote of undecided voters; open strategy – by using this
strategy, the candidate adjusts his program and the conduct requirements of the electorate;
closed strategy – such a strategy is not recommended, being the opposite of the open strategy
(through this strategy the candidate addresses issues and provides solutions that he believes
are desirable; 4). positive strategy – takes into account the constant use of marketing tools by
those candidates who are not so popular; negative strategy – specific to those candidates who
want to increase their notoriety at all costs, while being aggressive in their process for
success, which can sometimes lead to a decrease in votes or even to high absenteeism; passive
strategy – can be used by candidates who are very sure of their position and want to avoid
direct confrontation that could adversely affect their image; 5). austerity strategy – is used by
candidates who don’t have sufficient financial resources for the smooth running of an election
campaign; balance strategy – this strategy involves the existence of sufficient financial
resources that are allocated appropriately during the election campaign; strategy of
overcoming the opponent – candidates who apply this strategy use available financial
resources to demoralize their opponents who may not have these resources, from this respect
thus being superior.
CONCLUSION
”Leadership is as much an art as it is a science. The spectrum of effective leadership
styles is as wide as that of painting or music” (Landsberg, M., 2005,pp. 149). In order to
obtain the desired performance, a good leader must undertake a leadership style that matches
the activity he performs. If the leadership style practiced is not appropriate, the members of
the organization may be discontent, and this dissatisfaction can reflect in the results they
obtain. Naturally, practicing a certain leadership style is consistent with the leader’s
personality. Members of the organization must be aware of this and they should accept the
fact that changing a leadership style can only be made if the leader's personality changes. A
good leader who applies effective strategies and practices a leadership style that meets the
requirements of the organization’s members manages to achieve success.
If he establishes from the beginning the tasks of each member of the organization, if
he meets the organization needs, if he has a good intuition and takes the necessary steps to
achieve goals, if he stimulates his employees by giving them confidence and support then the
performance set forth will soon appear. It is very important that, from the beginning of the
activity, the leader communicates to the members of the organization the vision and the main
objectives to be fulfilled. Landsberg believes that in order to highlight his power an effective
leader uses the following techniques:”obtaining critical resources and personal involvement in
decisions involving their use (…), obtaining the assent of an important formal authority (…),
building alliances with others or with influential groups – both from inside and outside the
organization or team (…), increasing the extent to which others depend on him or the extent
to which they are indebted (…), refining personal skills, such as eloquence, sensitivity,
strength and technical competence” (Landsberg, M., 2005, pp. 132-133). The leader is the one
who urges the members of the team he leads to take initiative and risks, of course, in order to
solve the tasks set forth at the beginning of the activity.
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27 No. 2, 2009, pp. 268-292.
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An empirical examination of two competing models, Personnel Review, Vol. 36 No. 5,
2007, pp. 661-683, Emerald Group Publishing Limited 0048-3486.
17.Vasilescu A., (2004), Democraţia şi mass-media în „Sfera politicii”, nr. 112, anul XII.
18.Zaharia, R. (2001), Marketing social –politic, Ed. Uranus, Bucureşti.
19.Zaiţ, A.,2004, Marketingul serviciilor, Ed. Sedcom Libris, Iaşi.
20. http://www.sferapoliticii.ro/sfera/120-121-122/art12-ciobanu.html
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THE INTERPRETATION OF EARLY PHILLIPS CURVE IN TERMS
OF MODERN ECONOMY OF UKRAINE
Viktoriia Baidala
Kharkov National University of Internal Affairs. Sumy Branch.
Vira Butenko
Kharkov National University of Internal Affairs. Sumy Branch.
ABSTRACT
The article examines the relation of “wage - unemployment” for Ukraine over the
period between 2000 and 2010. The simulation results revealed the presence of inverse relation
between the growth of nominal wage and unemployment. The conclusions are made on the
prospects of applying Phillips curve in macroeconomic regulation of transitive economy of
Ukraine.
Key words: unemployment, Phillips curve, the labour market, rate of inflation.
1. INTRODUCTION
The labour market is one of the most important elements of social and economic life
of society. The transformation of the economic system in Ukraine has led to significant changes
in the structure of the labour market. In addition to specific problems caused by the
transformation processes, we should not forget that unemployment as a phenomenon is inherent
to every even the most developed country. Ensuring a high level of employment is one of the
main objectives of macroeconomic policy of the state. Therefore, the labour market requires
competent regulation to increase its efficiency. For a long period of time it has been
traditionally believed that the high employment rate is associated with acceleration of inflation
rate. This relation is known as Phillips curve. Regulating policies of the labour market in many
developed countries including the U.S.A. were based on the conclusion of Phillips’ study. The
question is whether it is reasonable to use this approach in the Ukrainian practice. The
examination of the possibility of application the Phillips curve in the Ukrainian macroeconomic
policy is covered in this article.
To achieve the assigned goals the following objectives are formulated: to analyze
trends in nominal wage, the number of unemployed as defined by ILO, the rate of inflation
over the period between 2000 and 2010, to establish the presence of association between
unemployment and rate of inflation.
2. LITERATURE REVIEW
The relation between wage and unemployment was determined by A. Phillips in his
article “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in
the United Kingdom, 1861-1957” [1]. Later, in 1960, P. Samuelson and R. Solow continued
study of this problem and linked rate of unemployment with rate of inflation, making it possible
to apply the Phillips curve in macroeconomic policies of many developed countries [2].
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Research of the labour market was also being accomplished by Ukrainian scientists S.I.
Bandura, D.P. Bohynya, O. A. Buhutskyy, O.H. Bulavko, P. I. Haydutskyy, M.K. Horlatyy, I.I.
Dzhus, M.I. Dolishniy, V.V. Pischanska, I.V. Prokopa, P.T. Sabluk, K.I. Yakub and others.
3. THEORETICAL BACKGROUND
Statistical reporting data on the dynamics of wage, rate of unemployment and rate of
inflation in Ukraine for the period between 2000 and 2010 were used for the study [3].
To construct the model we used data on the number of unemployed, calculated
according to International Labour Organization methodology, since this approach provides the
possibility of accomplishing international comparisons for the evaluation of labour market
situation and analysis of implementation of international ILO and the UN conventions ratified
by Ukraine in the area of social and labour relations.
The statistical and commercial information data are usually given in discrete form, the
specific value of nominal wage and the number of unemployed are shown by points of the
plane. When building a continuous diagram of relation of the nominal wage on the number of
unemployed, the alignment (approximation) is carried out, but statistical sparseness of the
points is saved. This is the deviation of these points from aligned curve that determines the
value of approximation reliability R 2 . Evaluation of R is used as a measure of the accuracy of
approximation of the actual (empirical) and theoretical values of the effective indication. If
the value of R is insignificant (typically R 0,3), then it can be asserted that not all the most
important factors of interaction are taken into account, or the inappropriate form of the
equation is selected. In this case, the equation type should be revised 4.
4. PAPER CONTENT
To achieve the object of the article, we have analyzed the dynamics in the number of
unemployed, rate of inflation and the value of nominal wage (Table 1).
Table 1
Major indicators of labour market situation in Ukraine
Years
Nominal wage,
UAH
Number of
unemployed,
thousand people
Rate of
unemployment, %
Rate of
inflation,
%
2000 230,13 2630 12,4 28,2
2005 806,19 1595,2 7,8 13,5
2006 1041,47 1513,7 7,4 9,1
2007 1351,12 1416,7 6,9 12,8
2008 1806,33 1424 6,9 25,2
2009 1905,87 1956,6 9,6 15,9
2010 2239,18 1784,2 8,8 9,4
As seen from Table 1, the nominal wage for the period under review, was increasing at a
pace from 1,06 to 1,37. Meanwhile the level of unemployment varied according to a year,
reaching its lowest level in 2006-2007 (6,9%), and a maximum level in 2000 (12,4%).
Regarding the rate of inflation, the maximum value of this index was observed in 2000 (28,2%),
and the minimum, that is 9,1%, in 2006. Charts as shown in Figure 1, 2 and 3 display
graphically the dynamics of these indicators.
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2500
Nominal wage, UAH
2000
1500
1000
500
Nominal
wage,UAH
0
2000 2005 2006 2007 2008 2009 2010
Years
Figure 1. Dynamics of nominal wage in Ukraine
Number of unemployed, thousand
people
3000
2500
2000
1500
1000
500
0
2000 2005 2006 2007 2008 2009 2010
Number of
unemployed,
thousand
people
Years
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Figure 2. Dynamics of number of unemployed in Ukraine
30
Rate of inflation,%
25
20
15
10
5
Rate of
inflation,%
0
2000 2005 2006 2007 2008 2009 2010
Years
Figure3. Dynamics of rate of inflation in Ukraine
Following the described methodology, we have studied the interaction of the value of
nominal wage and unemployment in Ukraine over the period between 2000 and 2010. The
search of relation was being conducted by constructing a trend line when making the
approximation. The received equation of the trend is y = 10212е -0,0013x . The value of
approximation reliability is R 2 = 0,49, which indicates that 49% of the variation of the
dependent variable can be explained by factors considered in the model. The received results of
the approximations show that the wage decreases with increasing numbers of unemployed.
Under the statistical data we have constructed a curve that reflects the inverse relation between
unemployment index and wage rate in Ukraine for the period of 2000-2010. General view of the
obtained curve completely satisfies early (empirical) Phillips curve known the economic theory
(Figure 4).
2500
Nominal wage, UAH
2000
1500
1000
500
Fact data
Trend line
0
0 500 1000 1500 2000 2500 3000
Number of unemployed,thousand people
y = 10212e -0,0013x
R 2 = 0,4885
Figure 4. Curve of dependency between nominal wage and number of unemployed in
Ukraine.
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Search for the relation between growth rate of nominal wages and rate of
unemployment gives a similar inverse relation, which is given by the equation y = 2,3404е -
0,0795x , and the value of approximation reliability is R 2 =0,79 (Figure 5).
Growth rate of nominal
wage, %
1,6
1,4
1,2
1
0,8
0,6
0,4
0,2
0
0 5 10 15
Rate of unemployment ,%
Fact data
Trend line
y = 2,3404e -0,0795x
R 2 = 0,7911
Figure 5. Curve of dependency between growth rate of nominal wage and rate of
unemployment in Ukraine.
Thus, the simulation using the original data published in statistical reporting, give
sufficiently reliable results as to the presence of inverse relation between the growth rate of
nominal wage and unemployment of the population.
CONCLUSIONS AND IMPLICATIONS
The above given calculations have shown that in the studied period in Ukraine relation
between the growth rate of wage and unemployment, known as the Phillips curve is quite
stable. So the macroeconomic policies aimed at reducing unemployment rate will lead to
increasing rates of inflation and, conversely, the inertial inflation rate can be reduced due to
rising rate of unemployment.
REFERENCES
1. Phillips, The relation between unemployment and the rate of change of money wage rates
in the United Kingdom, 1861-1957 (Economic, New Series. – Vol. 25- №100 (Nov., 1958)),
283-299.
2. Samuelson, Paul A., and Robert M. Solow, Analytical Aspects of Anti-inflation Policy
(American Economic Review 50, no. 2, 1960), 177–194
3. Україна в цифрах 2010 р. – статистичний збірник. – 2011. http:
ukrstat.gov.ua/druk/katalog/kat_u/publ1_u.htm
4. Романюк О.П., Кілієвич О.І., Юрчишин В.В., Мертенс О.В. Сучасна економічна
теорія і стабілізаційні моделі у відкритому суспільстві (К.Вид-во УАДУ при
Президентові України, 1998), 19
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THE ROLE OF THE CLIENT IN ACHIEVING EFFECTIVENESS AND
EFFICIENCY IN CONSTRUCTION CONTRACT IN NIGERIA
Mohammed Jamilu Bala Maiauduga;
School of Housing, Building and Planning, Universiti Sains Malaysia
Abdelnaser Omran;
School of Housing, Building and Planning, Universiti Sains Malaysia
ABSTRACT
The construction client develops a construction project from concept to
commissioning, ensuring that the needs of the owners, customers and the community are met.
The client is responsible for the holistic approach that governs the creation of every building
and structure from concept to realisation, through usage, alteration and finally, demolition.
The aim of this study is to evaluate the degree of efficiency and effectiveness of the roles and
actions of the client in managing the construction contracts. Questionnaire survey was used
to identify the factors affecting the procurement process and the effects as it relates to the
roles of the client; success factors in achieving effectiveness and efficiency in the contracts
where amongst 100 questionnaires were distributed only 67 returned and analyzed. As
results, corruption in governance and interference by politicians has been identified as the
major factors militating against the success of any project. This study has also proposed some
strategies to improve the effective and efficient management future contracts.
Keywords: Client; Procurement; Effectiveness and Efficiency and Construction
Contract
1. INTRODUCTION
The construction client has a key role in the sustainable development of the built
Environment. The role requires a high level of competence. The construction client develops a
construction project from concept to commissioning, ensuring that the needs of the owners,
customers and the community are met. The client is responsible for the holistic approach that
governs the creation of every building and structure (house, road, bridge etc.), from concept to
realisation, through usage, alteration and finally, demolition. This approach also involves the
ability to adapt to the demands of the community, owners, businesses and users, including
issues relating to technical systems and cooperation with specialists. The holistic approach
makes it possible, right from the initial stages in the process, to create the appropriate
conditions for other players in the construction process, and during the building’s period of
use and long-term management. Construction as a whole has become increasingly complex,
thus, many owners have come to realize that they need skilled professionals to assist in
planning, executing, monitoring, coordinating, controlling and advising the clients with
respect to decisions throughout the entire process. There is a serious public outcry about
numerous abandoned public projects across the country despite the huge financial
commitment. Most of these projects are within the construction industry. There are various
factors that were attributed to this damaging scenario with project analysis and management
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being the most notable. Other factors include change in price of building materials and
shortage of local manpower required to plan, manage and execute the projects (Okwandu and
Owuala, 2005). The Bauchi state Government has embarked on some many developmental
projects most of which are within the construction industry. Therefore, it engages a large
number of consultants, contractors and other related personnel. Due to the magnitude of the
projects going on concurrently, the Government was necessitated to establish the office of
project monitoring and that of budget monitoring price intelligent and public procurement
unit. It is argued that the government needs to define more appropriate performance criteria
for measuring project managers’ performance and encourage their professional development.
These can be used to engender a more appropriate set of management behaviour that will
leads to improved project outcome. Project management competency represent the most
significant as it is people who deliver projects and not process and system (Cooke-Davies
2001). Indeed, effective project management can be seen to be dependent upon the project
managers’ competency and authority (Jaselskis and Ashley, 1991). Accordingly, in recent
years there has been growing emphasis within research and practice on the need to improve
the performance of contractor’s project managers in order to meet the increasing demands
being placed on the industry by its clients. Most contracting organisations are beginning to
focus attention on proactively managing the performance of their key managers and
professional staff in order that they work and behave in a way which supports the desired
growth and direction of the organisation (Moore et al., 2003).
2. PROBLEM STATEMENT
There are lots of failed projects in Bauchi State because of the persistent interruption
of the entire contract process by the Government or its agents. Interests and counter interest
affects the consultants’ judgment when it comes to contractors’ selection and indeed the
whole award process which leads to poor execution and sometimes the projects are
abandoned. Corruption in Nigeria’s public procurement cut across every state of the
federation, and has enormous negative consequences on the delivery of service that is
supposed to be beneficial to the public. Corruption in Nigeria’s public procurement is a grand
jamboree that involves politicians, government officials and private sector conspiring to
siphon money off the government (Rowland, 2011).
3. RESEARCH METHODOLOGY
Hancock and Algozzine (2006) classified case study design as intrinsic, instrumental
or collective. They further stated that intrinsic focuses on a particular individual, event,
situation or activity while instrumental design is used to gain better understanding of a theory
or problem; collective design is used to understand a theory or problem by combining
information from smaller cases. This study adopts an intrinsic case study which focuses on
Bauchi state government and in order to achieve the aim and objectives, related literatures
were reviewed and a questionnaire was designed to get the views of the targeted respondents.
A total of 100 questionnaires were distributed and 67 responded. The respondents are all
professionals within the industry which includes project managers; quantity surveyors;
architects and engineers. Using the likert scale, 1= strongly disagree, 2= Disagree; 3= neither
agree nor disagree; 4= Agree and 5= strongly agree, the respondents were asked to rank the
factors militating against the Procurement process and its effects; achieving effectiveness and
efficiency and the strategies to be adopted in future contracts.
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4. DATA ANALYSIS AND FINDINGS
The empirical data generated was analysed using frequency and descriptive analysis.
Following (Majid and McCaffer, 1998); average index method was used to identify the most
important factors in order to achieve the aim and objectives of the study. Average index will
present the ranking of factors based on how they were ranked by the respondents.
4.1 FACTORS MILITATING AGAINST THE PROCUREMENT PROCESS
This section was divided into political and technical factors. The empirical results
show that corruption in governance and interference by politicians as the major political
factors. However, professional negligence, poor planning and implementation and lack of
respect for laws as the highest ranked technical factors.
4.2 EFFECTS OF THE ABOVE FACTORS ON PROJECT DELIVERY
Cost and time over run were ranked as the most consequences on the project delivery which
may lead to poor quality projects. This shows the significance of the action taken by the
client.
4.3 FACTORS IN ACHIEVING EFFECTIVENESS AND EFFICIENCY
Defined project objectives, adopting best procurement method, using experience work
force, adequate site supervision, selecting criteria for consultants and contractors, making
realistic estimate and frequent progress meeting were the most ranked factors identified by the
respondents in achieving effectiveness and efficiency in construction contract. This indicates
that for any project to be successful, elements of the above factors most be strictly adhered to.
4.4 STRATEGIES IN IMPROVING EFFECTIVE MANAGEMENT OF
FUTURE CONTRACTS
One of the objectives of this study is to propose strategies that will assist in improving
the the effective and efficient management of future contract. The findings revealed that, the
respondents considered awarding contracts based on competency, constituting a project team
with the adequate knowledge in the basic principles of procurement, strict adherence to the
public procurement act and avoiding political consideration to be the major strategies.
5. CONCLUSION AND RECOMMENDATIONS
This study has shown that the role played by the client as it relates to project
procurement and execution is tantamount to the success of the project. Corruption in
governance and interference by politicians has been identified as the major factors militating
against the success of any project. The effect which has greater consequences that may lead to
cost and time overrun and in some cases poor quality project as indicated. The study goes
beyond identifying the above factors but also identifies steps to be taken in order to achieve
effectiveness and efficiency in any given contract. These includes making a clear and defined
project objectives; adopting the best procurement method in relation to the type and
complexity of the project; using experienced work force; adequate site supervision; making a
realistic estimate and selecting criteria for both consultants and contractors. However, based
on the findings the research would recommend avoiding political consideration; awarding
contracts based on competency; constituting a project management team with adequate
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knowledge of procurement act; strict adherence to public procurement act and engaging the
services of consultants at early stage as strategies that would improve the effective and
efficient management of future projects. A further research that would cover the entire
country should be considered so as a wider view of the problems with the aim of providing a
lasting solution.
REFERENCES
1. Cooke-Davies, T.J. (2001). The "real" success factors in projects. PMI Europe,
London: Marlow Events.
2. Hancock, D.R., & Algozzine, B. (2006). Doing case study research: a practical guide
for beginning researchers, New York: Teachers College Press.
3. Jaselskis, E.J., and Ashley, D.B. (1991). Optimal allocation of project management
resources for achieving success. Journal of Construction Engineering and
Management, 117(2), 225-230.
4. Majid M.Z., and McCaffer, R. (1998). Factors of Non-Excusable Delays that Influence
Contractor’s Performance, Journal of Management in Engineering, 14 (3):42-49.
5. - Rowland, A. (2011). Corruption in Nigeria’s public procurement-“chop I chop”
www.rowland-adewumi.com
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ALBANIAN HEALTH CARE REFORM,
A NECESSITY AND WAY OF NO RETURN.
Majlinda Bello
University “Fan S. Noli”, Korce, Albania
Aida Gabeta
University “Fan S. Noli”, Korce, Albania
Eva Dhimitri
University “Fan S. Noli”, Korce, Albania
Elda Dollija
University “Fan S. Noli”, Korce, Albania
ABSTRACT
Till 1990, Albania was a totalitarian state, the economy destroyed, with quality health
care services, not rational and health institutions destroyed. This situation demanded a new
health system. Reforms need to intervene in the organization, management, structures, and
financial resources up to conceptions of health services. Creating Health Care Insurance
Institute (HCII) by law No. 7870 dated 13.10.1994 constitute the transition to a system
"Bismarck" and the beginning of reforms in this sector. So health care was seen as a public
good and it was the duty of government to care for his delivery to all citizens.
After successfully reforming the primary health care service and the privatization of
some activities, current health care reforms aimed at its expansion throughout the system
(including hospital services), changing the funding system to adapt a market economy and
final result is to increase quality of service for citizens.
The aim of this paper is to show how is implementing the reform in hospital service,
the difficulties and challenges for the future. This analyze is based in good experiences in
some countries of the Europe and the survey that we have prepared in the hospital service.
Key words: reform, health care system, primary care, hospital services
1. HEALTH INSURANCE
Health insurance is one of the most popular and the most successful model in the
world, but with effective cost. During the years “60 -70” of 20 th –century are determined the
best systems for health care to the people, as the focus of numerous discussions. Health Care
Financing is done either through general taxation or contributions from health insurance
funds.
There are three prevailing systems of financing health care:
Firstly is from the general budget revenues derived from taxation of the population
(often referred to as the Beveridge model) which is in the center of the payment of taxes in
general, without having a transparency at precise percentage that goes to health and health
care imposing responsibility only to the state.
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Secondly is based on compulsory insurance through the payment of social
contributions (Bismarck model) having in centre the principle of solidarity and transparency (
pay all in transparent way on a certain amount to benefit the patients).
Thirdly the financing can be also and private.
Competitive models are the two first but with significantly an greater advantage.
Bismarck model is seen as the best. The first difference between them relates to the level of
transparency where Bismarck model is considered to have a higher level of transparency. The
second major difference between them is the cost-effectiveness. Bismarck systems are very
cost-effective due to pressure payers of contributions to obtain an effective service with the
best cost, as are those who pay directly.
Financing the organization of health care in EU Member States is based on national
politics and socio-economic traditions. Although EU countries have developed their funding
mechanisms, historical developments have resulted in systems that have significant
differences from each other but also have much in common.
This way of financing the EU countries is grouped into two main systems: Bismarck
and Beveridge.
Typical country that has a health care system of the type Bismarck is Germany which
has 150 years using this system. Chancellor Otto von Bismarck developed a system of social
security and health in 1883. This system relies on these key principles: insured persons are
employees, the health system is financed by insurance employees who pay insurance based on
their salaries.
While the typical country that applies the Beveridge system is Great Britain. This
system is named from William Henry Beveridge, who in 1942 before the British Parliament
proposed system of financing health care. The British system is based on these main
principles: It is a system that covers the whole population, principally financed by tax
revenues of the state budget. The entire system is governed and controlled by the government.
Other European Countries use one of up mentioned system, but not in their pure form, often a
mix between the two systems.
While in the U.S. health care insurances are mainly private. Private institutions and
private doctors provide health services. Health insurance in its the majority is private, so it is
himself the person who pays for health care insurance. Federal government for persons over
65 years old and those with disabilities provides a lower level of security (some basic health
services) based on Medicare program. For poor households, each state has its politics to
provide some health insurance. So although it is thought that the insurance model provides a
very high quality level of medical services which does not guarantee health care, leaving a
large number of uninsured individuals. Current reform of health care ( Obama Reform) is
thought that would solve exactly this problem, health insurance coverage all Americans.
WHERE DOES STAND ALBANIA IN THIS DESCRIBER PICTURE?
Changes of deep political, economical and social change occurring in Albania after
1990 should definitely included also and health system. The health care system before the
transition in Albania was characterized by a strong control of central government in
all aspects of the system that can not be operated with the conditions of market
economy which Albania was building.
Beveradge system that was implemented in Albania until 1994 resulted not good and
not effective. After 1994 were hold the first steps towards a Bismarck system. The first step
in the transition to this system was the creation of ISKSH with decision of the Council
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of Ministers no. 22 dated 20.12.1994 "On the Institute of Health Care Insurance" and no.613,
dated 20.12.1994 "On approval of the Insurance Statute Health care " pursuant to law No.
7870 dated 1310.1994. He was a state institution, an independent, non-budget and nonprofit.
Its mission would be that with health insurance contributions that would cover the
costs of health services of doctors and medicines for outpatient treatment. The amount of
contribution was 3.4% for employees of which 1.7% has paid the employer and
1.7% was paid the employee.
2. ISKSH - REVENUES AND EXPENDITURES (2003-2009)
According to its statute, ISKSH provides funding sources from: contributions of the
insured state budget, donations and other income. Given that incomes from obligatory and
voluntary contributions which are too low to face the functions that performs ISKSH, it is
financed from State Budget to fill this gap.
Although by 2005 the growth rate contributions has been relatively good,
averaging 15%, year 2007 marked significant improvement in revenue growth of ISKSH,
about 24% compared to 2006. Incremental rates continued in other years.
In 2010-n, the health insurance revenues were 4 times higher than in 2000 and 2 times
higher than in 2005.
Revenues in years (million lek)
Year 2003 2004 2005 2006 2007 2008 2009
Budget of 2100 2350 3250 2805 5545 5937 17544
state
Kontribution 2349 2680 3234 3365 4155 4966 5377
of active
population
Other 198 152 72 201 272 80 90
Total 6650 7185 8562 8377 11979 12991 25020
ISKSH Source
Among the main factors contributing to the improvement of the indicators were
reducing the informality (work in black) and increasing wages. However, income from
contributions are still too low to enable a self-financing of ISKSH. So the system is
contributory only in name because most of the costs are covered by the state budget. Low rate
of health insurance contributions is a major concern in this regard.
In low income provides from ISKSH contributions HII are affect by their way of
paying. All employees and self-employed pay social insurance and health contributions, but
the rate of social insurance contribution is several times higher than that of health
insurance. Individuals do not create the opportunity to pay one or the other, they are paid both
at the same time. Due to high rates of social security contributions, individuals often avoid it
by avoiding at the same time the contribution for health insurance, although this contribution
is in a low mass.
Significant impact on lower income ISKSH under the counter also play role to the
payments that make individuals and demonstrating their faith versus low health system. If
health costs are similar to those insured and not insured due to payments under the counter,
this means that the insurance scheme does not protect the participants in the scheme of not
meeting the participants of these payments and use them effectively and definitely will
bring increased quality of service for all citizens.
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Other factors that play a role in low collection of contributions rates are lacks of
informing and education of contributors, the high rates of poverty, work in black, lack of
logistical means to identify correctly all contributors etc..
Regarding costs of ISKSH we can say that in addition to those investments, all other
expenses have gone through a significant increase from 2003 in 2009. Thus, an increase of
116% of expenses for reimbursement have undergone the medicaments as a result added to
the list of reimbursable medicaments and liquidation of pharmaceutical subjects under the
respective contracts. Also the costs incurred in primary care are increased, where the highest
rate of growth we see in 2006-2007 of 178.3%. Years 2003-2009 also are accompanied by an
increase in administrative costs and costs for hospital services with the peak in 2009 with
a increase of 162.7%
Revenues in years (million lek)
Years 2003 2004 2005 2006 2007 2008 2009
Remboursement 2249 3492 4373 3619 3494 4216 4856
of medicaments
Primery service 1379 1514 1589 1630 4537 4949 5722
Admin.costs 315 340 365 359 405 486 579
Investions 121 59 51 36 42 42 11
Hospital service 301 355 492 602 591 684 11814
ISKSH Sources
3. THE STATE OF THE HEALTH SYSTEM IN ALBANIA
All people have the right to be treated and is the responsibility of society to care for
them. Disease is associated with the need for medication, and poverty with lack of funds to
meet expenses. Health is one of the most sensitive issues for citizens and directly affects their
quality of life. The amount of funding from the state that allocates its budget for health is a
very good indication of the priority given to this sector and further the importance of taking
the life of a citizen in the budget figures.
Public sector spending on health are calculated as the sum of the budget of the
Ministry of Health and health fund contributions.
According to the World Bank and OBSH, the country that spends less of its budget on
health is Albania (in comparison with the countries of the region). In the years 2003-2006 the
share of budget allocated for this sector, to Budget Total experienced growth, but 2007 found
Albania with a 15% decline compared with a year ago. The years 2008 and 2009 continued to
time our country from the rest of the region by spending only 8.4% of the budget on health,
compared with a minimum of 10.2% being spent at our neighbors. Year 2011 is characterized
by an increase of the MSH budget, 14.5% compared with 2010-n, and by increasing the
weight on the Central Budget.
Albania is a country that has consistently spent less of its budget to health. This fact, is
accompanied with high costs of private sector. In conditions when the state does not pay a
service, the individual pays for itself directly. If can be studied the weight of public
expenditure to total expenditure on health, will be seen that Albania is the country where
public spending has the smallest weight. So Albanians spend more of their own pocket for
health care than its neighbors. Meanwhile, Croatia is a country that spends more on health
care budget. In fact, even private individuals spending are the lowest in the region.
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By World Bank estimation, public sector covers only 40 percent of health spending
and the rest is covered by the private sector. Institute of Health Insurance covers only 45
percent of health spending of albanian families. Most affected by this are the groups with low
income. Financial health system that was chosen in Albania has expected that the public
sector could have a higher prevalence. According to a comparison from 2005 to 2009, the
public sector covers only 40% of total expenditure, which leads to inequality of health care
benefits. If there should also be included informal payments made by individuals, the figures
will deteriorate even more.
Two other indicators of the health system are the number of doctors per 1000
inhabitants which is an important indicator of the level of healthcare in a country and the
number of hospital beds for 1000 banore: is an indication of the capacity of health institutions
in the country, especially in emergency situations.
Number of doctors per 1000 inhabitants in Albania (2007) is 1.15 doctors for 1000
inhabitants, compared to 1:39 in 2000 (or 17.5% less). If this figure is compared with regional
countries, is showd that this ratio is 2.5 in Macedonia, Serbia 2, 6 doctors for 1000 inhabitants
in Greece 4.8. While in Albania are resulting 4 nurses per 1,000 inhabitants. (Data are BB)
As for the other indicators in 2007, are resulting only 2.92 hospital beds for 1000
inhabitants. Compared with 2000 this figure was reduced by 11%. This indicator compared
with the other countries of the region is lower. In Macedonia the number of beds for 1000
inhabitants was 4.6, 5.4 in Serbia and in Greece 4.8. Reforms undertaken in the health system
and the increase of the number of private hospitals will affect the growth of these indicators.
4. REFORM OF PRIMARY HEALTH CARE AND HOSPITALS
Reform of primary care is an important reform undertaken in the health system with
the aim to be extended to the health insurance scheme in the entire health system and was
concretized in January 2007. The biggest innovation is the return of ISKSH in the Fund,
taking significant responsibilities for the development of well-defined service packages for
patients and being the sole purchaser of these service packs. These packages will include:
visits, examinations and treatments in primary health care public centers and public hospitals.
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The law covers the insured who pay 3.4% of contributions (that does not change the amount
of contribution), while the uninsured are covered by the state. In fact, the state undertakes a
considerable financial weight (even more than in European countries) covering the
unemployed, children, retirees, etc. having a high social protection.
For the first time, the law provides for contracting with private service, that ISKSH
will negotiate with packages of services that are valuated, except for public and private
sector. This would affect the introduction of elements of competitiveness that the final result
will lead to improvement of service quality for patients. The private sector will cover health
insurance to the extent of the public while the difference will be paid by the patient himself
thus guaranteeing the right of free choice of the patient.
This reform began the process of decentralization of the health system and delegation
of responsibilities to local government and community. Polyclinics and QSH gained status of
autonomous centers, which will determine their needs and objectives, and gain flexibility in
managing funds having bank accounts and special status. Based on the known world
practices, was defined to measure the performance indicators and quality of QSH staff and
make their payment based on these indicators
Starting from January 1, 2009 ISKSH has begun to take its proper role in the system
with the extent of the insurance scheme in the hospital service. Reforming this sector as part
of health reform gives hope for change in the situation where citizens pay money under the
counter for each control, medical or surgical treatment in public hospitals that are used as
private structures. This reform has two main directions. One is the integration of public
hospitals that provide services in health insurance public health by creating a real market
competition-based health, quality and cost-effectively and in the other direction is that
hospitals return to autonomous entities, public and nonprofit.
Integrating services, presupposes standardization of services in every hospital. This
means that every citizen insured or not, receive the same service in every hospital and also
goes to the hospital, which provides screening and treatment he needs. This process ends the
current situation where every hospital is working with its standards. All the spaces that
created the Fund play an active and flexible role in the development and financing of health
packages offered to the population and prepare the list of reimbursable medicaments. This
makes it possible for the prices of medicines in the lists that will be designed to be
comparable to the other countries of region. Fund organs shall adopt procedures and criteria
for the award of contracts and providers of funding for both public and private health services
in Albania.
Part of the reform is to define clearly the structure of public hospitals. The structure of
public hospitals will be clearly in three levels: the first will be the city hospital with a standard
set of services, the second is the regional hospital that has a secondary level, the best services
and the third the highest one , which maximizes the variety and quality and is the University
Hospital Center "Mother Teresa". Those patients who do not adapt to this structure will have
to pay an amount of money depending on the type of disease, the examination and medical
treatment that will take.
To come out of the situation giving money under counter and corruption must be
applied to regular bill payments. Provided secondary income in this way will keep and use
separate hospitals that would be increasing their financial autonomy. But current reform
measure does not provide increased health contributions continuing to remain within the
limits of 3.4%. Nobody can believe that can ensure a good quality health insurance at a rate of
3.4 percent of monthly salary. In Germany, health insurance reach 15 percent of salary,
Switzerland 12.5 percent, even 10 percent in the U.S., where in fact there is a real social
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system, which covers all or most citizens. On the other hand the money going to health
insurance does not depend only from 3.4 percent of salary as a contribution, but also by the
GDP, the output inside gross. In the case of Albania, this is so low that no one believes that
the money could provide a quality system of health services. For the health sector it is
impossible to achieve with the current level of GDP. Also it should be recognized that the
long term will have increased health care costs by reducing issues factors that will affect:
Firstly, demographic developments. Life expectancy has increased from 71.4 years in
1995 to 77 years old in 2011. Population over age 50 has increased from 670 thousand in
2005 to 750 thousand in 2009, and it is this population that suffers more from chronic
diseases (data are INSTAT)
Secondly: technology deveoplement. Modern equipments of last brand technologies
have a higher eficency and better performance regarding patient service, but on the other
side they are more expenxive. People want to have access in equipments and new brand
technologies or higher level of medical treatment, throughout its cost.
Thirdly: sanitary sector from its nature is biggest user of labour capatities, so for
this reason some important elements are negotiations with doctors and medical staf aiming
that their payments bring a true service value.
With other words the aim of this reform is a service where all staff to have access and
to feel insure and proud. The started way is neither easy and neither short, but it is a
necessary way that should be done with belief that we are doing what we are looking for us
and for all genenerates who are coming after us,
Reform in sanitary and service quality for citisen is one of pre condition of Albanian
Progress in her proper European Integrated Process. Throughout the difficulties and money
cost maybe limited the new scheme that will be used gives hope for improving the quality of
hospital service. If we pretend to integrate in European Family we should accelarate our
started reforms and never should come back from them.
SURVEY RESULT
PATIENT SERVICE SANITARY PERCEPTION.
Choosing the interviewed patients is realized in accidentally way. The age over 60
years old occupied 40% of total number, age from 41-59 years occupied 35% and age 25-40
years only 25% of total interviewed. The age who use more sanitary service is about 75%
which belong the age older than 41 years old and this is the most risk people age. Separated
conform category of “chronic” and “acute” sick where 70% of interviewed were chronic sick
and 30% of acute one. Regarding chronic sick, who have and more percentage is the
category who use more sanitary service.
Service: Patients are content with service time and for them is important that the
doctors pay attention to their sanitary problems and 80% of them affirm that the service is
improved and 20 % of them affirm that it is not changed, proceeding to be yet no quality
service. The most of them declare that they have taken answer for sanitary problem (95%).
The relations of patients with medical staff: The most of patients accept that the
relations with doctors are good and very good and nearly 100% of interviewed affirms that
the doctors support them morally. Continuing increased year by year of doctor and nurse
payments influence to them to be more content and more motivated for the job that that they
are doing.
Service speed: 75% of interviewed think that is increased the service speed and they
don’t wait a long time to take it. Also they think that the areas of sanitary service & hospitals
are adapted for a better service to the citizen.
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Knowing with payment way 68% have knowledge for paying way through invoice,
while 32% no. A considerable number is not informed for the rules coming out from reference
system. Insured persons don’t pay but for others should be set tables with service tariffs at
visible places in sanitary centers or in hospitals.
The payment done under counter(Corruption): 80% think that the corruption level is
decreased. They can give any payment under counter but this is not requested, but they gives
this with their free wish. While 20% says that the corruption is increased because giving
money under counter is continuing and also they take quality medicaments. Inside system is
decreasing the possibility for investment.
REFORMS PERCEPTION CONFORM OFFERS OBSERVATIONS.
Is improved the perception of medical staff for sanitary center or hospital management
and also are improved the relations with their leaders. Is increased the transparency regarding
the spend and giving all needed information (85%). But except those positive achievements
medical staff confirm that throughout the started reforms are yet present the following
problems:
a) Missing a considerable medications number
b) Missing of modern equipments needed for diagnostic severe illness for their cure.
c) Missing the other needed technical facilities for hospital well functioning.
d) Missing the specialized specialists.
All were informed for the way that how will be implemented and how much are optimist that
hospital autonomy will influence positive at its results.
CONCLUSIONS AND RECOMANDATIONS.
Throughout are not present too many studies that measure the public perceptions for
the sanitary service level, we can say that their quality in Albania is not content. Main
problems with which is infronting sanitary service are:
- Insufficient financial from the state budget and insufficient institutional
decentralization
- Lack of significant in medicaments and other new diagnostical and curative
technology for the reason of their cost is insufficient with actual sources.
- Hospital public sector doesn’t offer all service diapason.
- People yet has a high uncontent level for the service quality offered from sanitary
public sector.
- Throughout are done improvement a great problem present is the existence of informal
payments which inluence on poor family budget and do no effectiv service
For giving the solution to up mentioned problems in sanitary service would be
recomanded:
- Sanitary insurance contribute for increasing level aiming to insure more income and
to increase service quality.
- Consolidation of sanitary insurance design increasing hospital financial autonomy as
a way which will do them more effectiv and medical staff more interested in job.
- Paying attention to the patient as primarly activity.
- Financial improving the sanitary center based on performance and quality
- For improving and for increasing correctly the data is need to be implement sanitary
information system.
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- Such service as laundry, kitchen and hospital pharmacy is better to be given on
administration to the private sector for their production.
REFERENCE
1. Management in health care, Neil Wheeler, Diana Grice, Nelson Thornes 2000
2. Health care management : organization, design and behavior Stephen Michael
Shortell, Arnold D. Kaluzny, Thomson Delmar Learning 2006
3. Strategic management of health care organizations Linda E. Swayne, Walter Jack
Duncan , Peter M. Ginter Wiley- Blackwell, 2006
4. Health care operations management: a quantitative approach to bisness and logistics
James R. Langabeer Jones & Barlett Learning, 2007
5. Transforming health care management: integrating technology strategies Ivan J.
Barrick Jones & Barlett Learning, 2009
6. Human resource management in health care; principles and practice L Fleming Fallon,
Charles R. McConnell Jones & Barlett Learning, 2007
7. Magazine “Fokus”
8. www. isksh.gov.al
9. www.minfin.gov.al
10. www.bankofalbania.gov.al
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THE APPLICATION OF COST-BENEFIT ANALYSIS FOR THE ESTIMATION OF
REMITTANCES EFFECTS WITHIN THE ECONOMIES OF ORIGIN COUNTRIES.
CASE STUDY – REPUBLIC OF MOLDOVA
Belobrov Angela
Academy of Economic Studies of Moldova
Caraganciu Anatolie
Lucian Blaga University, Sibiu, Romania
ABSTRACT:
The phenomenon of international migration began to be more recently studied,
beginning with the 1960s, within models of economic growth. The need to research the
phenomenon was based on the fact that international labor circulation, as a production
factor, influences economic growth. Some authors’ argument the fact that international
mobility of the labor force must be complete, so that advantages comparable with those in
international trade can be achieved.
Keywords: cost-benefit analysis, remittances, effects, origin country
JEL Classification: A10, A23.
The phenomenon of international migration began to be more recently studied,
beginning with the 1960s, within models of economic growth. The need to research the
phenomenon was based on the fact that international labor circulation, as a production factor,
influences economic growth. Some authors’ argument the fact that international mobility of
the labor force must be complete, so that advantages comparable with those in international
trade can be achieved. Thus, Pritchett in 2006, points out the fact that international labor
mobility can lead to increased world welfare. In his work “Economic and Social Effects of
Migration on Sending Countries” (Luoka, Katseli, Lucas, Xenogiani, 2006), created by
Luoka T. Katseli, Robert E.B. Lucas and Theodora Xenogiani, they mention the fact that it is
a unanimous decision that migration, if accordingly managed, can produce important gains
not only for the migrants, but also for the host country and the origin country. Developing
countries, in particular, can benefit in terms of growth, investment, accumulation of human
capital and reduction of poverty, if they can efficiently restructure their economies and
transfer the same benefits within the economy. But, to make this possible, migration and
development policies must be more coherent.
The work „Macroeconomic consequences of remittances” (Barajas, 2008) appeared
as a response to increased remittent flows in the world and the requiest of the Executive
Board of the IMF for a deep investigation of remittent, of their transfer system, including their
effect on poverty and macroeconomic performance.
The conclusions which the paper reveals are that it is difficult to obtain a robust
positive effect of migration remittances on economic growth. In most cases, remittances /
GDP does not present a significant correlation with economic growth. A positive and
significant coefficient concerning investments only occurs when other effects are excluded.
On the other hand, the resulted effects for certain countries may indicate that for some
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countries the remittances adding to economic growth could reduce economic growth in many
countries. Empirical results sustain the idea that remittances diminish long term
macroeconomic volatility, but the paper does not develop the exact mechanism through which
remittances reduce volatility. Although, for no country, there is no clear evidence that
scientific research forwards the conventional presumption, according to which the high
income due to remittances has a tendency to appreciate the real exchange rate.
The studies of George Borjas, one of the leading researchers in migration, which were
spread over 10 years, indicate that, in general, economic migration presents net positive
marginal effects. The issue of researches does not resume itself to determining the net effect
as a result, but, more than that, the way in which advantages and disadvantages of
immigration are distributed within the economy. In the work Cross-country variation in the
impact of international migration: Canada, Mexico, and the United States” (Caraganciu,
2007), citing Borjas, we notice that: “…the crucial point of the research hypothesis is not if
the entire country gets better on the basis of labor migration, but the manner in which the
economic pie is sliced and diced among the participants and non-participants to this process
(author`s note: the migration process)“.
The stages of the cost-benefit analysis (CBA) applicable for the external labor migration
I. Establishing objectives, specifying the reference
period, geographical perspective and alternatives
II. Identifying participants and non-participants to the
process, of the subjects which pay and to those who
benefit from the process
III. The catalogation of impacts, the selection of
measurment indicators and quantitative estimation
IV. The attribution of monetary values for the
resources (expenses) and the results of the process
V. Estimating and analyzing benefits and costs over
time
VI. Calculating the cost-benefit ratio, formulating
conclusions and recomandations
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THE MECHANISM OF APPLYING COST-BENEFIT ANALYSIS TO
EVALUATE THE EXTERNAL MIGRATION PROCESS WITH THE PURPOSE OF
LABOR
From the perspective of the CBA type analysis, we will consider the following
categories of costs:
- Direct costs, which delimit expenses and can be individualized and attributed without
ambiguity the actions undertakes to move and find a job abroad, of which we mention:
expenses for papers, visa expenses, transport expenses, financing expenses (loan costs),
consulting services, payments towards intermediaries of migration schemes (social networks
of migration), expenses for the study of the native language, for finding a job, etc.
- Indirect costs from externalities. In order to demonstrate the necessity of including
these costs within our analysis, we consider necessary to state that externalities are known as
being external effects. The apparition of externalities is a consequence of interdependencies
which manifest between the utility function and the consumption or production functions,
namely between consumers and producers. In other words, the actions of an actor have
effects which can manifest on another actor, influencing its activity or welfare in a positive or
negative manner, without the latter to make any payment or compensation. Externalities can
be positive or negative. The economic theory indentifies positive or negative externalities as
being marginal or infra-marginal. Marginal externalities manifest when a change in the
generating activity of externalities which influences production or utility felt by the affected
agents. In exchange, infra-marginal externalities are those in which a modification in the
externality generating activity does influence in any fashion neither the utility nor the
production felt by the affected agents.
In the event that the externality generating activity is modified in such a way that the
affected activity is getting better, without the generating activity to become worse, this is
called a Pareto kind externality. Externalities occur due to market failure. These, in turn, are
explained through the inability of markets to respect property rights. In the analysis of
projects, externalities represent effects of the projects which cannot be found within financial
recordings, and, as a consequence, cannot be included within the evaluation.
Direct and indirect costs must be expressed in a monetary value, ergo, prices. Prices can
be tackled as: market prices, for example replacement costs for loss of productivity in
education, medicine, history, agriculture; a decrease in property value, etc; and shadow prices,
for example the bettering or worsening of the investment climate, the modification of the
country rating, etc.
Within the CBA of the migrations process with the purpose of labor, we will consider
the following benefits:
- Direct benefits, grouped as:
a) Financial benefits – income under the form of flows and financial funds, taxes on
process output, etc;
b) Economic benefits – economic development, at a local, regional and national level –
particularly development projects within infrastructure, savings of resources, consolidating
the market position, both internally and externally;
c) Social benefits – increasing the quality of life, social stability with effects in the
economic and political stability.
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- Indirect benefits from externalities, express as: market prices – the increase of property
value, decrease of unemployment wages, health benefits: the decrease of welfare expenses for
the population, benefits from education and qualification, savings from costs with the
decrease of the fiscal burden on entrepreneurs, etc; and shadow prices – increase of quality of
public and private services, etc.
Through the accumulation of the analyzed financial effects we obtain the net financial
effects of the external labor migration on income and expenses on the state budget (table 4.4)
The analysis of financial net effects of the economic migration on the global public
budget income of the Republic of Moldova demonstrate that, during the analyzed period, the
external migration of the labor force influenced, in a positive fashion, the income level and
reduced state budget expenses with ratios from 6, 03 % in 2000 to a maximum of 20, 72% in
2008, and in 2009 they decreased to 9, 97 %, in the context of the current financial crisis
(table 1).
Table 1.
Determining the net financial effects of the external labor migration on the income
and expenses of the state budget of the Republic of Moldova
Year
Fiscal
income
realized
from
indirect
remittent
taxes, in
mil. lei
Missed
fiscal
income
from direct
taxes for
the
population,
as a result
of labor
migration
mil. lei
Saved
expenses
for social
insurance of
migrants,
mil. lei
Saved
expenses with
unemployment
help, mil. lei
Net financial
effects,
mil. lei
The average
of net
financial
effects of
the
economic
external
migration
within the
global
income of
the national
public
budget, %
A 1 2 3 4 5=1+2+3+4 6
2000 283,46 -158,13 10,69 11,23 463,51 6,03
2001 320,92 -251,06 13,4 23,67 609,05 6,46
2002 420,52 -419,28 22,28 17,26 879,34 9,70
2003 527,94 -723,49 34,19 13,42 1299,04 6,62
2004 715,4 -1204,26 54,40 25,19 1999,25 7,72
2005 724,49 -1579,21 85,96 28,91 2418,57 12,70
2006 1125,23 -1633,48 101,50 33,83 2894,04 7,82
2007 1728,86 -2168,89 135,17 165,03 4197,95 10,45
2008 2257,81 -2239,86 151,98 203,67 4853,32 20,72
2009 1707,28 -2648,37 176,09 142,71 4674,45 9,97
2010 2103,47 -3124,42 186,50 148,20 5562,59 11,34
Source: calculated by the authors on the basis of estimated data by the BOP of the Republic
of Moldova between 2000 – 2011.
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Table 2.
The calculus of the financial effect of the external migration of labor force – Income
(loss) for exporters and importers as a result of the appreciation of the foreign exchange
rate
Year
The
remittances
effect on the
appreciation
of exchange
rate,
MDL/USD
Exports,
mil. USD
Indirect
effects of the
remittances on
the income of
exporters, mil.
USD
Imports,
mil. USD
Indirect effects
of the
remittances on
the income of
importers, mil.
USD
2000 0,0090 641,35 -5,77 971,88 8,75
2001 0,0105 735,54 -7,72 1088,48 11,43
2002 0,0147 876,35 -12,88 1294,49 19,03
2003 0,0148 1055,02 -15,61 1722,36 25,49
2004 0,0146 1326,15 -19,36 2101,29 30,68
2005 0,0173 1503,52 -26,01 2715,76 46,98
2006 0,0218 1526,47 -33,28 3110,08 67,80
2007 0,0276 1998,42 -55,16 4301,49 118,21
2008 0,0184 2483,17 -45,90 5691,06 104,72
2009 0,0194 2004,02 -38,88 3976,71 77,15
2010 0,0144 2282,05 32,86 5146,02 74,10
Source: calculated by the authors on the basis of estimated data by the BOP of the Republic
of Moldova between 2000 – 2011.
Table 3
Estimating the indirect financial effects of the external labor migration on the
income of exporters and importers from the Republic of Moldova as a result of the
appreciation of the exchange, mil. USD
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
The
indirect
effects of
remittances
on the
income of
exporters
The
indirect
effects of
-
5,77
-7,72 -
12,88
-
15,61
-
19,36
-
26,01
-
33,28
-55,16 -45,90 -
38,8
-
43,7
8,75 11,43 19,03 25,49 30,68 46,98 67,80 118,21 104,72 77,1 82,4
remittances
on the
income of
importers
Source: calculated by the authors on the basis of estimated data by the BOP of the Republic
of Moldova between 2000 – 2011.
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The analysis of data from table 2 and table 3 demonstrate for a fact that the direct
effect of remittances on the appreciation of the foreign exchange rate of the Moldovan leu
causes indirect effects on the income / loss of importers and exporters. A more complete
estimate of the described sources must include the income (loss) which resulted from a lack of
price competitiveness of goods and services, resulted from market distortions produced by the
appreciation of the foreign exchange rate, also, and of fiscal income realized / missed from
taxing the income of importers and exporters. The chain of induced effects on the markets of
the currency may continue.
Table 4.
The calculus of the financial effect of the external labor migration: the costs for the
sterilization of the liquidity excess supported by the National Bank of Moldova between
2001-2010
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
The costs 1,4 0,4 2,6 25,4 32,1 71,1 226,7 210,8 32,8 29,4
for the
sterilization
Source: Reports of NBM between 2000 – 2011.
The integrated evolution of the financial effects of the analyzed phenomenon includes
the attribution of monetary values and direct or indirect effects, induced by a social nature,
economic or political one, etc.
The respective statement comes to support, at a first level of the realized analysis, of
which the net effect of the labor migration from the Republic of Moldova results, in the
perspective of the society from the country of origin for the migrants, is negative. Thus, it
results that the labor migration in the Republic of Moldova brings prejudices to the economy
which surpass by 1,25 times the value of benefits created during the analyzed time span.
REFERENCE:
1. Cost - benefit and proportionality analysis. Accessed January 10, 2012. http://www.
rowater. com / dacrisuri / Documents% 20Repository/Directive%
20Europene/PLAN% 20MANAGEMENT% 20DAC/Spatiul% 20Hidrografic%
20Crisuri/cap10_Exceptii% 20de% 20la% 20obiectivele% 20de% 20mediu_Crisuri%
202009s
2. Broadman, A. , Greenberg, D. , Vining, A. , Weimer, D. Cost-benefit analysis.
Concepts and practice. (translation: Ustiriu, D. AND. of. ) Chisinau: Arc, 2004. 660 p.
3. Guide to Cost-Benefit Analysis of Investment Projects. Structural Funds, Cohesion
Fund and Instrument for Pre-Accession, 2008. Accessed January 10, 2012. http://ec.
Europe. eu/regional_policy/sources/docgener/guides/cost/guide2008_en. pdf
4. National Guide to Cost – Benefit analysis of projects funded under the structural
instruments (draft). Accessed January 10, 2012. http://discutii. mfinante.
ro/static/10/Mfp/evaluare/GhidACB_RO. Pdf
5. Measuring the Un-measurable. The Challenge of Vulnerability. United Nations
University. 2006. Accessed January 10, 2012. http://www. EHS. one. edu / file. php?
id = 212
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POVERTY AND MIGRATION AS IMPEDIMENTS IN ACHIEVING THE EUROPE
2020 OBJECTIVES
Bonciu Cătălina;
University of Bucharest, Romania
ABSTRACT
The European Union proposed, through the Europe 2020 Strategy, a package of
specific objectives with the main purpose of raising the level of economic competitiveness at
community level, by smart economic growth, sustainable and inclusive labor market. Of
course, all member states have established their own plans and policies, in line with the
strategy, including Romania. What made these measures different from one country to
another was the quantification of the launch base in the process, i.e. the level from which the
self-imposed measures are initiated. The specific requirements of national economies, the
standard of living, their health, work ability, work opportunities, prospects of life,
differentiated the start for the 27 members.
In the case of Romania, it is not quite a comfortable challenge, because the poverty of
the people favored the numerical reduction of the local population as a whole, encouraging a
shift towards economic areas with more development prospects. Romania is no exception, in
an aging Europe, with an aging trend and apparently incapable of rejuvenations, to sustain
itself in the future. No wonder the vast migration process had a rising trend, without any signs
of territorial and demographic reconfiguration from the quantitative, qualitative and
structural point of view.
More dangerous is the tendency to eliminate workers’ rights, acquired by effort and
sacrifices over hundreds of years. It is not only the case of the local Labor Code, because
such provisions are to be found also in other laws on labor from different EU countries. In
such situations there is no surprise to notice the psychological discomfort of employees or of
unemployed persons in search of jobs.
Key words: Europe 2020 Strategy, poverty, migration
1. INTRODUCTION
Lately, the legislation of the EU states seriously shook concepts which were deep
rooted in the life and work of their inhabitants. Other times happy and peaceful people,
accustomed with a less risky way of life, they were thrown into a speedy carousel, of which
they could not descend, but did not understand what and how it was favorable for them to
precede.
Specifically, at a first reading of the document, the Europe 2020 objectives do not
seem so SMART. According to the traditional meaning of concepts involved, many
comments can be made, with rather con arguments.
For example, an inclusive labor market seems a utopia in our days. Where the
recession is again in sight, more and more countries establish protecting measures for their
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employees, to the detriment of immigrants, which is not quite a measure to stimulate unbiased
social inclusion. The tendency to eliminate the unlimited labor agreement and replace it with
one on determined periods of time is not a measure of stability and a way to attract workers
on the labor market. A reason behind this can be the fact that part-time jobs allow more
people to find their place on the labor market, but it is not intended to asset the lack of income
obtained from such works. There are already statistics which demonstrate that in countries
where temporary or partial employment contracts have been consolidated, people are poor,
sick and have a shorter life expectancy. Perhaps, subliminally, this is the objective. Cynically,
I heard opinions arguing that even one hour per day or week can be covered by an
employment agreement. There are specialists who do not encourage such contracts, which
often do not ensure the employee social protection, but their voices are not heard among the
legislators.
It does not take much imagination to anticipate the link between poverty and
migration, or between migration and poverty, in a vicious circle, or that between poverty,
migration and social inclusion in the unfavorable conditions of a poor person at the edge of
survival. Having a job, an employment contract does not mean you are protected against
poverty.
The following observations shall remind some of the EU economic realities, despite
the efforts made or which seem to be made. If the whole existential premise does not change
in the near future, the distant future is endangered. There are no doubts that if one does not
give up on declarations which cannot be turned into reality, on commitments with no chance
of being met, there shall be no united Europe. If one does not become aware of the
seriousness of the moment, in terms of individual survival, but also of present civilization, in
the context of climate changes and insufficient resources or vital space, everything becomes
uncertain, any current or future structure.
2. LITERATURE REVIEW
In the specialized literature, poverty and migration have been studied by economists
and sociologists, in individual or correlated analyses. Among the specialists can be named
Michel Beine, Bahram Bekhradnia, Frederick Docquier, Roel Jennissen, Jean M. Johnson,
Sami Mahroum, Abdeslam Marfouck, Marc C. Regets, Thomas Sastry, Erik Olin Wright…
Well-known publications in our country are signed by Dumitru Sandu, Steliana Sandu,
Valentina Vasile, Gheorghe Zaman, Catalin Zamfir …
3. PAPER CONTENT
The present economic, financial, social, demographic, educational, cultural, moral
crisis reordered the contemporary existence, set life on other principles.
EUROPE 2020 STRATEGY AT EUROPEAN LEVEL.
On March 3 rd , 2010, the European Commission published a document following the
Lisbon Agenda, Europe Communication 2020 – a strategy for smart, sustainable and inclusive
growth. The main self-imposed strategic objective is represented by achieving an additional
growth of competitiveness, with 2% for the current decade.
Europe’s economic growth strategy for the ten years 2011-2020, Europe 2020
Strategy, has proposed the transformation of EU in a smart, sustainable and inclusive
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economy, in order to provide a high level of employment, productivity and to ensure
economic, social and territorial cohesion.
The document proposes a series of targets to be achieved:
- five objectives at European level:
1. Increasing the employment rate of the population aged 20-64 to 75%;
2. Investing 3% of gross domestic product in research and development;
3. The objective „20/20/20" regarding energy and climate changes;
4. Reducing the school dropout rate to less than 10% and increasing the proportion of
youngsters between age 30 and 34 years old, holding a tertiary degree to 40%;
5. Reducing the number of people threatened by poverty by 20 million.
- a tematic approach of reforms, concentrated on three priorities:
1. The development of an economy based on knowledge and innovation – smart growth;
2. The promotion of a more sustainable and competitive economy, based on a more
efficient use of resources – sustainable growth;
3. The promotion of a high employment economy, to generate social and territorial
cohesion – inclusive growth.
- In order to sustain the three priorities and to meet the objectives sevel flagship initiatives are
proposed:
I. Three for smart growth:
- Innovation Union;
- Digital Agenda for Europe;
- Youth on the Move;
II. Two for sustainable growth:
- Resource-efficient Europe;
- Industrial policy for the globalization era;
III. Two for inclusive growth:
- Agenda for new skills and jobs;
- European Platform against Poverty.
EUROPE 2020 STRATEGY AT NATIONAL LEVEL.
The history about the actions undertaken by our country started from January 11th,
2010, when Romania has developed a first view “Consultation on the future of EU 2020
Strategy.” After that, a series of consultations and formulation of documents followed, through
these institutional structures:
- Working group for Europe 2020 Strategy – GLSE (having the same components as the
similar group for Lisbon Strategy, established in 2006);
- High Level Working Group for Europe 2020 Strategy – GLNI (consisting of secretaries of
state or equivalent from the main institutions responsible for implementing the NRP), with
political attributions;
- Seven Sectoral Working Groups for establishing the national objective Europe 2020,
consisting of representatives of all state institutions, with responsibilities in areas relevant for
Europe 2020, each Sectoral group being coordinated by a Ministry of Custody.
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Table no.1: Values of the Romanian national objectives for Europe 2020 compared with
those established at European level
Objective Final value RO Final value UE 27
1. Employment rate of people aged 75% 70%
between 20 and 64 years old
2. Investment in research and development 3% of GDP 2% of GDP
3. Energy and climate change (20/20/20)
Reduction of greenhouse gases 20 % 20 %
Energy from renewable sources in gross 20 % 24 %
final consumption
Increasing energy efficiency (10Mtoe, 20% 19%
expressed as reduction in primary energy
consumption)
4. Education
Rate of early dropout in schools 10% 11,3%
Rate of population aged between 30 and 34 40% 26,7%
years old, holding a tertiary degree
5. Promoting social inclusion, especially b
reducing poverty
580.000 persons min. 20 mil.
In the period from September 11 th to November 1 st , 2012, the NRP (National
Romanian Patronage) Project was drafted, divided into the following chapters:
Macro-economic scenario;
Macro-economic surveillance;
Thematic coordination of national targets with trajectories for meeting national targets
Europe 2020 and measures for achieving the targets and eliminating the macro-structural
obstacles, as well as an implementation calendar and budgets;
Horizontal (communication, monitoring etc.) and methodological aspects.
What followed was not exactly in the spirit of political assumptions. The way in which things
will evolve in the following years could improve the Romanian reality drama, but only if the
macroeconomic management paradigm changes. However, this would mean that Romania
will cease to be a national experiment, a territory where great conquerors play, an area of
poverty and extermination of people, a space of resources’ exhaustion, a chessboard on the
labor market (where pawns fall one by one)…
STANDARD OF LIVING AT EUROPEAN LEVEL.
Poverty is not necessary a phenomenon separate from that of migration. Especially in
the modern times, poverty is a cause of migration. But, as a historical phenomenon, poverty is
defined by the values and norms of society more than by the individual needs of people
suffering from the syndrome. Poverty is related to the manner in which the state intends to
protect its citizens, and the poverty forms are temporally nuanced, often adapting to the
peculiarities of the moment.
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Contemporary Europe, mixed between conceptual clarifications and concrete
placement between the political right and left, seems not to be willing to give up the symbol
of social economy, but it cannot be a 100% market economy. The reality shows that
resources, regardless their nature, are insufficient, and the level of poverty increased annually,
reaching alarming levels (according to Eurostat, up to the equivalent of 60% of the average
incomes of a state).
The recent years determined considerable changes in the system, the general and
particular causes of poverty went beyond traditional explanations, those dependent on the
individual or society. There is a mixture of indifference, carelessness, lack of interest for
ensuring a minimum of subsistence, but also the obvious concern of the new wealthy to widen
the gap between them and the new impoverished. Apparently, the economic and social polices
appear to support the impoverished population, but in reality, the measures and actions have
split the society and widened the gap between classes. The phenomenon is visible not only in
our country, but in most European states which raised economic problems to the EU.
Table no. 2: Possible explanations for poverty (adapted after E.O.Wright)
Causes of
poverty
Immanent,
immutable
Contingent
Origins at individual level
The model of racial inferiority,
of genetic failure (with few
followers among specialists,
but spread among ordinary
people):
- low intelligence
The culture of poverty:
- socio-cultural limitations that
prevent the person to develop:
low self-esteem, lack of
values, laziness, lack of
motivation...
Origins at society level
The exploitation of man by man:
- the interest of the dominant class
over the dominated class (pure
capitalism)
The devastations caused by social
changes:
- labor market transformations by
the opportunities or constraints of
the technical and globalization
progress.
At declarative level, the EU considers poverty and social exclusion an undesirable
consequence of social and economic transformations, a break on the development, which
requires an initiative to improve social integration, a reduction in the speed of
impoverishment, smaller gap between classes. If the measures are not implemented, the
Europe 2020 Strategy objectives remain only on paper, and also the other Community
objectives are doomed to failure. As a first solution, was proposed to enhance social
inclusion, especially in the context of growing insecurity at the workplace:
Table no.3: Level of social protection in EU
Category of employees
Highest level of
social protection
Lower level of
social protection
All employees Czech Republic Romania
Employees with stable workplace Finland Lithuania
Full-time job employees Finland Lithuania
Employees with work interrupted during a Czech Republic Romania
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year
Employees with intensive work
Romania
Basic profession training or lower Finland Romania
Sources: OECD, Eurostat and National Statistics.
Table no. 4: Selected employment data for 12 EU Member States, 2010
Temporary
work
% of
dependent
Parttime
work
% of
total
Unemployment
rate
% of labour
force
Youth
unemployment
% of youth
labour force
Long term
unemployment
% of total
unemployment
Employment
rate
% of
working age
population
Bulgaria 4.5 1.7 10.9 23.2 4.8 52.0
France 15.0 13.6 9.3 22.5 40.1 64.0
Germany 14.7 21.7 7.2 9.7 47.4 71.2
Greece 12.8 8.8 12.7 32.9 45.0 59.6
Ireland 9.3 24.8 13.9 28.7 49.0 60.4
Italy 12.8 16.3 8.5 27.9 48.5 56.9
Latvia 6.8 9.7 18.7 34.5 8.4 65.3
Netherlands 18.5 37.1 4.5 8.7 28.6 74.7
Poland 27.3 8.7 9.7 23.7 25.5 59.3
Spain 24.9 12.4 20.2 41.6 45.1 59.4
Sweden 15.8 22.3 8.5 25.2 16.6 72.7
UK 6.2 24.6 7.9 19.1 32.6 70.3
Sources: OECD, Eurostat and National Statistics.
False workplaces, seasonal work, occasional or unofficial, often between the gray and
black zone of the labor market, define precarious employment. Precarious work tends to
expand, because of the lack of courage in employees, often facing unnecessary risks, in the
absence of social support, dignity and self-respect.
Table no. 5: Perceptions of precarious forms of employment
Not
precarious
Slightly
precarious
More
precarious
Most
precarious
Informal/Undeclared 1% 3% 11% 83%
Bogus self-employment 1% 4% 28% 63%
Casual 2% 7% 29% 59%
Zero hours 4% 8% 20% 54%
Temporary agency 4% 24% 37% 29%
Seasonal 8% 32% 34% 24%
Fixed term 13% 31% 38% 14%
Posted 16% 31% 36% 12%
Part time 27% 41% 22% 5%
Sources: OECD, Eurostat and National Statistics.
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Table no.6: Sectors in 12 Member States and perceptions of their degree of
precariousness, 2011 (% of survey responses)
Not
precarious
Slightly
precarious
More
precarious
Highly
precarious
Cleaning 4 15 34 43
Construction 3 20 35 40
Agriculture 4 17 41 36
Hotels, catering and tourism 3 18 45 31
Private security services 9 26 38 23
Retail 7 39 41 9
Transport 11 45 35 5
Not for profit sector 13 39 31 7
Private health care 22 41 27 5
Logistics 17 52 23 4
Public sector education 40 37 16 2
Public sector health 39 39 15 2
Information technology 42 44 9 1
Public sector administration 58 27 9 1
Sources: OECD, Eurostat and National Statistics.
Table no. 7: Groups of workers perceived as being at risk of precarious work (%
of survey responses)
Not
precarious
Slightly
precarious
More
precarious
Highly
precarious
Undocumented migrants 2 2 6 83
Third country migrant women 2 7 33 55
workers
Third country migrants 2 11 43 40
Young workers 7 19 33 37
Older women workers 12 22 37 24
Trainees 10 26 36 24
Interns 14 27 32 22
Apprentices 15 41 25 14
Working students 14 40 27 14
Women workers 13 32 37 13
Older workers 15 31 38 11
Economically dependent
11 32 40 11
autonomous workers
Women who are pregnant or 20 32 34 9
returning from maternity leave
Workers with caring
responsibilities 13 38 35 8
Public sector workers 52 28 7 2
Sources: OECD, Eurostat and National Statistics.
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The most affected categories are: undocumented migrants; third country nationals;
migrants; young workers; older workers; disabled workers and women: with children,
particularly if single parents, in part-time work, with low levels of skills, in low paid jobs, in
female dominated sectors, gender discrimination – shorter length of service; more likely to be
in non-standard relationships…
Table no. 8: Mapping forms of precarious work
Job
security
Job
conversion
Working
time
limits
Discrimination
protection
Pensions
Welfare
Training
Decent Repre-
Average
Pay sen-
tation
ratings
Fixed term 3.1 2.2 4.6 4.7 4.4 4.5 2.6 4.0 4.2 3.8
Part-time
indefinite
3.2 2.3 4.5 4.8 4.4 4.6 2.6 3.8 4.3 3.8
Full-time
indefinite
3.8 2.3 4.7 4.8 4.4 4.8 2.3 4.4 4.0 3.9
Average
ratings
2.6 2.0 3.4 3.9 3.4 3.6 2.0 2.9 3.4 3.0
Sources: OECD, Eurostat and National Statistics.
Table no. 9: Mapping by individual characteristics
Informal 1.1 1.3 1.0 1.4 1.2 1.4 1.1 1.1 1.3 1.2
Bogus
selfemployed
1.2 1.4 1.3 2.5 2.9 2.4 1.3 1.4 1.2 1.7
Zero hours 1.7 1.5 2.3 3.8 2.9 3.2 1.7 2.6 2.5 2.5
Casual 2.4 1.8 3.0 3.7 2.9 3.4 1.9 2.6 3.0 2.7
Teleworkers
2.5 2.1 3.7 4.5 3.9 4.1 2.3 2.8 3.4 3.3
Posted 2.6 1.7 4.4 4.3 3.7 3.9 2.7 3.0 3.5 3.3
Seasonal 2.4 1.9 3.9 4.4 3.7 4.0 2.3 3.5 3.9 3.3
Agency 3.0 2.0 4.3 4.7 4.0 4.5 2.7 4.0 3.8 3.7
Job
security
Working
time
limits
Job
conversion
Discrimination
protection
Pensions
Welfare Training Decent Repre-
Average
Pay sen-
tation
ratings
Third
country
3.1 2.4 4.2 4.6 3.8 3.9 2.7 4.0 3.5 3.6
Young
women
3.1 2.1 4.4 4.7 3.8 4.2 2.8 3.4 4.2 3.6
Young
men
3.4 2.5 4.4 4.7 3.9 4.3 2.8 3.5 4.2 3.7
Migrants 3.2 2.5 4.7 4.7 4.2 4.0 2.8 4.0 3.9 3.8
63

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3.5 2.9 4.4 4.8 4.0 4.1 2.8 3.7 4.1 3.8
3.3 2.5 4.7 4.6 4.2 4.5 2.9 3.8 4.4 3.9
Adult men 3.6 2.7 4.5 4.8 4.5 4.6 3.0 3.9 4.4 4.0
Older men 3.6 2.8 4.7 4.6 4.4 4.6 2.9 4.1 4.4 4.0
Average 3.3 2.6 4.5 4.7 4.1 4.3 2.8 3.8 4.1 3.8
Sources: OECD, Eurostat and National Statistics.
POVERTY IN ROMANIA.
In Romania, poverty is a natural state. Nine in ten Romanians feel threatened by
poverty.
Official data (Eurostat) in 2009 was placing six of the eight regions of Romania
among the poorest in the EU, with buying power in half of that of the EU
Table no. 10: GDP per capita, expressed
Region
Standard buying power, expressed % of
the European average
GDP per capita
EUR
North-East 29 6.900
South-West
36 8.400
Oltenia
South-East 38 8.900
South Muntenia 40 9.500
North-West 43 10.100
Center 46 10.700
West 52 12.100
Bucharest-Ilfov 63 26.100
Sources: Eurostat
In 2010, our country’s GDP stood at 46% of EU average; 8.89 million Romanians
were at risk of poverty and social exclusion. Over 40% (European average 23%) of
Romanians were part of one of these three categories: at risk of poverty, with severe material
shortage or all family members unemployed. One in three Romanians faced severe material
deprivation, while only 1 in 10 European has been in this situation. Those most at risk of
poverty were children, accounting for 49%, followed by the elderly (over 65 years old)
accounting for 40% and the working age population (18-64 years old) with a share of 39.7%.
Less than five million Romanians were employed, supporting by the taxes paid the
pensioners, children, people working on the black or gray market and those unable or
unwilling to work. About five million pensioners (even though the retirement age was raised
to 63 years old for women and 65 for men) cost the Romanian state about 9% of the GDP.
In 2011 the average monthly salary was around EUR 450. Significant was the
contribution of Romanians working abroad, of about 2% of GDP.
Nowadays (Eurostat data) 1.5 million Romanians live under the subsistence level,
about one third are children. Half of the children under 18 years old are at risk of poverty and
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social exclusion. In the early 2012, the average monthly salary was a bit higher than EUR
160, which offers real prospects of poverty expansion.
In such conditions, Romanians leaving the country in order to work at a lower level
than their preparation in other EU countries where wages exceed the expectations in the
country is not an anomaly.
THE PROSPECTS OF THE MIGRATION POLICY UNDER THE CURRENT
DEMOGRAPHIC CONTEXT IN ROMANIA.
Migration is an eternal phenomenon; it existed since the primitive people moved from
one place to another, mainly to get better living conditions – access to food and safer housing.
The reasons of migration at present are more or less the same, of course translated in the
contemporary existential conditions. Will the future add at individual level intrinsic and
extrinsic motivations fundamentally different from the ones already established?
THE PRESENT SOCIAL AND ECONOMIC CONTEXT.
In the contemporary social and economic situation, the explanations of migration have
to be sought in the causes manifested globally, at European, regional, local, economic,
financial, political, demographical, cultural, educational, military… level.
A world in continuous numerical growth and qualitative and structural diversification
often occupies irrationally and stiflingly an area, draining its resources. Labor incompetence,
poor qualified personnel are realities of the contemporary labor market. The immediate
solution, apparently the simplest, is the rapid replacement with workers brought from other
states, if possible younger, because Europe’s population is an aged one. Obviously, such a
measure can have a profound impact, with consequences equally positive and negative, on the
migration management policies.
MIGRATION IN ROMANIA.
In the case of temporary migration, there were always professions which were
practiced in other places than the original ones, as transhumance is a national characteristic,
and the agricultural, construction, sometimes tourism labor is requiring more personnel than
what can be found at local level. In the recent years, temporary migration extended to certain
industries, companies moving their employees in different localities over the years, where
they earned auctions or found work (rejecting from the start the idea of working with the
locals).
Until the ‘90s, Romanians were really pleased with the permanent migration from
villages to cities. Recently, the opposite phenomenon was observed, the movement of people
from cities to the cradle of rural civilization and not only they registered their papers and
started living in villages, but they also started to work there. There is no wonder than in the
recent years, the percent of people living in rural areas is over 40%, the census registering a
percentage of 47.2% of the population. If in the socialist period the migration from agriculture
to industry was encouraged, now is not the case any longer.
But, it could be established a migration policy strongly related to the economic and
social development at local, regional, national, EU level…
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MIGRATION AS EMIGRATION AND IMMIGRATION.
Tomorrow’s society will certainly witness a multidirectional flow of spontaneous and
organized movement of persons of working age, with an accelerated rate at the extent of the
impoverishment of those countries prone to give in their natural resources and dismantling of
any remnants of economic development.
Will the future continue on the same coordinates as the current ones?
Will the free movement of individuals be supported or it will be opted for a controlled
displacement, censored by various criteria in the spirit of some protectionist policies?
Will the balance between the number or immigrants and emigrants be equilibrated?
Will the families of Romanians with members working abroad become a majority?
Who will – on the Romanian labor market – replace the Romanians left to work
abroad?
How will the Romanian immigrants be involved in the economy of the adoptive states,
and the Romanian emigrants?
What educational and processional structure will prevail among the Romanian
immigrants, and respectively of the immigrants in Romania?
Which will be the favorite emigration areas for Romanians?
Under what auspices will the EU legislative frame be drafted, what about the
Romanian one, in the context of European exhaustion due to the extension of the
longest and most difficult financial and economic, structural and moral post-war crisis?
What kind of contribution will these persons have in the development of the adoption
economies?
To what sectors or business sectors will the poor or starving people turn in the
adoption states?
Which will be the consequences on short and long term on the personal lives of those
departed, or on their family members, left home?
The series of questions is not exhaustive. Only that the documented answers will take
into account the official statistics, which might be more or less close to reality, but will not
necessarily be consistent with people’s needs.
The phenomenon of migration, temporary, transient or permanent, acquires high
significance, either at individual or mass level. In the case in which movement transcends our
national boundaries the adjustment problems become bigger. No matter how many the
practical instruments used for transposing theoretical concepts into reality, it is very hard to
meet all needs of the person displaced from his/her home environment and included in a
different organizational, economic and social climate. There will always exist unsolved, or
worse, unsolvable aspects – because of subjective rather than objective reasons:
Individual’s status (refugee, displaced for economic reasons…) at both absolute level,
as compared to the local citizens;
Knowledge of the language of the adoption country, as well as of the cultural customs
and behavior;
Access to national systems of education, health and social health insurance;
Free or conditional entry on the labor market;
Homestead right;
Transformation of family relationships;
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Misunderstanding or non-acceptance of social norms;
Level of tolerance;
Capacity for learning and living in multiculturalism;
Speed of response and adaptation to changes in the adoption society etc.
MIGRANT’S PSYCHOLOGICAL PROFILE.
In the majority of cases, the migrant is forced to separate from his/her native land, and
is not pushed forward by an adventurous spirit. Of course, there is a relatively insignificant
segment among migrants who leave in order to meet their need for knowledge through
experience in the most pragmatic way.
From this point of view, he/she can be a permanent migrant (who wishes to change his
country and citizenship/nationality, accompanied by family), temporary immigrant (for
economic reasons, killed worker or businessman or manager in leading a multinational
subsidiary), displaced (by expulsion, repatriation, transfer, refugee on political, social,
religious, racial grounds).
Generally, does the migrant knowingly weight the advantages and disadvantages of
his/her leaving? The tendency would be to give a positive response, precisely because such
thinking and turmoil take place. But, in reality, the individual in dilemma does not have
access to all data and information he/she would need in order to take such a fundamental
decision.
THE PRESENT DEMOGRAPHIC FRAME.
The population of Romania, in a permanent decrease, does not register more over 20
million people living in country or abroad. This negative growth should not be explained by a
phase of approximately two decades of economic development, on the contrary. We can see
the results of very few motivating policies – low standard of living, little interest for the
quality of life and health, lack of interest for forming a family, discrimination against woman
on the labor market (not de jure, but de facto), the generalization of families formed of young
people with high education with only one child compared with families formed of people with
very few years of school and who do not stop at only two children. The family policies have
focused on everything but health, education and training, inclusion on the labor market, the
alignment of the population age balance (few children and youngsters, old people who retire
naturally or helped by social policies, active population diminished because of legal or illegal
migrants)…
LEGAL FRAMEWORK AND MIGRATION POLICIES.
Romania’s accession to the various community and world structures caused its
legislation to adapt to the international legal requirements. There have been made important
steps in the regulation of free movement of labor force, of the refugees, temporary migrants,
legal and illegal migrants’ status etc…
It is important to continue to support these policies of regulating and controlling the
migrant flows, especially in a time of crisis, of international cooperation and when there is an
interest in strengthening the legislation on legal and illegal migration of foreign employees, as
well as those policies facilitating the migrants’ integration in society.
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In order to implement migration policies, there should be established the major
coordinates of the social and economic policies, either on the same reasons as it has been so
far or on fundamentally different principles. This is where government interests come in,
which will show interest or not for the individual or collective, voluntary or forced migration
(internal conflicts, natural disasters, persecution…), humanitarian migration, migration of the
capital investors, contract labor migration (as in the USA) and migration for personal reasons
(economic, political, religious, racial…).
Also through the migration policies should be established, again depending on the
governing class interests, the consequences of the migration flow, first at the level of the
countries of origin and those of adoption, then at the third country’s level, but most
importantly at the migrant’s level and his/her family.
CONCLUSIONS AND IMPLICATIONS
If the EU and national decision makers are motivated by good intentions, they will
know what steps to take in order to create new, secure and well-paid jobs, to offer people
stability, psychological comfort and well-motivated engagement in activity. In this way there
will be achieved not only the Europe 2020 objectives, but also the strong fundamentals for a
policy of stimulating the birth rate, which shall tip the balance of births and deaths.
The only sustainable way for the population has to be found in a demographic policy
designed by objectives, not primarily depending on resources. Maybe this way Romania will
not become in forty years the country with the oldest population in Europe, precisely because
the economy remains poor, the emigration is high as well as the immigration from countries
in the Far East.
It would be interesting to continue the studies from another perspective than that of the
past years, with an orientation towards the economic and human development and in the same
time with respect and responsibility for the public money and the investments in the economy.
REFERENCES
1. Michel Beine, Frédérick Docquier; Croissance et convergence des régions _ Théorie;
faits et déterminants, (2000), De Boeck Université, Bruxelles
2. Dumitru Sandu, Locuirea temporară în străinătate. Migraţia economică a românilor
1990-2006, (2006), Bucureşti, FSD
3. Cătălin Zamfir (coord.), Situaţie sărăciei în România. Politici suprapuse, UNDP,
2001
4. Elena Zamfir (coord.), Ilie Bădescu, Cătălin Zamfir, Starea societăţii româneşti după
10 ani de tranziţie, (2000), ditura Expert, Bucureşti
5. Roel Jennissen, Ethnic Migration in Central and Eastern Europe: Its Historical
Beckground and Contemporary Flows, Studies in Ethnicity and Nationalism, volume
11, Issue 2, October 2011
6. Sami Mahroum, Highly Skilled Globetrotters: Mapping the International Migration of
Human Capital, R&D Management, Vol.30, Issue 1, January 2000
7. Marc C. Regets, Harriet Orcutt Duleep, Immigrants and Human-Capital Investment, in
American Economci Review – AER, 1999, Vol.89, no.2
8. Erik Olin Wright , Redesigning Distribution: basic income and stakeholder grants as
cornerstones of a more egalitarian capitalism, by Bruce Ackerman, Ann Alstott and
Philippe van Parijs, with contributions by Barbara Bergmann, Irv Garfinkle, Chien-
68

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Chung Huang , Wendy Naidich, Julian LeGrand, Carole Pateman, Guy Standing,
Stuart White (London: Verso, 2005)
9. Sonia McKey, Precarious work, in conference Europe 2020: Fighting with Poverty
and Social Exclusion of Workers, Conference in Warsaw, 20-22 April
10. Stephan Portet, La pauvreté et consommation intérieure, dans la Conference Europe
2020 : - - Combattre la pauvreté et l’exclusion sociale des travailleurs, Conférence en
Varsovie, 20-22 Avril, soutenuée par la Commmunauté Européenne
WEB
1. http://www.polirom.ro/catalog/carte/sociologia-migratiei-teorii-si-studii-de-cazromanest-3356/
2. http://www.cogitus.ro/politica/efecte-politice-ale-migratiei-rezultate-ale-unui-sondajcogitus
3. http://www.firststepsproject.eu/web/content.asp?lng=ro&parent=POLICY&section=C
omprehensive
4. http://www.polirom.ro/catalog/carte/sociologia-migratiei-teorii-si-studii-de-cazromanest-3356/
5. http://www.scribd.com/doc/28614059/Politici-Publice-in-Domeniul-Migratiei-in-
Romania
6. http://www.ziare.com/articole/saracie+romania
7. http: //ec.europa.eu/romania/
8. http://ec.europa.eu/commission_2010-2014/semeta/index_en.htm
9. http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database#
10. http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=
en&pcode=tsieb020
11. http://lacoltulstrazii.wordpress.com/2012/02/15/recensamantul-si-politicile-publicefamilie-migratie-politici-regionale-alegeri/
12. http://mighealth.net/ro/index.php/Refugiati_si_azilanti
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IMPROVING THE ACCURACY OF MACROECONOMIC
FORECASTS IN ROMANIA
Bratu Mihaela
Academy of Economic Studies Bucharest
ABSTRACT
We propose to improve the macroeconomic forecasts for some important indicators by
choosing the best econometric model. We find out that ARMA processes are the most
indicated models to use in developing macroeconomic forecasts in Romania. Moreover, by
combining the ARMA model with the one with lag we got a prediction for October 2011 with
a higher degree of accuracy. Inflation rate, unemployment rate and interest rate are some of
the most important indicators used at macroeconomic level. These variables present an
important interest for the central banks that establish the monetary policy (inflation target),
but also for the government interested in public policies. Macroeconomic modeling offers the
advantage of using more models to describe the evolution of a single variable and also the
advantage of predicting it. But it is important to choose the forecast with the higher degree of
accuracy. Calculating some indicators of accuracy we may know the best forecast that will be
used to establish the macroeconomic policies. For all the analyzed variables in Romania,
ARMA models generate more accurate forecasts than VAR(2) models or models with lags. We
presented an original way of building combined forecasts, using the previous predictions
based on the mentioned econometric models. So, we demonstrated that nonstructural
forecasting using ARMA models and the combined forecast of ARMA with the model with lag
are the best choice for monthly macroeconomic data series in Romania, even if structural
forecasting is based on complex models such as VAR ones.
Keywords: forecasts, accuracy, ARMA models, inflation rate, unemployment rate,
interest rate, nonstructural forecasting
JEL Classification: E21, E27,C51, C53
1. INTRODUCTION
In establishing the monetary policy, the deciders must take into account the possible
future evolution of some important macroeconomic variables as inflation rate, unemployment
rate or interest rate. This fact implies the knowledge of the predictions of these indicators. In
econometrics we can build forecasts starting from a valid model. The real problem appears
when we have some alternative models and we must choose the one with the higher degree of
accuracy.
In this article, we modeled the three selected variables and we made predictions for
them. Using indicators of accuracy we demonstrated that ARMA models generate the best
forecasts in Romania.
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2. LITERATURE REVIEW
To assess the forecast accuracy, as well as their ordering, statisticians have developed
several measures of accuracy. For comparisons between the MSE indicators of forecasts,
Granger and Newbold proposed a statistic. Another statistic is presented by Diebold and
Mariano (1995) for comparison of other quantitative measures of errors. Diebold and Mariano
test proposed in 1995 a test to compare the accuracy of two forecasts under the null
hypothesis that assumes no differences in accuracy. The test proposed by them was later
improved by Ashley and Harvey, who developed a new statistic based on a bootstrap
inference. Subsequently, Diebold and Christoffersen have developed a new way of measuring
the accuracy while preserving the cointegrating relation between variables.
Armstrong and Fildes (1995) showed that the purpose of measuring an error of
prediction is to provide information about the distribution of errors form and they proposed to
assess the prediction error using a loss function. They showed that it is not sufficient to use a
single measure of accuracy.
Since the normal distribution is a poor approximation of the distribution of a lowvolume
data series, Harvey, Leybourne, and Newbold improved the properties of small length
data series, applying some corrections: the change of DM statistics to eliminate the bias and
the comparison of this statistics not with normal distribution, but with the T-Student one.
Clark evaluated the power of equality forecast accuracy tests , such as modified versions of
the DM test or those used by or Newey and West, based on Bartlett core and a determined
length of data series.
In literature, there are several traditional ways of measurement, which can be ranked
according to the dependence or independence of measurement scale. A complete
classification is made by Hyndman and Koehler (2005) in their reference study in the field,
“Another Look at Measures of Forecast Accuracy “:
Scale-dependent measures
The most used measures of scale dependent accuracy are:
-> Mean-Square Error (MSE) = average ( e 2 t
)
-> Root Mean Square Error (RMSE) = MSE
-> Mean Absolute Error (MAE) = average ( e
t
)
-> Median Absolute Error (MdAE) = median ( e
t
)
RMSE and MSE are commonly used in statistical modeling, although they are
affected by outliers more than other measures.
Scale-independent errors:
-> Measures based on percentage errors
et
The percentage error is given by: p
t
100
X
t
The most common measures based on percentage errors are:
* Mean Absolute Percentage Error (MAPE) = average ( p
t
)
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* Median Absolute Percentage Error (MdAPE) = median ( p
t
)
2
* Root Mean Square Percentage Error (RMSPE) = geometric mean ( p
t
)
2
* Root Median Square Percentage Error (RMdSPE) = median ( p
t
)
When X t
takes the value 0, the percentage error becomes infinite or it is not defined
and the measure distribution is highly skewed, which is a major disadvantage. Makridakis
introduced symmetrical measures in order to avoid another disadvantage of MAPE and
MdAPE, for example, too large penalizing made to positive errors in comparison with the
negative ones.
X
t
Ft
* Mean Absolute Percentage Error (sMAPE) = average ( 200 )
X F
X
t
Ft
* Symmetric Median Absolute Percentage Error (sMdAPE) = median ( 200 ),
X F
where F - forecast of
t
X
t
.
-> Measures based on relative errors
et
*
It is considered that rt
, where e
*
t
is the forecast error for the reference model.
e
t
* Mean Relative Absolute Error (MRAE) = average ( r t
)
* Median Relative Absolute Error (MdRAE) = median ( r t
)
* Geometric Mean Relative Absolute Error (GMRAE) = geometric mean ( r t
)
A major disadvantage is the too low value for the error of benchmark forecast.
->Relative measures
RMSE
For example, the relative RMSE is calculated: rel _ RMSE , where RMSEb
is
RMSEb
the RMSE of “benchmark model”
Relative measures can be defined for MFA MdAE, MAPE. When the benchmark
model is a random walk, it is used rel_RMSE, which is actually Theil's U statistic. Random
walk or naive model is used the most, but it may be replaced with naive2 method, in which
the forecasts are based on the latest seasonally adjusted values according Makridakis,
Wheelwright and Hyndman .
t
t
Free-scale error metrics (resulted from dividing each error at average error)
Hyndman and Koehler (2005) introduce in this class of errors “Mean Absolute Scaled
Error” (MASE) in order to compare the accuracy of forecasts of more time series.
In practice, the most used measures of forecast error are:
Root Mean Squared Error (RMSE)
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RMSE
1
n
n
j1
e
2
X
( T
0
j,
k)
Mean error (ME)
1
ME
n
n
j1
e
X
( T
0
j,
k)
The sign of indicator value provides important information: if it has a positive value,
then the current value of the variable was underestimated, which means expected average
values too small. A negative value of the indicator shows expected values too high on
average.
Mean absolute error (MAE)
n
1
MAE eX
( T0
j,
k)
n j1
These measures of accuracy have some disadvantages. For example, RMSE is affected
by outliers. Armstrong and Collopy (2000) stress that these measures are not independent of
the unit of measurement, unless if they are expressed as percentage. Fair, Jenkins, Diebold
and Baillie show that these measures include average errors with different degrees of
variability. The purpose of using these indicators is related to the characterization of
distribution errors. Clements and Hendry have proposed a generalized version of the RMSE
based on errors intercorrelation, when at least two series of macroeconomic data are used. If
we have two forecasts with the same mean absolute error, RMSE penalizes the one with the
biggest errors.
U Theil’s statistic is calculated in two variants by the Australian Tresorery in order to
evaluate the forecasts accuracy.
The following notations are used:
a- the registered results
p- the predicted results
t- reference time
e- the error (e=a-p)
n- number of time periods
U
1
n
t 1
n
t 1
a
( a p )
2
t
t
t
n
t 1
2
f
2
t
The more closer of one is U 1, the forecasts accuracy is higher.
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U
2
n1
t1
n1
t 1
f
(
t1
a
(
t1
a
a
t
t1
)
at
)
a
t
2
2
If U 2 =1=> there are not differences in terms of accuracy between the two forecasts to
compare
If U 2 the forecast to compare has a higher degree of accuracy than the naive one
If U 2 >1=> the forecast to compare has a lower degree of accuracy than the naive one
Other authors, like Fildes R. and Steckler H. (2000) use another criterion to classify
X t
the accuracy measures. If we consider, (k)
the predicted value after k periods from the
origin time t, then the error at future time (t+k) is: e t
( t k)
. Indicators used to evaluate the
forecast accuracy can be classified according to their usage. Thus, the forecast accuracy
measurement can be done independently or by comparison with another forecast.
3. THE MODELS USED TO MAKE MACROECONOMIC FORECASTS
The variables used in models are: the inflation rate calculated starting from the
harmonized index of consumer prices, unemployment rate in BIM approach and interest rate
on short term. The last indicator is calculated as average of daily values of interest rates on the
market. The data series for the Romanian economy are monthly ones and they are taken from
Eurostat website for the period from february 1999 to october 2011. The indicators are
expressed in comparable prices, the reference base being the values from january 1999.
After applying the ADF test (Augmented Dickey-Fuller test) for 1, 2 and 4 lags, we
got that interest rate series is stationary, while the inflation rate (denoted rin) and the
unemployment rate (denoted rsn) series have one single unit root each of them (see Appendix
C). In order to stationarize the data we differenced the series, rezulting stationary data series:
ri
rs
t
t
rin
t
rsn
t
rin
t 1
rsn
Taking into account that our objective is the achievement of one-month-ahead
forecasts for August, September and October 2011, we considered necessary to update the
models. We used two types of models: a VAR(2) model, an ARMA one and a model in which
inflation and interest rate are explained using variables with lag. The models for each
analyzed period are shown in the table below. We developed one-month-ahead forecasts
starting from these models (see Appendix A), then we evaluated their accuracy.
t1
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Table 1 Models used for one-month-ahead forecasts
Reference
period of
data series
February
1999-July
2011
February
1999-
August
2011
February
1999-
September
2011
VAR(2)
RI = - 0.332549643*RI(-1) - 0.09857499949*RI(-2) + 0.6959845127*RD(-1) -
0.3327243579*RD(-2) - 1.149402259*RS(-1) - 6.645103743*RS(-2) +
0.1609208367
RD = 0.03639407301*RI(-1) + 0.01505176501*RI(-2) + 0.7472206176*RD(-1) +
0.08865293152*RD(-2) + 1.645267366*RS(-1) + 0.08076722019*RS(-2) +
0.01458050352
RS = 0.0001340429611*RI(-1) + 0.0009177472885*RI(-2) -
0.001883934895*RD(-1) + 0.002434943796*RD(-2) + 0.009381493101*RS(-1) +
0.1624923521*RS(-2) - 0.0002147805616
RI = - 0.3123344702*RI(-1) - 0.0790328783*RI(-2) - 1.201638141*RS(-1) -
6.690049339*RS(-2) + 0.6969093653*RD(-1) - 0.3324227192*RD(-2) +
0.1522329367
RS = 0.0001159284236*RI(-1) + 0.0009002358633*RI(-2) +
0.009428300954*RS(-1) + 0.1625326272*RS(-2) - 0.001884763643*RD(-1) +
0.002434673502*RD(-2) - 0.0002069954542
RD = 0.03566791295*RI(-1) + 0.01434978199*RI(-2) + 1.647143759*RS(-1) +
0.08238173503*RS(-2) + 0.7471873955*RD(-1) + 0.08864209619*RD(-2) +
0.01489258624
RI = - 0.2950275431*RI(-1) - 0.06113106597*RI(-2) - 1.235890563*RS(-1) -
6.707442706*RS(-2) + 0.6833790828*RD(-1) - 0.319815167*RD(-2) +
0.1449318154
RS = - 3.100273337e-05*RI(-1) + 0.0007482542901*RI(-2) +
0.009719094807*RS(-1) + 0.1626802922*RS(-2) - 0.001769895183*RD(-1) +
0.002327638774*RD(-2) - 0.0001450108972
RD = 0.03589036766*RI(-1) + 0.01457988307*RI(-2) + 1.646703495*RS(-1) +
0.08215816926*RS(-2) + 0.7470134839*RD(-1) + 0.08880414745*RD(-2) +
0.01479874122
Reference period
of data series
February 1999-
July 2011
February 1999-
August 2011
February 1999-
rit
rs
rd
0 ,159 0,223
0 ,747
t1
1 0, 691 t
t rs t t1
0 ,941
t rd t 1
rit 0,157
0,222
ri t 1 1t
rst 0,748
rs t 1 0, 691 2t
1
2t
rd t 0,941
rd t 1 3t
ri
0 ,99
t ri t t1
t
1 0, 98 t
t
ARMA
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September 2011
Reference period
of data series
February 1999-
July 2011
February 1999-
August 2011
February 1999-
September 2011
rs
rd
ri
rd
0 ,74
1 0, 69 t
t rs t t1
0 ,94
t rd t 1
0 ,115
0,215
t rd t 1
t
0 ,098
0,257
ri
t
Models having variables with lags
t
2 0, 264
ri
t t1
rd t 0 ,098 0,258
ri 2 0, 264
ri
ri
0 ,113
0,221
t t 1
t rd t 1
rd t 0 ,098 0,257
ri 2 0, 264ri
ri
0 ,11
0,226
t rd t 1
t t1
t
t
t
t
t
Source: own calculations using EViews.
In building the VAR models we check that the lag is 2 for stationarized variables,
three of the criteria indicating this fact (see Appendix B).
The forecasts based on these models are presented in Annex and these are made for
August, Septembre and October 2011 in the version of one-step-ahead forecasts.
4. THE ASSESSMENT OF FORECASTS’ ACCURACY
A generalization of Diebold-Mariano test (DM) is used to determine whether the
MSFE matrix trace of the model with aggregation variables is significantly lower than that of
the model in which the aggregation of forecasts is done. If the MSFE determinant is used,
according Athanasopoulos and Vahid (2005), the DM test can not be used in this version,
because the difference between the two models MSFE determinants can not be written as an
average. In this case, a test that uses a bootstrap method is recommended.
The DM statistic is calculated as:
DM
1
s
t
1
T [
T
T [
tr(
MSFE
T
t1
( em
)
tr(
MSFE
ARMA mod el h
VAR(2)
mod el h
s
2 2 2 2 2 2
1,1
, t em 2,1,
t em 3,1,
t er 1,1 , t er 2,1,
t er 3,1,
t
T-number of months for which forecasts are developed
em i , h , t the h-steps-ahead forecast error of variable i at time t for the ARMA
model
er i , h , t the h-steps-ahead forecast error of variable i at time t for the VAR(2)
s- the square root of a consistent estimator of the limiting variance of the
numerator
The null hypothesis of the test refers to the same accuracy of forecasts. Under this
assumption and taking into account the usual conditions of central limit theorem for weakly
)
]
)]
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correlated processes, DM statistic follows a standard normal asymptotic distribution. For the
variance the Newey-West estimator with the corresponding lag-truncation parameter set to h
− 1 is used.
On 3 months we compared in terms of accuracy the predictions for all the three
variables, predictions made starting from VAR(2) models and ARMA models. The value of
DM statistics (34,48) is greater than the critical one, fact that shows there are significant
differences between the two predictions. The accuracy of forecasts based on ARMA models is
higher than that based on VAR models.
VAR(2) and ARMA models have the tendency to underestimate the forecasted values
of inflation rate unlike the models with lag. The predictions of inflations based on ARMA
models have the higher accuracy, the value close to zero for U1 confirming this observation
as the other accuracy indicators that registered the lowest values. As the U2 Theil’s statistic
has values higher than one for al one-step-ahead forecasts, the naïve predictions are better
than those based on VAR(2) models, ARMA models or models with lag for inflation rate.
Table 2
Indicators of forecasts accuracy for the inflation rate
Inflation rate
Indicators of
accuracy
Models used to build the forecasts
VAR(2) ARMA Models with lag
RMSE 4,482473 0,430998 1,262643
ME 1,385 0,234863 -1,06267
MAE 3,577667 0,415137 1,062667
MPE 4,854135 0,823079 -3,72371
MAPE 12,57103 1,45622 3,723707
U1 0,021042 0,00854 0,017756
U2 41,27034 3,968221 11,62521
Source: own calculations using Excel.
For the unemployment rate the VAR(2) models underestimate the forecasted values.
The values registered by the indicators are contradictory, because some of the indicators of
accuracy indicate a higher precision for predictions based on VAR(2) models (ME,MPE,U1),
and the others consider that ARMA models should be used in forecasting the unemployment
rate (RMSE, MAE,MAPE). Relative RMSE indicator is 2,74, fact that suggests a higher
accuracy for predictions based on ARMA models. The unemployment rate forecasts based on
both models are better than those obtained using the naïve model.
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Table 3 Indicators of forecasts accuracy for the unemployment rate
Unemployment rate
Indicators of
accuracy
Models used to build the forecasts
VAR(2)
ARMA
RMSE 0,022821 0,008324
ME 0,0019 0,0076
MAE 0,0219 0,0076
MPE 5,049578 15,40997
MAPE 44,41572 15,40997
U1 0,429091 0,966619
U2 0,0008 0,000292
Source: own calculations using Excel.
Table 4
Indicators of forecasts accuracy for the interest rate
Interest rate
Indicators of
accuracy
Models used to build the forecasts
VAR(2) ARMA Models with lag
RMSE 0,027382 0,002357 0,023588
ME 0,026633 0,001283 0,022933
MAE 0,026633 0,00215 0,022933
MPE 36,17233 1,715201 31,05321
MAPE 36,17233 2,902297 31,05321
U1 1,346936 0,245252 1,215116
U2 0,000961 0,00008278 0,000828
Source: own calculations using Excel.
The best forecasts for the interest rate are those based on ARMA models, all the
indicators of accuracy having registered the lowest values. For all the presented models we
observed the underestimation tendency for the predicted values. Only ARMA models have a
good accuracy, the value close of zero for the U2 statistics (0,245) validating this conclusion,
unlike VAR models or those with lag for which U1 registered values greater than one. The
forecasts based on proposed models have a higher acccuracy than those based on naive
models.
In literature many studies took into account the combination of two methods based on
model (for example, the Bayesian model of mediation), but French and Insura claim that
combinations of predictions based on model and experts evaluation were not proposed.
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We combined the predictions made by us using the mentioned econometric models.
The new predicted values are calculated by writing a linear combination of the values of our
forecasts. In order to get the coefficients of the linear combination, we solved a system of
linear equations for the previous 2 months for which we know the registered values and the
predicted ones.
Table 5 The one-month-ahead predicted values for unemployment rate resulted by combing
the forecasts and the registered values
Unemployment
rate
Combined
forecasts
VAR(2)
and model
with lag
Combined
forecasts
ARMA
and model
with lag
Combined
forecasts
VAR(2)
and
ARMA
Registered
values
October 2011 0,026783 0,029931 0,061706 0,028594
Source: own calculations using Excel.
Table 6
Indicators of combined forecasts accuracy for the unemployment rate
Unemployment
rate
Indicators of
accuracy
Models used to build the
forecasts
Combined
forecasts
VAR(2) and
model with lag
Combined
forecasts
ARMA and
model with
lag
Combined
forecasts
VAR(2) and
ARMA
ME -0,00181 0,001337 0,033112
MAE 0,00181 0,001337 0,033112
U1 -0,04622 0,032299 0,486876
U2 0,896175 0,7306011 1,9399
Source: own calculations using Excel.
As we can see from the above table we have a considerably improvement of
unemployment prediction accuracy for October 2011 by combining the ARMA model with
the one with lag. The forecast based on this combination is better than the one based on a
naïve model and the degree of accuracy is a higher one.
CONCLUSIONS AND IMPLICATIONS
Analyzing the results of this research, we recommend the use of ARMA models in
making predictions about macroeconomic variables as inflation rate, unemployment rate or
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interest rate in Romania. We got the higher accuracy for these forecasts, that proved to be
better than those based on VAR(2) models or on models with lagged variables. Actually,
some observations are lost when the model uses lagged variables. It seems that the
dependence between more variables makes more difficult their prediction, while nonstructural
forecasting using ARMA models is more performant. The superiority of ARMA models over
VAR ones was demonstrate also for the economy of Pakistan by Bokhari and Feridun (2005).
The original way to built combined forecasts is very useful, because combining ARMA model
with the one with lag determined a better accuracy.
It is very important to use the most accurate forecast in order to improve the decisional
process when a governmental policy is established.
REFERENCES
1. Armstrong, J. S. , Collopy F. (2000), “ Another Error Measure for Selection of the
Best Forecasting Method: The Unbiased Absolute Percentage Error,” International
Journal of Forecasting, 8, p. 69-80.
2. Armstrong, J. S. , Fildes R. (1995), “On the selection of Error Measures for
Comparisons Among Forecasting Methods”, Journal of Forecasting, 14, p. 67-71
3. Athanasopoulos, G., and Vahid, F., 2005. A Complete VARMA Modelling
Methodology Based on Scalar Components, working paper, Monash University,
Department of Econometrics and Business Statistics
4. Bokhari SM. H., Feridun M. (2005), Forecasting Inflation through Econometrics
models : An Empirical Study on Pakistani Data, The Information
Technologist Vol.2(1), p. 15-21
5. Diebold, F.X. and Mariano, R. (1995),“Comparing Predictive Accuracy,” Journal of
Business and Economic Statistics, 13, p. 253-265
6. Fildes R., Steckler H. (2000), “The State of Macroeconomic Forecasting”, Lancaster
University EC3/99, George Washington University, Center for Economic Research,
Discussion Paper No. 99-04
7. Hyndman R. J., Koehler A.B. (2005), “Another Look at Measures of Forecast
Accuracy”, Working Paper 13/05, disponibil la
http://www.buseco.monash.edu.au/depts/ebs/pubs/wpapers/
8. EUROSTAT, 2011. Data base. [online] Available at:
1. http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes [Accessed on
November 2011].
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APPENDIX A
The one-month-ahead forecasts based on different models
One-month-ahead forecasts using VAR(2) models
august september octomber
Inflation rate 21,45 31,7 28,17
Interest rate 0,038 0,0497 0,0534
Unemployment rate 0,028 0,032 0,0808
One-month-ahead forecasts using ARMA models
august september octomber
Inflation rate 28,7404 27,99 28,04
Interest rate 0,07135 0,0715 0,0743
Unemployment rate 0,0375 0,0427 0,0435
One-month-ahead forecasts for interest rate and unemployment rate using the inflation rate
from previous periods
august september octomber
Interest rate 0,0497 0,0455 0,057
Unemployment rate 0,02893 0,029123 0,03061
Source: own calculations using Excel.
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APPENDIX B
The selection of VAR lag
VAR Lag Order Selection Criteria
Endogenous variables: RI RD RS
Exogenous variables: C
Date: 12/01/11 Time: 17:05
Sample: 1999:02 2011:07
Included observations: 142
Lag LogL LR FPE AIC SC HQ
0 259.5526 NA 5.41E-06 -3.613417 -3.550970 -3.588041
1 1006.452 1451.719 1.66E-10 -14.00636 -13.75657* -13.90486
2 1021.749 29.08714 1.52E-10* -14.09506* -13.65793 -13.91743*
3 1030.278 15.85707 1.53E-10 -14.08843 -13.46396 -13.83467
4 1036.375 11.07658 1.59E-10 -14.04753 -13.23572 -13.71765
5 1048.669 21.81737* 1.52E-10 -14.09393 -13.09477 -13.68791
6 1051.139 4.279695 1.67E-10 -14.00196 -12.81547 -13.51982
7 1060.328 15.53007 1.67E-10 -14.00462 -12.63078 -13.44635
8 1068.504 13.47339 1.70E-10 -13.99301 -12.43184 -13.35861
* indicates lag order selected by the criterion
LR: sequential modified LR test statistic (each test at 5% level)
FPE: Final prediction error
AIC: Akaike information criterion
SC: Schwarz information criterion
HQ: Hannan-Quinn information criterion
Source: EViews output.
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APPENDIX C
Summarizing the results of ADF tests
Critical
values
for
tests in
level
Critical
values for
tests in
difference
lag=1 1% 5% 10% 1% 5% 10%
No trend and intercept
-2.5795 -1.9420
-1.6168
-2.5796 -1.9421
-1.6169
With Intercept
-3.4755 -2.8810
2.5770
-3.4761 -2.8812
-2.5772
With trend and
intercept
-4.0224 -3.4407
-3.1446
-4.0232 -3.4411
-3.1448
Critical
values
for
tests in
level
Critical
values for
tests in
difference
lag=2 1% 5% 10% 1% 5% 10%
- -1.9420 -1.6168 -2.5797 -1.9420 -1.6168
No trend and intercept 2.5796
-
-3.4761 -2.8812
With Intercept
With trend and
intercept
3.4758 -2.8811 -2.5771
-
4.0228 -3.4409 -3.1447
-4.0232 -3.4411
-2.5772
-3.1448
Critical
values
for
tests in
level
Critical
values for
tests in
difference
lag=4 1% 5% 10% 1% 5% 10%
No trend and intercept -2,579 -1,942 -1,616
-2.5799 -1.9421
-1.6169
With Intercept -3,476 -2,881 -2,577
-3.4767 -2.8815
-2.5773
With trend and
-4.0241
intercept -4,024 -3,441 -3,145
-3.4415 -3.1451
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Variable In level (lag=1) In first difference (lag=1)
Stat. test
Stat. test
Form
ADF lag
ADF
No trend and 6.787502 No trend and -
rin
intercept
intercept 2.035767
With Intercept - With Intercept -
rin
3.817451
4.718600
rin
With trend and
intercept
-
2.010517
With trend and
intercept
-
5.909993
rsn
No trend and
intercept
0.312309 No trend and
intercept
-
7.096568
rsn
With Intercept
-
2.444283 With Intercept
-
7.090129
rsn
With trend and
intercept
-
2.426232
With trend and
intercept
-
7.076960
rd
No trend and
intercept
-
4.831901
No trend and
intercept
-
9.103579
rd
With Intercept
-
5.256676 With Intercept
-
9.366360
rd
With trend and
intercept
-
6.037854
With trend and
intercept
-
9.837117
Variable In level (lag=1) In first difference (lag=1)
Stat. test
Stat. test
Forma
ADF lag
ADF
No trend and 4.597431 No trend and -
rin
intercept
intercept 3.326734
With Intercept - With Intercept -
rin
3.868553
7.102967
rin
With trend and
intercept
-
2.041405
With trend and
intercept
-
8.187379
rsn
No trend and
intercept
0.191290 No trend and
intercept
-
6.070165
rsn
With Intercept -
2.867053 With Intercept
-
6.065372
rsn
With trend and
intercept
-
2.853339
With trend and
intercept
-
6.053190
rd
No trend and
intercept
-
6.092955
No trend and
intercept
-
9.391311
rd
With Intercept -
6.985576
With Intercept -
9.456816
rd
With trend and
intercept
-
8.684066
With trend and
intercept
-
9.427959
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Variable In level (lag=1) In first difference (lag=1)
Forma Stat. test
Stat. test
ADF lag
ADF
rin
No trend and
intercept 2,531
No trend and
intercept
-
2.035767
rin
With Intercept
-3,504
With Intercept -
4.718600
rin
With trend and
intercept
-1,94 With trend and
intercept
-
5.909993
rsn
No trend and
intercept
0.108744 No trend and
intercept
-
5.266098
rsn
With Intercept -
3.001348
With Intercept -
5.254530
rsn
With trend and
intercept
-
2.994116
With trend and
intercept
-
5.226755
rd
No trend and
intercept
-
3.153161
No trend and
intercept
-
7.569001
rd
With Intercept -
3.381627
With Intercept -
7.709463
rd
With trend and
intercept
-
4.269621
With trend and
intercept
-
7.784932
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URBAN-RURAL MIGRATION IN ROMANIA AFTER 1990
Bunea Daniela
Academy of Economic Studies, Bucharest
ABSTRACT
Although the majority of countries, especially from the developing world, experienced a
major proportion of migrants from rural to urban areas, i.e. an urbanization process, in
Romania, from 1997 onwards the opposite trend took place as urban-rural migration became
dominant. This trend cannot be attributed to a relative improvement in quality of life in rural
sites but to an increasing cost of living in urban sites which determined poor or unemployed
urban inhabitants “to take refuge” in villages where they can produce a major part of their
consumption and bear lower costs. This “contradictory” pattern has its indirect roots in the
socio-economic changes provoked by the transition to the market economy.
Key words: rural, urban, migration, Romania
1. INTRODUCTION
Here I want to point out some general differences between urban area and rural area.
First, what are the main connections between the city and the countryside? Lynch (2005)
identifies these in the form of natural flows, people and food (more obvious), and finance and
ideas (less obvious). He represents these links in the fig. 1 below.
Source: Kenneth Lynch, 2005: 6
Figure 1. Connections between the city and the countryside
Zombori and Milin (2006) consider the following traits of rural places: interpersonal
human relations relatively more direct and closer due to shorter distance and stronger family
ties; weaker social stratification; lower density of population; dominant native inhabitants;
poorer social services and more precarious living conditions. Thus, Romania presents a great
variety of differences between urban and rural environments if considering both physical and
social infrastructure.
Also, rural areas are: less polluted, life is less stressful, lack luxury and technology, have
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a closer relation with “nature”, have high levels of self-consumption, etc..
The main objectives of this paper are: to establish the direction of migrants between the two
residence environments; to see if men migrate more than women, or if young people migrate
more than aged people, at national and area level; to get an idea about the reasons behind the
main patterns.
The remained of the paper is structured as follows: section 2 reviews the existing
literature about migration by area of residence; section 3 makes a statistical analysis of the
domestic migratory flows by area, sex and age over the period 1990(1)-2009; section 4 offers
some differences in figures between the two areas in an attempt to discover which could be
the main causes behind the decision to migrate from one area to another; finally, section 5
concludes.
2. LITERATURE REVIEW ON AREA MIGRATION
Migration occurs as a response to economic, social, cultural, environmental and political
factors and affects both origin and destination places. Migration is a selective process
affecting individuals and/or families with certain economic, social, educational and
demographic characteristics. It can be either temporary or permanent (Adewale, 2005).
Lee (1966) formulated the push-pull theory of migration. Thus, push factors are those
forcing people to leave a certain place of origin (low wages and weak job opportunities, lack
of social facilities, poverty, instability, etc.) while the pull factors are those attracting people
in a certain place of destination (better opportunities, various facilities, favourable climatic
conditions, etc.).
RURAL-URBAN MIGRATION
In the existing literature, the attention was focused overwhelming on the rural-urban
migration and its consequent effects. The departure point is represented by the Harris-Todaro
(HT) model according to which the decision to migrate is taken when:
‣ urban wages rise, thus increasing the expected urban income;
‣ agricultural efficiency decreases, thus lowering the marginal productivity and wages in
the primary sector and also the expected rural income.
Another way put, migration results when the individual’s expected urban wage
exceeds the average rural wage. The expected urban wage depends on the actual urban wage
and on the probability to find a job in the urban sector; this probability is directly related to
urban employment rate and inversely related to urban unemployment rate.. Also, the HT
model explains the urban overcrowding and unemployment effects, as migration rates exceed
urban job creation rates, with many migrants ending to work in the informal sector, as being
yet economically rational and utility-maximizing. Moreover, Todaro (1976) states that this
type of migration is “the major contributing factor to the ubiquitous phenomenon of urban
surplus labour and as a force which continues to exacerbate already serious urban
unemployment problems” (p. 2). According to the two authors, the rural-urban migration in
Western Europe and U.S. happened at the moment of industrialization, whilst in developing
countries happened in the context of urban unemployment. Why? Because what matters is the
expected wage (not the actual one) which implies being (under)unemployed for a while. The
Todaro Paradox can be described as a process in which an increase in urban employment may
result in higher levels of urban unemployment and even reduced GDP (Riadh, 1998).
This type of migration is specific to the less developed countries and is motivated by a
professional change from primary to secondary and tertiary sectors of activity. Its main
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consequences are urban agglomeration, urban growth and rural depopulation. But what are its
factors of determination i.e. push and pull factors? They can be both economic and noneconomic.
Altenburg (2009) points the following “reasons” to leave rural:
‣ economic: unemployment or under-unemployment, low wages, lack of land property,
and poor labour demand;
‣ non-economic: poor living conditions (housing, education, health care, other
facilities), higher exposure to natural phenomena, agricultural instability.
Who migrate more? Answer: the young (especially men) and both high and low-skilled
persons (Altenburg, 2009).
Lucas Jr. (2004) considers this migration as a “transfer of labour from a traditional
land-intensive technology to a human capital-intensive technology” (p. 29) with great
potential for growth.
Rural-urban migration produces a fall in agricultural production unless there is a labour
surplus (the marginal productivity of labour is null) and/or the remaining workers supplement
work as to maintain production constant (Stiglitz, 1969).
Okpara (1983) think that rural migrants make a negative impact on the quality of rural
life especially when they “take away” their consumption needs and if they are younger
because farmers lack their work and have to work harder and more. In turn, this affects their
leisure time and/or health conditions. Cornwell and Inder (2004) argue that a highly
concentrated population in cities increases social costs such as congestion, pollution and
crime.
URBAN-RURAL MIGRATION
Although much less studied than the previous one, urban-rural migration is specific to
older people, mainly retirees, who prefer to go back to their rural natal places after leaving
their working life. More generally speaking, people looking for serenity and quiet (less noise,
less pollution, less stress), for lower costs of living or people who did not fulfil their “city
dream” are the most to return to the countryside. In this sub-section, I will make a general
presentation of the existing literature on Romanian migration.
We will see in the next section that migration from urban to rural started to dominate
since 1997 onwards. Băbeanu and Vlăsceanu (2007) attribute the change to the land
restitution process (Law no. 18/1992). The fact that from 1990 ongoing it took place an
industrial decline, which forced the former inhabitants of rural areas to return home as a
consequence of massive layoffs in industry, is somewhat a paradoxical reversal of the natural
course of evolution, unique in the Eastern and Central Europe.
Majuru (2012) argues that the urban-rural trend has its roots in the much higher costs of
living in the urban area and not on the socio-economic development.
The dominant urban-rural migration that has happened in the first years after 1989
reduced the unemployment in the origin places and increased it in the destinations ones
(Constantin et al., 2003).
Professor Dumitru Sandu considers that urban-rural migration was a consequence of:
national economic recession during 1997-1999 which impacted stronger in urban; mainly,
former rural inhabitants returned home because of personal unemployment and/or financial
difficulties; in contract to the developed countries, urban-rural migrants were not wealthy and
in search of quieter environments; and rural inhabitants as former urban migrants were the
first to emigrate abroad.
Ruralisation can be considered as a solution to insufficient housing space, rising prices
of urban-household services, environment degradation, proliferation of antisocial acts and
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others (www.deferlari.ro). According to Petre (2008), the period of migratory boom was
1973-1982; during this, rural-urban direction prevailed due to industrial expansion and higher
wages in towns and cities. Later, until 1989, a decline in flows began. She explains the urbanrural
domination (since 1997) as a consequence of retro-migration, i.e. people returning to
natal rural places because of burdensome urban costs, and of an increasing external migration.
Also, Petre (2005) talks about the tendency of wealthy rural in-migrants to choose places
situated nearby big and important cities and with stronger economies, or places with touristic
potential where to start a family business.
Ghețău (2005) assumes as causes of migration between the two residence environments
the following: the economic restructuring produced after 1989, the new law of land
retrocession (to former owners) applied after the dissolution of the agricultural cooperatives
created under the communist regime. Moreover, he attributes the worsening of life in cities to:
unemployment expansion, lower wages, lower purchasing power, and higher cost of lodging.
Rotariu and Mezei (1999) talk about the lack of urban dwellings as a consequence of the
cease of new apartment block construction.
3. INTERNAL MIGRATION BY AREA IN ROMANIA DURING 1990(1)-2009
3.1. TOTAL MIGRATION BY AREA
Table 1 displays the internal migration structure by area in Romania during the period
aforementioned. One can observe that rural-urban migration exceeded all the other three
forms of migration over the period 1990-1994, whilst urban-rural migration began to overhaul
the others during the intervals 1997-2005 and 2007-2009. Comparing intra-area flows, it
results that intra-urban surpassed intra-rural in 1990-1994, 1996 and 1998-2009.
As for the people living in cities, they were forming a majority during 1990-1996, after the
majority was taken by the rural inhabitants for a four-year period (1997-2000) and,
afterwards, the two categories swapped places; finally, in 2009, 50.5% of all inhabitants were
living in urban sites.
Table 1. Internal migration structure by area in Romania (%)
Year Urbanurban
Ruralrural
Ruralurban
Urbanrural
Established
in urban
Established
in rural
1990 18.1 8.5 69.8 3.5 87.9 12.0
1991 20.2 19.4 50.3 10.1 70.5 29.5
1992 24.3 22.8 39.2 13.7 63.5 36.5
1993 25.4 25.0 35.0 14.6 60.4 39.6
1994 25.6 25.5 30.5 18.4 56.1 43.9
1995 26.1 28.0 25.1 20.8 51.2 48.8
1996 27.4 24.5 24.7 23.4 52.1 47.9
1997 25.0 25.6 22.6 26.8 47.6 52.4
1998 26.0 23.6 22.0 28.5 48.0 52.0
1999 26.5 21.7 21.0 30.7 47.5 52.4
2000 23.6 23.0 19.5 33.8 43.1 56.8
2001 27.5 20.0 24.6 27.8 52.1 47.8
2002 25.8 21.6 22.4 30.1 48.2 51.7
2003 27.3 19.3 23.1 30.2 50.5 49.5
2004 26.1 21.1 21.1 31.8 47.2 52.8
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2005 28.1 20.2 22.1 29.6 50.2 49.8
2006 30.2 19.2 22.5 28.1 52.7 47.3
2007 25.5 21.4 21.4 31.6 46.9 53.1
2008 27.6 20.2 20.2 32.1 47.8 52.2
2009 29.2 20.4 21.2 29.2 50.5 49.5
Source: Own elaboration based on INS data
NB: Grey colour illustrates the dominant flows.
Fig. 3 below displays the evolution of migration rates from rural to urban areas and vice
versa, and within each area. But first, 2008 was the year with the highest rate of total internal
migration; instead, 1993 recorded the lowest rate. The highest average rate belonged to urbanrural
migration (8‰), followed by rural-rural (6.7‰), urban-urban (6.6‰) and rural-urban
migration (6.3‰). First, the rural-urban migration reached its minimum in 2000 (3.9‰) and
its maximum in 1991 (10.7‰). Moreover, from 1991 to 2000 this rate decreased steadily after
which started to fluctuate. Secondly, the urban-rural migration suffered the strongest
fluctuations and reached its extreme values in 1991 (2.5‰) and 2008 (12.9‰). Thirdly, the
evolution of urban-urban rate was the closest to the national evolution with a minimum value
of 4.3‰ in 1991 and a maximum one of 9.1‰ in 2008. Finally, the rural-rural migration
witnessed the lowest fluctuations with a minimum rate of 4.7‰ in 1991 and a maximum one
of 8.3‰ in both 2007 and 2009. Overall, in 1991 the urban-rural migration recorded the
lowest rate of all types of migration and the entire period of time (2.5‰); also, this last type
of migration recorded in 2008 the highest rate of all types and all years. Furthermore, neither
evolution was similar to the national one with some exception for intra-urban flows. One can
observe that years 1991, 2000, 2005 and 2009 were representative in the evolution of
migration as they marked changes in trend.
20
18
rates per 1000 inhabitants
16
14
12
10
8
6
4
2
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009average
Total rural to urban urban to urban rural to rural urban to rural
Source: Own elaboration based on INS data
Figure 3. Evolution of internal migration rates by area
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3.2. MIGRATION BY AREA AND SEX
In Romania, women migrate more than men, with a 10 p.p. difference (55% women,
45% men) (fig. 4). The distribution remained quite the same except for 1990-1992.
51 52 53 54 54 55 55 55 56 56 55 56 56 55 55 56 55 54 54 55
55
49 48 47 46 46 45 45 45 44 44 45 44 44 45 45 44 45 46 46 45
45
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 average
Source: Own elaboration based on INS data
% men % women
Figure 4. Distribution of migration by sex
For the period 1990-2009, migration rates (national, men’s, women’s) followed an
oscillatory evolution with ups and downs. Moreover, in 1991, there was a sharp fall of
migration rates from values higher than 33% to values around 11%. According to fig. 5, on
average, women’s rates (15.6%) exceeded national rates (14.7%) which, in turn, exceeded
men’s rates (13.7%).
40
35
30
25
20
15
10
5
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009average
Source: Own elaboration based on INS data
men´s rates (‰) women´s rates (‰) national rates (‰)
Figure 5. Migration rates by sex
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From fig. 6 which shows the percentages of in- and out-flows of migration by area and
sex, I can conclude that, on overage, during 1990-2009, 54% of total, men and women
migrants moved in urban areas whereas 46% moved in rural areas. Instead, as for departures,
51% of total migrants left urban and 49% left rural; by sex, 53% of men left urban and 51% of
women left rural. Hence, both men and women preferred to move into urban areas although
more women left rural than urban contrary to men. Taking year by year, total arrivals in urban
areas dominated total arrivals in rural areas in the periods 1990-1996, 2001, 2006; to mention
that in 2003, 2005 and 2009 they were 50-50%. The same happened for men’s and women’s
arrivals. Things changed somewhat when considering yearly departures because for total and
men migrants departures from urban areas exceeded departures from rural areas during the
interval 1996-2009 whilst for women the “out-urban domination” last from 1998 to 2009 with
50% for each in 1997.
54%
46%
49%
51%
54%
46%
53%
47%
54%
46%
51%
49%
in urban in rural from urban from rural
arrivals
departures
Total Men´s Women´s
Source: Own elaboration based on INS data
Figure 6. Average percentage distribution of arrivals and departures by area and sex, 1990-
2009
Further, table 2 reveals that total, men and women movers recorded net but descending
urban inflows over the time span 1990-1996 (except for men in 1996), after which this
residence environment returned exclusively net outflows until the end with peaks in 2008 for
all categories.
Table 2. Urban migration balance by sex
Year Total Men Women
1990 521,422 260,674 260,748
1991 105,789 50,421 55,368
1992 74,701 35,381 39,320
1993 48,910 23,524 25,386
1994 32,344 15,538 16,806
1995 12,500 5,109 7,391
1996 3,683 -438 4,121
1997 -12,588 -8,064 -4,524
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1998 -17,998 -10,660 -7,338
1999 -26,620 -14,773 -11,847
2000 -34,938 -19,777 -15,161
2001 -9,490 -6,826 -2,664
2002 -24,696 -15,207 -9,489
2003 -23,485 -15,660 -7,825
2004 -39,554 -24,207 -15,347
2005 -20,537 -13,011 -7,526
2006 -18,649 -12,858 -5,791
2007 -38,002 -22,258 -15,744
2008 -46,157 -27,285 -18,872
2009 -26,267 -16,522 -9,745
Source: Own elaboration based on INS data
3.3. MIGRATION BY AREA AND AGE
Analyzing internal migration by age group, it turns out that migration is directly
related to age, i.e. younger people migrate more than aged people. The following two
figures, describing weights and rates of each age bracket, show that people aged 20-34 were
the most eager to move. This fact confirms the neoclassical theory of migration according to
which the willingness to migrate decreases with age (Borjas, 2008). Furthermore, the
distribution of migration by age takes an ∩-shaped form.
average
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
20
20
17
17
17
16
18
18
20
20
18
19
20
23
21
24
22
20
20
21
25
7
7
7
7
8
8
7
7
7
7
7
7
7
7
7
7
7
7
6
7
6
17
16
14
14
15
15
14
15
15
15
16
17
16
15
16
16
19
21
23
24
16
16
14
14
15
16
15
14
15
14
14
15
16
17
18
18
17
19
17
15
17
12
12
12
12
12
12
13
13
15
14
14
13
13
11
10
9
7
7
8 6
8 5
9
9
8
8
6
6
7
7
7
7
9
10
10
11
11
15
5
6
4
5
5
6
6
6
5
5
6
6
6
6
7
7
6
8
6
7
7
7
7
7
8
4 4
4 4
5 4
5 4
5
5
5
5
5 4
5 4
5 4
5 3
4
6
4
5
5
5
5
3
3
3
3
3
3
2
2
2
2
2
6
6
8
8
6
6
6
6
6
6
6
5
6
5
6
3
4 2 2
3 3
3 2 2
3 2 2
3 2 2
3 3 2
4 2 2 2
4 2 2 2
5
5
5
5
4
3
< 15 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 ≥ 60
Source: Own elaboration based on INS data
Figure 7. Distribution of migration by age
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1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
average
< 15 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 ≥ 60
Source: Own elaboration based on INS data
Figure 8. Gross migration rates by age
If we take into account the rates of arrival and departure by area, it results that rural inand
out-migration rates had the same hierarchy by age, but not urban rates. In general, none of
gross rates by area was identical to the national averages and the most mobile groups were
those aged 20-24, 25-29 and 30-34. Additionally, migrants aged 20-34, mainly, went to urban
arriving from rural; instead, those aged 40 and more left urban in favour of another urban
place or went to rural (fig. 9).
35
30
25
20
15
10
5
0
Total < 15 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 ≥ 60
Total in urban in rural from urban from rural
Source: Own elaboration based on INS data
Figure 9. Gross migration rates by age and area, 1990-2009 (averages)
Next table comes to shed some light on the facts mentioned above. Thus, until 1994,
almost all categories of age showed negative rural balances (except for older groups
beginning with 1991); from 1994 (inclusive) positive balances dominated in number and
scope. The only categories that continued to turn negative values during the whole time (with
two exceptions for each) were 20-24 and 25-29. Instead, migrants aged 35-39 and more
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registered only net rural inflows since 1995 until 2009. Unfortunately, the departure of young
people from rural area deprives this environment of an important human capital which could
contribute to its progress and growth.
Table 3. Rural migration balance by age
Year < 15 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 ≥ 60
1990 -
125,589
-
29,948
-95,209 -98,995 -79,533 -
38,248
-
20,168
-
10,760
-
8,537
-
5,955
-
8,480
1991 -16,783 -8,098 -38,635 -21,373 -11,925 -4,811 -2,389 -752 -212 84 -895
1992 -8,859 -5,432 -31,285 -17,394 -8,837 -3,234 -966 -50 376 733 247
1993 -3,441 -3,467 -20,796 -14,072 -5,487 -1,781 -569 -110 269 433 111
1994 2,800 -2,043 -17,636 -14,131 -3,593 -297 443 537 653 725 198
1995 7,246 -599 -13,290 -11,376 -1,955 1,270 1,922 1,538 1,180 1,132 432
1996 7,603 239 -12,003 -12,293 -1,854 2,190 3,111 2,971 2,052 2,251 2,050
1997 13,937 1,630 -8,232 -9,604 -127 3,185 4,167 3,127 1,923 1,572 1,010
1998 12,389 2,247 -6,167 -7,860 -591 3,059 4,617 3,923 2,579 1,905 1,897
1999 12,906 3,038 -3,996 -6,688 -382 3,525 5,638 4,953 3,491 2,023 2,112
2000 10,894 2,645 -1,387 -3,979 682 3,362 6,255 5,858 4,561 2,645 3,402
2001 332 1,595 -3,261 -6,643 -2,696 1,806 4,962 5,194 4,268 2,084 1,849
2002 2,596 2,168 -855 -4,617 -899 2,447 5,620 6,923 5,861 2,804 2,648
2003 143 1,891 -925 -3,964 -2,221 1,958 5,274 7,512 7,042 3,584 3,191
2004 3,093 1,853 533 -1,595 -441 3,391 5,677 8,533 8,428 4,861 5,221
2005 1,352 1,021 -637 -1,780 -1,339 1,687 3,057 5,200 5,531 3,261 3,184
2006 1,033 -15 -2,719 -2,998 -1,359 1,487 2,814 5,271 6,261 4,603 4,271
2007 2,542 682 -1,357 -1,035 83 2,432 3,712 6,179 8,338 7,257 9,169
2008 3,869 717 -1,142 306 2,802 3,429 4,498 5,754 8,731 7,895 9,298
2009 3,691 -25 -2,234 -222 1,789 2,338 3,288 3,495 5,399 4,406 4,342
Source: Own elaboration based on INS data
4. URBAN VERSUS RURAL: NUMERIC DIFFERENCES
1. What is the urbanization degree in Romania? The rate of urbanization moved within
the range 53-55% over 1990-2009. This level of very low compared to the European average
of 70%.
2. What is the distribution of population by area? In 1990, 87.9% of total population
was living in the urban centres while in 2009 this percentage fell at 50.5, with many changes
meanwhile. See table 1, section 3.
3. What is the poverty rate? Fig. 10 is illustrative and shows that rural poverty is much
higher than urban one. If in 1995 the ratio was of 2.5, in 2009, it reached 3.9 in spite of
declining trends for both (from 2001).
4. What is the life expectancy? From 1990 to 2009, this indicator increased in both areas
but its values were always higher in urban. Thus, according to INS data, 70.25 was the
average number of years in urban in 1990 and 74.16 in 2009; instead, in rural, it went from
68.7 in 1990 to 72.23 years in 2009.
5. What is the private housing distribution? In 1990, 66% of total private dwellings were
located in rural places while in 2009 this proportion fell at 46%. The change in trend started in
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1993.
6. What about the contribution of agriculture in total GDP? It fell from 21% in 1993 to
6.6% in 2008.
7. What about employment rate and unemployment rate (for people older than 15)?
Employment was higher in rural but descended from 67.2% in 1996 to 52.4% in 2009. In
urban, it devolved from 54.7% to 49.4%. As regards the BIM unemployment rate, this was
lower in rural where it increased from 4.1% in 1996 to 5.4% in 2009; in urban, it fell from
9.1% to 8.1% in the same period.
8. Are the elderly living more in rural? Yes, they do, although their rural proportion
decreased from 62% in 1990 to 56% in 2009.
9. How many households find it difficult to cover all current expenditures? On average
over the period 2007-2009, 27.06% in urban and 30.06% in rural. Hence, it seems that urban
households still have a higher capacity to overcome financial problems.
10. What is the distribution of the overall education graduation? It was much higher in
urban; it increased from 78% in 1994 to 83% in 2009.
11. What is the rate of infantile mortality? In urban recorded an average of 15.8 infant
deaths per 1,000 live-births whilst in rural it was of 21.5. In both areas, rates were situated on
a downward trend.
12. What about the natural increase of population? On average 1990-2009, it was of
around +4,200 in urban and -31,200 in rural.
13. What about the growth rate of real GDP per capita? From 1990 to 2009, this
indicator depicted an oscillatory evolution with a peak in 2008 (+9.4%) and a bottom in 1991
(-12.9%). Additionally, I have also illustrated the relevant migration rates (fig. 11). One can
observe the simultaneity occurred in 1997 between the moment when urban-rural migration
became dominant and the substantial fall in the economic growth rate which turned negative.
But even when the growth rate returned to positive values, the urban-rural trend continued to
prevail.
14. What about the average net gain? Computing the average difference between
incomes and expenditures, I notice that, the difference is relatively higher in urban for all
categories, except for the unemployed (fig. 12). So, it seems that unemployment could be a
major factor in deciding to move/stay to/in the rural area (see also point 7).
%
60
50
40
30
20
10
0
46.3 47.8
42.3 43
44.7
42.4
37.6
38
41.2
29.2
33.8
35.9
27.3
30.1
30.6 23.6
28.9
22.3
25.3
25.1
15.8
19.9
25.9
18.8
12.4
15.1
9.8
20.2 20.6 22.2
13.8
18.8
15.2
17.6
9.8
5.7 7.4
12.5
13.8
11.6
8.1 6.8
4.9
2.3 3.2
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
total urban rural
Source: 1995-2003 CASPIS, 2004: Dinamica sărăciei și a sărăciei severe în perioada
1995-2003
2004-2009 Ministry of Labour, Family and Social Protection
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Figure 10. Absolute poverty rate in Romania by area, 1995-2009
15
10
5
0
-5.6
-10 -8.8
-12.9
-15
1.5
4
7.2
4
-1.2
-6.1 -4.8
2.1
5.7 5.1 5.2
8.4
4.2
7.9
6
9.4
-8.5
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
real GDP urban-rural rural-urban
Source: Own elaboration based on The World Bank data
NB: Figures reflect the growth rates.
Figure 11. Growth rate of real GDP per capita, 1990-2009
Rural
Self-employed in
non-agricultural
activities Farmers Unemployed Retirees
Urban
Total
Rural
Urban
Total
Rural
Urban
Total
Rural
Urban
Total
Total Employees
Rural
Urban
Total
Rural
Urban
Total
-20 -15 -10 -5 0 5 10 15 20 25 30 35
Source: Own elaboration based on INS data
Figure 12. Average net gain by area, 1998-2009
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From all points analyzed above, I can conclude that rural environment did not catch up
with urban one in conditions of quality of life even thought both improved their situation or,
in other words, migration from urban to rural cannot be attributed to an improvement in
quality of rural life compared to urban life.
CONCLUSIONS AND FUTURE RESEARCH
From the current analysis I can resume the following findings:
‣ rural-urban direction of migration prevailed over the others over the period 1990-1994
after which the dominance was taken by the urban-rural direction since 1997 ongoing,
except for 2006 when intra-urban flows formed the majority;
‣ the highest rate of migration was reached in 2008 whereas the lowest in 1993;
‣ the hierarchy of average rates was urban-rural, rural-rural, urban-urban, rural-urban:
‣ the maximum rural-urban migration was recorded in 1991 whilst the lowest in 2000;
for the urban-rural migration the extreme values were reached in 2008, the maximum,
and 1991, the minimum;
‣ women migrated more than men and both sexes recorded negative urban balances
since 1997 with men turning negative one year before;
‣ aged people migrated less and all migrants aged 35 and more changed their rural
balance sign from negative to positive since 1995 onwards.
The possible reasons behind the change in migratory trend could be found in the main
differences between the two environments, such as:
‣ decreasing poverty rates in both areas although rural continued to be poorer;
‣ increasing life expectancy in both areas although higher in urban;
‣ increasing and finally dominant proportion of private houses in urban;
‣ falling contribution of agriculture in national output;
‣ higher (lower) but decreasing (increasing) rate of employment (unemployment) in
rural;
‣ dominant but falling percentage of elderly people in total rural population;
‣ urban households have a relatively powerful capacity to overcome financial burdens;
‣ much poorer educational level in rural because of decreasing proportion of rural
graduates;
‣ relatively higher rates of infantile mortality in rural in spite of downward trends in
both areas;
‣ negative natural increase in rural population;
‣ the unemployed face more difficulties in covering their spending money;
‣ the urban-rural migration have become dominant in total migratory flows since 1997
simultaneously with the beginning of the second post-communist economic crisis.
In a future research I intend to perform a more detailed investigation on the causes of the
changes found here using an appropriate econometric model.
ACKNOWLEDGMENT
This article is a result of the project POSDRU/88/1.5./S/55287 “Doctoral Programme
in Economics at European Knowledge Standards (DOESEC)”. This project is co-funded by
the European Social Fund through The Sectorial Operational Programme for Human
Resources Development 2007-2013, coordinated by The Bucharest Academy of Economic
Studies in partnership with West University of Timisoara.
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2. Altenburg, S. (2009), Rural-Urban Migration, 2009, accessed March 2, 2012.
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l-Urban%20Migration_Altenburg.pdf
3. Băbaenu, M., Vlăsceanu, Gh., Piaţa muncii: mecanisme reglatoare, București:
Universitaria, 2007
4. Borjas, G.J., Labor Economics (4 th ed.), New York: McGraw-Hill/Irwin, 2008
5. Comisia Antisărăcie şi Promovarea Incluziunii Sociale (CASPIS) (2004), Dinamica
sărăciei și a sărăciei severe în perioada 1995-2003
6. Constantin, D.L., Parlog, C., Goschin, Z., “Interregional Migration in Romania during
the 1990s”, ERSA Conference Papers ersa03p86, 2003
7. Cornwell, K., Inder, B., Migration and Unemployment in South Africa: When
Motivation Surpasses the Theory, Australia: Monash University, 2004
8. Ghetău, V., “Migrations et incidence sur la répartition spatiale de la population en
Roumanie au niveau national et regional”, The Romanian Journal of European
Studies, No. 4, The West University Publishing House, 2005
9. Harris, J.R., Todaro, M.P., “Migration, Unemployment and Development: A Two-
Sector Analysis”, American Economic Review 60 (1970): 126-142
10. Lee, E.S., “A Theory of Migration”, Demography 3 (1966): 47-57
11. Lucas Jr., R.E., Life Earnings and Rural-Urban Migration, Journal of Political
Economy 112, 1-2 (2004): S29-S59
12. Lynch, K., Rural-Urban Interaction in the Developing World, Canada & USA:
Routledge, 2005
13. Majuru, A., Sistemul de valori și migrația rural-urban in România, 2012, accessed
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asistenta%20sociala/raportari/Raport%20incluziune%202009.pdf
15. Okpara, E.E., “The Impact of Migration on the Quality of Nigeria Rural Life”,
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(1983): 3-116
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17. Petre, I., “Migraţia internă şi satul românesc”, Institutul de Sociologie al Academiei
Române, 2008, accessed February 16, 2012.
http://strategia.ncsd.ro/docs/comentarii/ip-mi.pdf
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19. Riadh, B.J., Rural-Urban Migration: On the Harris-Todaro Model, 1998, accessed
August 28, 2011, http://www.arab-api.org/cv/riyadh-cv/pdf/Riadh3.pdf
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20. Romanian National Institute of Statistics, accessed February 8,10, 17, 2012.
www.insse.ro
21. Rotaru, T., Mezei, E., “Asupra unor aspecte ale migrației interne recente din
România”, Sociologie Românească 3 (1999): 5-37
22. Sandu, D., Se mută orașul la sat, în România?, 2010, accessed March 5, 2012.
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150662.html
23. Stiglitz, J.E., “Rural-Urban Migration, Surplus Labour, and the Relationship Between
Urban and Rural Wages”, Eastern African Economic Review 12, 6 (1969): 1-27
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(2008)
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DESCRIBING THE WEB BASED BUSINESS BY THE CONTENT OF ITS
SEGMENTS
Caraganciu Iulian
Lucian Blaga University, Sibiu, Romania
ABSTRACT:
The aim of this paper is to present better the contents of the web based business and
its segments. This paper is to give understanding of the differences between some of the
branches of web business types. We also try to present the means of generating profit by the
categories of web business presented in this paper.
Keywords: E-commerce, E-commerce Types, Web Market
Web based business sector is one of the developing markets at the moment. It has
started to develop more intense since the appearance of Web 2.0 technology, which enables
users to influence content filtering as well as content management, in some cases (O’Reilly
2005).
The necessity for describing the market segments arose as a mean to show how
different and large this market is. Although e-commerce is the most frequent segment to be
referred to, it is but a part of the market. Limiting the research to just e-commerce activity will
enable an accurate analysis to become nearly impossible.
The first web based business segment we are going to mention is the gaming industry.
This segment has 2 types of game publisher companies, specialized in: Browser Games and
Online Multiplayer games.
Browser games are those games which do not require an installation to your computer
and the gameplay itself is based in a browser window. These types of games may vary by
content from strategy games to gambling. Of course depending on the type we can see the
way this or that type of game generates revenue.
Online multiplayer games are the ones that are required to be installed on your system
in order to run. These can be purchased or with monthly subscriptions or both. The genres can
be rather varied as well as the browser game types. To understand better this segment of web
business we have to keep in mind that this industry relies mainly on providing a service and
not just a product.
The game publishing segment generates revenue in a number of ways. The revenue
generation may be via one-time purchase for online multiplayer games as well as for the
browser games. This type of revenue generation is mainly based on the popularity of the game
and on the number of customers who are willing to play. It is most frequent that these types of
companies do not charge subscriptions to play the game itself, although they may use other
methods of attracting additional funds from the customers.
The second popular method of generating profit for companies, for both browser and
online multiplayer platform games, is to ask for donations in exchange for some small
benefits in-game. This method is sometimes used with the one mentioned above, although it is
not very frequent, as the imbalance created by such may upset and force customers to leave.
An example of such method of generating profit could be travian.com. While card and casino
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type of games sometimes use this method as well, they tend to limit themselves to the
gambling with real money, which means that the clients supplies his account with real money
in order to play, thus the losses being also real. This type of revenue comes mainly from the
concept of commission’s fee for withdrawing money or even for the organization of the
tournaments. A good example of a big card playing game website could be PokerStars.com.
The third method to create income, for the gaming segment, could be the subscription
fee used by some multiplayer online games. This fee is basically a monthly fee for the support
service provided by the publisher’s team of specialists, as well as for the use of the company’s
servers to play. This type of generating revenue is most suited for games which require a high
amount of time to play as it maximizes the amount of clients willing to pay. A good example
of such game could be World of Warcraft, published by Blizzard.
The second web based business segment is the Software Development sector. This
sector has an interesting particularity, although it produces a good, this good mostly behaves
like a service, usually with regular updates and tech support. It is also very difficult to
determine the cost involved in obtaining the product, because the main component of the
product is qualified labor force – programmers.
The revenues of this type of business are mainly coming from software sales, via
digital purchase or the actual DVD purchase. Additional costs may come from subscriptions
or the license extension, thus behaving more like a service than a product.
The software development sector has two important branches the customizable
software development and the mainstream software development. The mainstream software
development is when clients buy a finished product, which may or may not be adaptable, but
is available to every client in almost the same package. While the customized software
development companies are the type ones that create software to specifically meet your
requirements and needs, which make it unique software per client.
Another sector, probably the most well known, is the one of e-commerce. These types
of websites can either be retail or aimed to meet the requirements of B2B sector (Karthik N.S.
Iyer, Richard Germain, Cindy Claycomb 2009). The main branches of the e-commerce sector
can be seen in figure 1.
Figure 1: E-commerce sector – main subcategories
Source: Developed by the Author
The e-commerce sector, as we can observe from Figure 1, is formed of the following 3
subcategories: Auction based E-commerce, Pure E-commerce (or stand alone e-commerce)
and real shop duplicate. The software reseller type is not included in this category as it is a
part of the software development network and not exactly e-commerce.
Auction based e-commerce is a type of e-commerce where the product goes to the
higher bidder. This type of e-commerce is mainly driven by client to client transactions, and is
based on used goods. A good example of such type of e-commerce is the eBay.com website.
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Ebay.com is a large website with renown and most of the products on ebay.com are user
posted, thus being second hand products. Although eBay.com started selling new products as
well, but the stereotype formed in user minds makes it not so popular in the field of new
products, as people are used to buying used goods on ebay.com.
Pure or stand alone E-commerce is the type of company which does not have a real
presence via a local store, or a store at all. This type of e-commerce has a specific
characteristic that it can be considered international by default as its web presence is already
global but the sales can be carried out in any country via the fast mailing service, such as
FedEx, UPS, American Express. E-commerce companies of this type have in common the
fact that the entry barriers are rather low, as compared to the other types from the e-commerce
sector. In this type of e-commerce it is quite hard to determine the geographical market as
well as the market share and the market size, which makes it hard to analyze properly.
Real store duplicate type e-commerce is basically the easiest to define as it is the type
of e-commerce which is just a supplement for web-presence of a real market shop. Thus the
market geographical position is well known as it is the same with the market size. This type of
e-commerce mainly has as clients the same customers the real shops have, which makes it
easier to analyze. Although it is a store’s presence on the web, it can also facilitate the
company by accepting more payment methods that the real market store.
The revenues for e-commerce obviously come from selling products, but it’s the type
of payments which make it more flexible and feasible. There is a multitude of types of
payments for the e-commerce sector, as the costs involved in the e-commerce maintenance
are lower than those of the maintenance of a real store. These payments methods most
frequently include: credit card payments, paypall.com payments and payment on receiver of
the product. A lot of them also offer good credit terms to customers which can be made
without it becoming a setback, because of the rather low costs involved. E-commerce
websites can also earn profit via obtaining a sponsorship, which could even greater diminish
their costs, or present a benefit.
The next sector which we are going to discuss is the Marketing data and database
sales. These are the type of websites who sell statistics to large companies, to be used in their
market analysis. These vendors could be: consulting agencies, search engines or even social
network websites. Although the latter are stating that they use the user data just to create
personalized adds in conformity with what the user likes.
The revenue of these companies is basically from traffic generation, which makes
them attractive to place advertisement on. The more traffic a website generates the higher the
price to post advertisement on that website. Again to understand the depth of the people who
are using it we can see the figures presented by facebook.com, in Table 1.
Table 1: Facebook Statistics Quarter 1 2012
Daily active
users
Volume of
monthly active
users
901 Million
Active users
526 million daily
active users
Mobile monthly
active users
500 million users
from mobile
devices
Source: http://newsroom.fb.com/content/default.aspx?NewsAreaId=22 (last visit 1 st of
May 2012)
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This table shows how attractive an advertisement of facebook.com can be. The
amount of monthly users is tremendous, numbering 901 million active users, from which 526
million users are daily users, and from whom about 500 million are users who are connected
to facebook.com almost all of the time via a mobile device. This makes the market who would
see your targeted add, a rather large one.
The database sales companies on the other hand are making market analysis and
selling it to the companies in need of marketing data necessary for marketing analysis. The
agencies which sell database information, may sell complete databases of local business
contact information which can be found publicly as well as some marketing research that they
have conducted in a certain country or region.
Another sector is the video streaming segment of the web business. This sector
includes websites such as youtube.com and this type of websites are streaming video and even
whole movies. The movies which are streamed can be of different nature, on some websites
the movies are user uploaded on others the movies are bought to be streamed for a price.
The revenue of such type of websites is coming either from advertisement either from
subscription to premium content, which involves monthly payments. For example
youtube.com, in some countries, before gives you the movie you have searched gives a
random advertisement of a product, service or movie. These websites use not only video
advertisement; they also use the type of static banner-type advertisement on the page itself.
The subscription fee can be taken as a sign up fee, or as a monthly payment for the
premium type of account. The mechanism of payment can also be rather flexible on these
types of websites, as it covers credit card payment and also paypall.com. The traffic generated
by such types of websites also may influence the payment fees as well as the price of the adds.
There are also 2 distinct types of web based business who are intertwined indirectly
with the ones presented above. These types of business are:
Website development and design agencies;
The companies of who create and mediate the posting of adds on the websites.
The website development agencies are creating websites to be more attractive and to
be easier to use by the users. Their role is a crucial one as the websites are ranked by users by
the attractiveness and by the fact how easy those are to use. Some website development
companies grant services which include a one-time creation of the website, although there are
others who create websites and charge an additional monthly fee to maintain the website on
the web, get a better ranking from google, as well as host the website on the web. These
companies are difficult to calculate their costs, as the product cost is basically made from
labor cost.
The second type are the companies who create and mediate the posting of adds on the
websites with higher traffic. These companies also monitor how frequently does the add
appear on a certain website, thus protecting their client’s interests. They most frequently
charge monthly fee for their service, and can be thought of being web advertisement agencies,
being very similar to the ones from the real market.
Now that we have presented the major sectors of the web based market we can start to
understand why it is not possible to obtain an accurate market analysis via traditional
methods. The web business market is rather large and contains, sometimes, conceptually
different types of segments. With this being said it is understandable why they cannot be
perceived as being subject to the simple analysis.
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CONCLUSIONS:
In conclusion we are to say that the web business market is something different and
cannot be analyzed by traditional methods. This includes methods such as the Ordinary Least
Squares method, which is used nowadays by the Antitrust Agencies, to determine a dominant
position.
Again as being so different from the real market we are to say that it cannot even be
compared to the real market, as it is possible to distort the competition on the web, without
distorting the one on the real market.
REFERENCES:
1. Tim O'Reilly (2005-09-30). "What Is Web 2.0". O'Reilly Network. Retrieved
2006-08-06
2. Karthik N.S. Iyer, Richard Germain, Cindy Claycomb – “B2B e-commerce
supply chain integration and performance: A contingency fit perspective on the
role of environment”
3. http://newsroom.fb.com/content/default.aspx?NewsAreaId=22 (last visit 1 st of
May 2012)
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DECISION MAKING SYSTEMS– BUSINESS IMPACT OF INFORMATION
TEHNOLOGY SYSTEMS
Cojocaru Silviu
University of Bucharest
Camelia Cojocaru
University of Bucharest
ABSTRACT:
Information systems that assist a decision maker and business intelligence instruments
tend to become omnipresent elements within enterprises. The dynamics of the economic field
and the modern information explosion are the main reasons that lead to the necessity of using
different types of information systems that assist the decision maker. Despite the limits
imposed by the computer’s impossibility to perfectly duplicate the human reasoning, the
information systems that assist decision making and the business intelligence components are
considered nowadays compulsory instruments of the modern manager; most of the daily
decision procedures, the information required by the decision making process together with
the information search and retrieval techniques are taken over completely by these systems.
Furthermore, their continuous development, doubled the improvement of computers’
performances, offer increased possibilities to take over major parts of some of the most
intense reasoning activities performed by humans.
Key words: business intelligence, database, decision making, warehouse
1. INTRODUCTION
The category of information systems that assist in the decision making process can be
defined as business intelligence. This term refers to the assembly of informatics instruments
that bring added „intelligence” to the business process. The integration of traditional
operational applications, with a wide range of data analysis programs or the expert systems
ensures an efficient support to the assistance of decision maker.
With regards to the decision making process based on the business intelligence
solutions; we can identify the following main stages:
Analysis – The selection of useful information (in accordance with the
business model) from a large number of data and the identification of the performance
indicators. The processing of information in different contexts, in order to be able to
identify tendencies. Business intelligence means the to offer information to all
departments in the enterprise, so that each manager is able to make his own set of
analysis and to watch the evolution of the performance indicators in a specific area of
interest;
The discovery of those factors that influence the decision making
processes – Explaining the causes of certain occurrences that do not correspond to the
business model;
Action – The decision process is based on all the studies pieces of information.
These decisions are based on the projection of future effects of a certain action (for
e.g. increased product sales after a promotional campaign). Again, the human
component plays an important role: it is able to judge which action can lead to the
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desired result. Business Intelligence assists the decision maker with the simulation of
different results (What If analysis);
Measuring results– In this final stage we can see if the decisions were correct
or, when the results are different from the ones that we expected, this stage can show
us where we need to act, to improve the results.
2. LITERATURE REVIEW
The Decision Support Systems (DSS) and business intelligence solution are based on
an assembly of components, technologies, server solutions, as well as on different instruments
of informatics system projection and development. Another important thing that we want to
emphasize is the exposure to Web and Internet of all the applications that are parts of the
entire system. In this manner, all the programs that are part of DSS solution are Web-enabled,
and this feature allows and easy and uniform access to information resources. The Weboriented
characteristic of the informatics system was applied, as a response to contemporary
business needs:
Decentralized access to information from Intranet or through Internet access;
Mobility and uniform access to resources.
From a different perspective, the Web-oriented informatics systems present a series of
advantages in terms of administration processes:
The data level and applications are centrally stored on one or several servers. In this
manner, the back-up processes and application configurations are much easier.
Because applications and data are stored on some part of the server, the system can
integrate “thin clients”. Only the Web browser is used for adding clients, without having to
install new applications or other components on the working servers.
3. ARCHITECTURE FOR DECISION SUPPORT SYSTEMS (DSS)
The Decision Support Systems presents two main levels that ensure the entire
functioning of the informatics system:
a) The infrastructure level – includes server-type components that will become the base
for the developed application layer (document server, data base server and Web server)
b) The application level – includes applications that exploit the data sources and analyze
them.
The architecture of this application that is proposed as study case in this paper
assumes three basic components:
a. Database – the key element of the analysis. These elements present a relational
structure and client-server architecture; in most of the cases they are the result of the
integration of an ERP/CRM system in the enterprise. The systems in this category are
transaction-oriented, with limited analysis possibilities, as a consequence of the functional
architecture of the system. Relational systems cannot carry on an efficient analysis process,
and we can say that they must be transformed in a proper model, that is also able to answer
the needs. And we must also add that operational systems cannot access the available
information from more internal or external sources of the enterprise;
b. Data transformation and the activation of data storage– Considering the deficiencies of
the operational systems, a process for data transformation is mandatory, for the best analysis
development. For this one can use ETL (Extract Transform and Load) from SQL Server 2010;
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with the help of this application the connection to any data source and the information
extraction can be possible, and in the end analysis cubes can be generated.
The assumed and transformed data are saved in a data deposit box that can contain
relational or multi-dimensional data. We can consider the data deposit box as an aggregation
of all information from the initial data sources. Both multi-dimensional analysis cubes, and
specific subsets for data marts can be generated based on the information stored in the deposit
box;
c. The user will be connected through the web browser and will choose certain data subsets
that will be locally analyzed. They will also be able to create and develop certain enquiries to
match the needs.
4. THE DRIVERS OF THE DECISIONS CONCERNING
IMPLEMENTATION OF NEW INFORMATION TECHNOLOGIES
The new technologies are there and could be implemented. The question is: are these
organizations ready to adopt the new revolutionary technologies? Who are the drivers of this
IT transformation? Which part of the organization should be in charge with innovation and
adopting new technologies and how they could assess the strategic advantages and threats
which come along with a new technology?
Who are supposed to be in charge with this unprecedented IT transformation? This
paper will assess the IT and management responsible actions towards the alignment of IT both
to general trends of IT world and to general strategic goals of the company.
The top management team characteristics, such as international experience,
nationality, skills, organization characteristics such as size and performance, are deeply
influencing the process of making strategic decisions in IT field. The use of information
technologies especially those Internet-related, have a direct impact on business strategic
decisions.
Chief Executive Officer (CEO) is the highest-ranking corporate executive of a
company, in charge of total management of an organization. The CEO must lead the interests
of the company, also take the lead in the innovation path and develop a management culture at
the organization level that recognizes the need to implement corporate initiatives to achieve
corporate earnings goals. Today’s CEO has a near impossible task of having to keep path to
the changing technologies, legislation and business demands, managing both internal and
external resources to deliver the improved business performance.
With the above in mind any CEO needs to think carefully about its current IT
investments and delivery capability. Is the company really maximizing the financial returns
on IT investment? If not, why not? Does the company have all the specific skills, knowledge
and expertise to determine with confidence how best to apply future IT investments to
maximize benefits to the business? Is the CEO confident that the IT management understands
and successfully aligns the IT to enable the strategic goals to be achieved by the company?
Most CEO agrees on the importance of IT innovation to business strategies. Still, most
executives say it is difficult to allocate appropriate resources to strategy and innovation. A
recent study indicates that the money spent on the IT innovation budget is moving away from
innovative business solutions, and moving toward maintaining the day-to-day IT
environment.
Chief information officer (CIO) irresponsible for the information technology in an
organization. The CIO responsibilities include anticipating trends in the market place with
regards to technology as it is about ensuring that the business navigates these trends through
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expert guidance. At the same time, the general strategy of the organization should be follow
and aligned with the proper strategic IT planning.CIO should be a consistent contributor in
establishing strategic goals for an organization. The CIO manages the implementation of the
useful technology to increase information accessibility and integrated systems management.
The prominence of the CIO position has significantly increased as the information technology
has become more and more important in the modern organization.
CIO is involved with driving the analysis and re-engineering of existing business
processes, identifying and developing the capability to use new technologies, keeping up-todate
and also up-and-run the enterprise's physical infrastructure and network access, and with
identifying and exploiting the enterprise's knowledge resources. Also, in the knowledge
based organizations, CIO lead the companies' efforts to integrate the web technology into both
its long-term strategy and its immediate business plans. CIO’s often tasks are managing
crucial IT projects which are essential to the strategic and operational objectives of an
organization. The CIO is evolving into a role based on creating and monitoring business value
from IT assets, more than managing day-to-day tasks. By developing new skills and widening
their responsibilities, CIOs can take a leading role in the pursuit of technological and
organizational change.
The questions is: how can CIO/ CTO help their organizations respond to the demand
for sustainable change? Many companies create a new leadership role for CIOs, since any
fundamental change a company makes today depends increasingly on IT. Therefore, the CIO
faces the challenges of the new nature of company change. Fortunately, CIOs are well
positioned to support their enterprises with the tools that are (or at least should be) at their
disposal, which include the following: a comprehensive perspective on the change portfolio,
information management and analytics capabilities, communication and collaboration tools, a
portfolio and program management discipline and also process improvement capabilities.
CIOs must be proven leaders of change in their own organizations and respected for
their knowledge of business operations. Finally, CIOs must play a proactive role in the
planning process for enterprise change initiatives, culminating in leadership of the portfolio of
change.
According to latest studies, CIO mentioned as their concerns the followings:
- Understand the IT needs of the business side of the company, their preferences and
trends
- Reveal to the CEO and to the board the link between IT, business strategy goals and
budget formation
- Obtain good knowledge with respect to company’s vertical and country markets and
challenges
- Identify key business drivers for the adoption of crucial IT solutions
- Involve in the process of business IT related decision-making processes.
The main topics of the decade, with respect to business development, are as follows:
a) Setting up the business priorities to be assessed by IT
b) IT strategic priorities
c) IT spending dynamics and sourcing
d) IT strategy execution and operations management preferences, new software and
hardware solution penetrations and investments priorities.
Improving the IT side of the company is the declared goal of most of the CIOs. These
include reducing the IT costs, by consolidating, virtualization, automatization, optimization of
applications and hardware, outsourcing of IT activities. Also, alignment with general business
goals and risk management are the next in rank concerns of CIOs knowing the correct trends
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of IT market and making the right investment choices and decisions are very important for
every company. IT strategies and execution plans and measures of technology adoption are
present in many large companies. Alignment of IT strategies with the general business line is a
must.
While business and IT executives agree on intent, they often disagree on delivery and
execution. Both business executives and chief information officers (CIOs) say IT is a critical
component of their business and that new technologies will continue to change the
competitive landscape. Technology invades all aspects of current business operations and is
considered a critical innovation tool that can help support future growth. Delivering on that
promise is the challenge for the IT organization. But when it comes to execution, IT
professionals and business executives have very different perceptions. Business leaders are
less likely than their IT counter parts to say that IT contributes to various aspects of business
strategy. In fact, nearly half of CEO agrees that the IT department focuses primarily on dayto-day
IT requirements.
Business strategy should emphasize how organizations enable both businesses and IT
people to execute their responsibilities in support of business/IT alignment and the creation of
business value from IT enabled corporation investments.
Establishing the general strategy of the company should always provide good insights
into the management and contribution of IT within organization. It also takes into
consideration gaining business value from IT. Today, many organizations use Information
Technology in their planning and execution of strategy, in order to ensure that IT brings value
to their businesses. One lesson learned through IT governance is that realizing value from IT
requires a mature organization that can deliver such value. Performance measurement and
management, therefore, is a key element in realizing business value through IT.
The information systems that assist in the decision making process, defined as
business intelligence, are extremely important for bringing added „intelligence” to the
business process. The integration of traditional operational applications, with a wide range of
data analysis programs or the expert systems ensure an efficient support to the assistance of
decision maker. These could lead to an improved operational processes and operational
excellence within the organization.
No need to emphasize that this unprecedented development of information
technologies have led to different changes in the business environment: the appearance and
development of knowledge-based organizations, and of the knowledge-based management
within the organizations.
Within the total resources of a knowledge-based organization, the informational
resources register a spectacular dynamic. The IT resources are now becoming the engine of
successful enterprises, representing not only the operational base, but also the means for
marketing and communication strategies. The organizations based on such systems are able
to extract, label, organize, file, apply and share knowledge, experiences and surveys to make
superior performances possible. This can be translated in: better business solutions and
decisions, a better collaboration and share of information, more capable and qualified jobs.
The result of such implementation is, no doubt, positive: extraordinary results in innovation,
product and service quality, cost decrease and continuous update, according to the market’s
requests.
In order to face new challenges, the companies must improve their digital and
technological knowledge and capacities, in spite of all financial restraints. At the same time,
organizations must review the relevance of business to operational managers within.
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Many businesses are missing out on similar opportunities for leveraging new technologies to
radically change the way they compete. Most IT departments cannot effectively explore
innovative uses of technology because they are stuck in the daily operational jobs. This way,
IT side is a tactical department focused on cutting costs and maintaining day-to-day
operations and not a key resource for achieving strategic business goals.
IT executives must be able to move beyond fixing the past and participate more
actively in planning for their companies’ future by focusing on the following actions:
maximizing the value of IT assets, reducing IT complexity, focusing innovation efforts on the
customer and creating a more strategic IT organization.
Companies that fail to transform their IT organizations and functions will lag behind
their competitors and put their future growth at risk.
Decision making processes in IT implementation and strategy could benefit from the
usage of non-IT specific frameworks such as:
a) The Balanced Scorecard (BSC) - method to assess an organization’s
performance in IT area;
b) Six Sigma - focus on quality assurance.
The use of Balanced Scorecard (BSC) has become wide spread as a performance
measurement and management system. Introduced and developed by R.S. Kaplan and D.P.
Norton, BSC brings, beside the financial approach over the performance of the company,
supplementary measures such as: customer satisfaction, internal processes, learning and
growth. Kaplan and Norton proposed three layers for each of four perspectives: mission,
objectives, and measures. Targets are to be set and metrics will measure their
accomplishment.
The use of BSC has broaden over the years and extended for all fields of a company’s
activities. This is the reason for which the IT function of a company has embraced BSC as a
performance measurement system. Since larger and more difficult targets are set for IT field,
more metrics have been established in order to observe the compliance of executed IT
activities to those planned.
5. RESEARCH ABOUT DSS ON ROMANIAN COMPANIES
The research was realized for 38 companies that are between the first 200 from
Romania considering the 2010 turnover and its main purpose was to identify how the
interoperability technologies were implemented. The enterprises come from different fields,
such as financial-banking, telecommunications, retail and industry.
The study was developed during December 2011-February 2012 and included a set of
questions, from which we mention the most important.
I. Did you implement Decision Support Systems (DSS)?
85% of the companies implement solutions for the interoperability of informatics systems,
and the rest of 15% plan to implement these solutions within one year.
II. Did DSS solution improve substantially decision making process?
Those companies that use the DSS solution have come to the conclusion that these
technologies lead a major role for the improvements of processes. 90% of the companies have
registered increased efficiency. More than 55% of the companies have registered an increased
performance within the company.
III. Is your IT strategy align with the general business strategy of the company? (the question
was addressed to Chief Information Officer - CIO)
More than 70% of companies surveyed said that IT strategy is aligned with company strategy.
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IV. If IT majored projects and implementation of the newest Information Technologies are
driven by business or IT side of the company?
Also, a fairly large proportion (60%) of respondents said that new technologies are
aligned with the business organizations.
V. Do you use balanced scorecard components?
Although most of the companies apply IT systems destined to the decision support, the
usability of balances scorecard is extremely reduced. Only 35% of the companies use
components that allow developing balanced scorecard.
CONCLUSIONS AND IMPLICATIONS
Information analysis is a must in our world, nowadays. The term “Information
society” has everyday new and various meanings, because knowledge is a key element that
can determine the evolution of our society.
The rough information (that looks like a huge data volume) gets no special interest,
probably just because it cannot offer an efficient and detailed analysis. The things change
when we talk about integrated and centralized information that offers a good assistance for the
decision maker and also about the data analysis that is a must for an efficient management.
Given the target study, the target represented by large companies in Romania (in the top 200
companies by turnover), we conclude that this level of adoption of decision support solutions
is satisfactory.
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WEB SERVICES– NEW TRENDS FOR CUSTOMER RELATIONSHIP
MANAGEMENT
Silviu Cojocaru
University of Bucharest
Camelia Cojocaru
University of Bucharest,
ABSTRACT
This paper aims to underline the new generation of web services tools and techniques
and how to use them to make better business decisions in managing enterprise resource and
improve customer relationships. The alternative goal is to place the focus not only on
developing new software but also on achieving business results, placing particular emphasis
on customer relationship management. The purpose of technology is to solve practical
business problems.
Key words: SOA, interoperability, system integration, web services
JEL Classification: O33-Technological Change: Choices and Consequences;
Diffusion Processes
1. INTRODUCTION
The Internet’s development has fundamentally affected the architecture of informatics
management systems, causing substantial changes in the way that this category of solutions is
distributed and reached. This considering, one could say that gaining access to economical
applications through a simple Web browser came as a necessity in a world that is
characterized by dynamism and by the globalization of economical phenomena [Aamodt,
1996].
The W3C (World Wide Web consortium) defines a "Web service" as "a software
system designed to support interoperable machine-to-machine interaction over a network"
[W3C documentation].
We can identify two major classes of Web services, REST-compliant Web services, in
which the primary purpose of the service is to manipulate XML representations of Web
resources using a uniform set of "stateless" operations; and arbitrary Web services, in which
the service may expose an arbitrary set of operations. [W3C documentation].
It is very important to mention that the Web services represent a method that was
standardized by the W3C consortium. This international community includes commercial and
educational institutions and has as main objective the standardization of technologies and the
offer of uniformity in Internet.
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2. LITERATURE REVIEW
Considering the standardization of Web services was done by a globally accepted
organization (like the Web consortium), this technology is referred to as universal. The Web
Services, no matter their platform (Microsoft, IBM, HP or Oracle), work on the same set of
standards, and this gives them adaptability and the possibility to be integrated with the most
various software platforms.
In essence, this technology is based on three main elements that allow the integration
and the conformation to specific functions.
The first element is represented by the SOAP protocol (Simple Object Access Protocol),
based on the XML language, with the following functional characteristics:
The control of data packages transfers between the Web services providers and the
users, with the HTTP protocol (GET or POST methods) developed for package data
transfers between servers and users;
The transfer of the parameters set by the user and specific to all applications available
through Web services;
The return of the search on the Web service server, and the resulting data is presented in
XML-formatted documents.
The second element that is at the basis of the Web services is represented by WSDL
(Web Services Description Language). WSDL is an XML format that has the role to inform
potential users of the Web service about its specific elements. This is how, through the WSDL
technology, one can find information about functions and operations exposed by the Web
service, as well as information about the parameters that can be assigned.
The last element that lies at the basis of Web services is represented by UDDI
(Universal Discovery Description and Integration). UDDI is a platform designed to work as
the search engines available on the Web, allowing users to search the Web services for their
own needs. UDDI uses the descriptive information of the Web services that are established
through WSDL language, in order to offer the potential user an efficient search method,
improved with an added set of information about Web services usage.
Web services are a standardized way of distributing Internet applications and fundamental
technologies that are at the basis of this network. Also, web services offer the possibility of
interconnecting a wide range of applications, which are available on different platforms and in
several worldwide locations. One could say that Web technologies became an Esperanto of
application communication, as the new technology opens the gate towards a new age
dominated by intelligent applications that make smart decisions and Internet searches, as a
basis for well-balanceddecisions [Agosta,2000].
Therefore, supposing that we wish to build an expert system that manages a share
portfolio, we need to keep in mind that such a system cannot function without constant market
quotation updates. Plus, making an optimal decision for selling or buying is a matter of
minutes, and this highly influences the efficiency of the system. If a decade ago this system
was very complicated due to the lack of efficient means of cross application communication,
after the development of Web applications, it became much easier. One would have to
develop the classic portfolio management expert and then the link to the outside world would
be this paper’s technology. The data containing the quotations will be transmitted via Internet
through a web service developed by the stock market. By using the functions and procedures
exposed by this Web services, the right parameters can be transmitted, and the stock market
informational system will return the requested information. Plus, all of the exposed functions
of the stock market system will become a part of the developed applications, and will be
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called for as similarly developed procedures. You will be able to schedule the automatic
checking of stock market quotations and the permanent update of the local database. Things
could move even further, with the possibility of inclosing a Web service for the brokerage
society that would allow the expert system to not only makes the optimal choice but to
implement the decision taken. This example shows how optimal communication automation
actually works and how human intervention becomes unnecessary. This has a decisive role in
eliminating intentional and non-intentionalhuman errors from the entire process
(Jacobides,2000).
3. CRM SOLUTIONS TRENDS
Modern companies focus on the necessity to understand and maintain relationships
with their customers.
Many companies’ portfolio of application includes managing and using customerrelated
databases, customer portfolio management, CRM and customer experience
applications.
Thus an enterprise would plan strategies designed to win share of customer rather than
market share and to measure its success on retention, customer equity, and returns on data
assets rather than just on ROI and market share. Companies would learn to measure each
customer's profitability and put customer managers in charge of portfolios of customers. More
and more, the enterprise would bring products to customers, not just customers to products.
“The first requirement is to identify customers: to tag them so that each one can be
identified through any channel, across transactions and interactions over time. Once an
individual customer can be seen as one complete customer across the company, the company
can differentiate customers by both the different values that customers have to the company
and the unique needs that each valuable customer has from the company. To learn enough to
differentiate customers, the company will interact with customers and keep track of these
individual dialogs, learning a bit more with every interaction, at every touch point. Finally,
the company will embark upon the hardest strategy: customization, or treating different
customers differently, often by automating the personalization process in a way that increases
customer loyalty even as it almost inevitably reduces the cost of operations. These steps are
tough. Those companies that can achieve the first three - identify, differentiate, and interact -
can claim to have achieved CRM and database marketing.” (Newel, Frederick; Loyalty.com:
Customer Relationship Management in the New Era of Internet Marketing, McGraw-Hill, Inc.
New York, NY, USA, 2001)
Lately, we could assist to the broaden of understanding of CRM and its role in
enhancing customer value and, as a result, shareholder value. Customer Relationship
Management (CRM) is placed more and more at a strategic level and enhanced within the
company. We could identify five key cross-functional CRM processes: a strategy
development process, a value creation process, a multichannel integration process, an
information management process, and a performance assessment process.
Achieving success with CRM strategy and implementation also means that the
company would pay attention to:
- customer acquisition, customer retention and development,
- managing the customer life cycle
- creating value for customers
- managing networks for CRM performance.
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The unprecedented developments of web based technologies allow the companies to
put in place new ways of performing better CRM activities.
We cold mention, among the newest companies’ preferences, the digital branding and
online advertising ; boundary rationality and impact on making decisions in business and
organizations; cross-cultural behavioral variation with impact on business and organizations.
The technology world has changed dramatically during the last decade. The main
changes referred to the fact that 80% of the world’s information is unstructured. Therefore,
raw computational power and complexity is enormously growing. At the same time, access to
information has been democratized, as the information is (or should be) available for all. In
the new era, the companies need to improve their traditional IT approaches with technology
that allow enterprises to benefit from the big data era. The big data era will be led by the
enterprises that could have at their disposal new platforms containing: exploration and
development toolsets, visualization techniques, native text analytics, machine learning, cloud
computing, virtualization and mobility, all based on enterprise stability and security, among
other requisites.
Organizations seeking to find better ways of differentiating themselves from theirs
competitors are taking advantages of these information and technologies in order to improve
their competitiveness, efficiency, profitability, brand awareness, and many more.
Whether we talk about comments posted on Twitter, Facebook, LinkedIn or other
social networks, the companies are very careful with what they have to say. The companies
understand that the comments or complaints are public. Through social networks, the posts
can be read, distributed and reposted by thousands of persons. In the same time, they also
know that a new client can cost 7 times more than keeping an existing client, and that is why
they intend to use technology to understand social media discussions and to improve their
services.
By using new technologies and analysis methods, the information can offer many
advantages.
For example, the so-called “Oscars Senti-meter” has combined the daily number of
tweets with the language recognition technology, in order to identify positive, negative and
neutral opinions included in the 140 characters messages. This process is called “the feelings’
analysis”. A similar project was developed for the Super bowl in USA and its results have
influenced the players’ contracts and the value of sponsorship contracts.
Besides this analysis of feelings, the companies study the posts from social networks and
measure their influence. This is a proof that companies start to pay an increased attention to
the voices that can influence. In the same time, they offer equal attention to the “feelings”
tendency, to predict the consumer’s opinion on a shopping season, for example.
Social media is a tool of an increased importance, very relevant when it comes to creating a
brand, having a relationship with clients, and increasing clients’ loyalty. All these factors can
be combined to increase brand awareness and create new business.
Just like people tend to use more and more social media in their personal lives,
companies must include these communication channels in their plans, to allow their clients to
discuss about – and with – brands in a real dialogue. Retails should allow their clients to
share, comment and discuss openly about their products and services.
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4. MODUS OPERANDI OF WEB SERVICES
When it comes to the modus operandi of the Web services, certain statements must be
made. In this manner we will see who are the participants involved in the usage of the Web
service:
The Web service provider is the first participant in the process. The provider makes
available to the users a function represented by the Web services;
The Web services consumer is the user that accesses that service and integrates it in
his applications;
An intermediary may appear between the two participants. This is represented by the
UDDI register, that allows the user to find the service provider that offers the proper set of
functions and operations.
Having defined all these theoretic elements, we will discuss a case study, presented in
a practical method of how to develop and use Web services. We will assume that an enterprise
dealing with building materials uses a management informatics system from the ERP category
(Enterprise Resource Planning). The enterprise’s informatics system is based on a standard
client-server architecture that has as central element a MS-SQL database server. Most of the
clients, represented by building – assembly companies, ask the producing company to offer
them the possibility to check the prices of end products all the time. Moreover, the
undertaking wish to include in the informatic systems their own data about the updated prices
of building materials. This would lead to an efficient method to update in real time the
estimated budgets.
In order to apply all these requests, the company that produces building material
decides to develop a Web service that offers its clients the possibility integrate the
functionalities that include the products’ prices. In this manner, the undertakings are able to
keep up with all the prices in different product categories. The functions offered by the Web
service will be easily integrated in the applications used by each company. This feature allows
the automatic programming, at certain periods of time, of updates on prices and costs. The
transfer between the two databases (the one belonging to the producing company and the one
of the undertaking) will be done efficiently, with the help of XML language.
The XML language determines an increased interoperability, and there are no restrictions for
the platforms that operate with the two informatic systems.
5. RESEARCH
The research was realised for 38 companies that are between the first 200 from
Romania considering the 2010 turnover and its main purpose was to identify how the
interoperability technologies were implemented. The enterprises come from different fields,
such as financial-banking, telecommunications, retail and industry.
The study was developed during December 2011-February 2012 and included a set of
questions, from which we mention the most important.
1. Did you implement / Do you plan to implement a technological solution
dedicated to integrated informatics system interoperability within the enterprise?
65% of the companies implement solutions for the interoperability of informatics systems,
and the rest of 35% plan to implement these solutions within one year.
2. Did the interoperability technologies contribute to the improvements of
processes within the enterprise?
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Those companies that use the interoperability systems have come to the conclusion
that interoperability technologies lead a major role for the improvements of processes.
95% of the companies have registered increased efficiency. More than 60% of the
companies have registered an increased performance within the company, as well as a
faster adherence to certain imposed standards.
3. Do you use integrated informatic systems with business partners?
Although most of the companies apply informatic systems destined to the interoperability
of internal informatic systems, the integration with the business partners is extremely
reduced. Only 6% of the companies use components that allow the interoperability of their
systems with their business partners’. The main reason for this low integration is
determined by the lack of national or industry standards.
4. Are the systems within the company integrated with those of public institutes?
Only 1% of the participants have informatic systems in integration with those of the
public institutions (such as city halls, fiscal administration, etc.). The main reason for this
situation is the lack of national standards for the systems integration with different public
authorities. The lack of these standards and also the frequent changes are also the reason
for the low level of implementation.
5. Which are the integrated systems categories?
The most frequent system integrations are related to web-based systems and different e-
business categories (business-to-business or business-to-customer) with ERP systems
(Enterprise Resource Planning) implemented by enterprises. In the financial-banking
department, the integration is between the Internet Banking and core-banking systems.
CONCLUSIONS AND IMPLICATIONS
We are living in a world that is dominated by the need for interoperability between
different informational systems running on different platforms. Under these circumstances,
Web services are the technology able of efficiently solving this problem. The simplicity of
Web services (simplicity that results from the compatibility with basic Internet technologies)
ensures the universal acceptance of this solution as a way of communicating between
applications. Plus, the relatively simple way of developing these elements will undoubtedly
lead to their becoming widespread. Visual Studio.Net, by its integrated development
instruments, became one of the main solutions serving this purpose.
REFERENCES
1. Aamodt, A., and Plaza, E. (1996). Case-Based Reasoning: Foundational Issues,
Methodological Variations and System Approaches
2. Agosta, L. (2000). "From data to insight: the critical path to data mining, a short
history of data mining". PC/AI, Sept/Oct, 16-21.
3. Airinei, D. Problemes concernant la generalisation des systems experts dans les
activites financieres et comptables, The Proceedings of the 2-nd International
Symposium of EconomiInformatics, May, 1995.
4. Alexander J., Hollis B. (2002) - Developing Web applications with Visual Basic .NET
and - - ASP.NET, John Wiley and Sons.
5. Alter, S. (2000) "A taxonomy of Decision SupportSystems". Sloan Management
Review.
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6. Alter, S. (2002) Decision Support Systems; Current Practices and Continuing
Challenges. Addison - Wesley, Reading MA.
7. Damsgaard, J. and True, D. (2000). Binary Trading Relations and the Limits of Edi
Standards: The Procrustean Bed of Standards. European Journal of Information
Systems, 9 (3), 173-188.
8. Forrester Research Inc. 2009. "The Value of a Comprehensive Integration Solution."
Forrester Research Inc.
9. Iyer, B., Freedman, J., Gaynor, M. and Wyner, G. (2003). Web Services: Enabling
Dynamic Business Networks. Communications of the AIS, 11, 525-554.
10. Jacobides, M.G. and Billinger, S. (2006). Designing the Boundaries of the Firm: From
“Make, Buy, or Ally” to the Dynamic Benefits of Vertical Architecture. Organization
Science, 17 (2), 249-261.
11. Löwer, U.M. (2005). Interorganisational Standards: Managing Web Services
Specifications for Flexible Supply Chains. Physica-Verlag, Heidelberg.
12. McAfee, A. (2005). Will Web Services Really Transform Collaboration? MIT Sloan
Management Review, 46 (2), 78-84.
13. "Web Services Glossary". W3C. February 11, 2004.
14. "Relationship to the World Wide Web and REST Architectures".Web Services
Architecture. W3C.
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WHY DO MUSEUMS MATTER? A CASE STUDY ON THE MARAMURES
COUNTY MUSEUMS
Adela Coman
University of Bucharest
Izabela Pop
Technical University of Cluj Napoca,
North University Center of Baia Mare
ABSTRACT
The first natural question that any museum visitor should ask himself/herself should be
related to the importance and the role played by museums in the economy of the 21st Century.
Do museums have any contribution to the market economy and to the development of society
in general? Just like any other organization, the museum’s role is to create products, services
and information in order to satisfy man’s needs. What is nevertheless different from private
organizations is the fact that a museum’s survival in the marketplace is not dependent on the
breakeven point. In Romania, unlike other European states, the activity of museums is entirely
state-funded no matter if any minimal parameters are reached or not. Under these
circumstances is the existence and functionality of museums still justified, or are these mere
useless consumers of resources which only burden the state’s already weak budget with extra
expenses? The purpose of this article is to sketch an economic perspective of museums as
productive organizations. In the case study carried out in the Maramureş County museums we
seek to demonstrate the economic and social benefits of museums through concrete figures, as
well as to identify the possible ways of improving their performance.
Key words: museum, economic, social, educational benefits, state budget, efficiency.
1. INTRODUCTION
The pressure faced by museums all over the world in relation to the justification of the
manner in which public money is spent has triggered some serious questions. To be more
specific, attention focused on analyzing the value received for the money, namely if museum
truly supply benefits to the public and what type of benefits museums throughout the world
generate behind their doors. The idea, spread during the years after the war, according to
which museums supply “public services” and for this reason they deserve funding, is
currently questioned. Museums are now faced with the situation of having to prove that they
supply output with long-term benefits (Scott, C., 2007).
Based on concrete data, this article seeks to provide an answer to a series of questions
such as:
1. Why is the existence of museums as productive organizations necessary?
2. Is their existence justified, including by the ratio of what museums offer to society
and the incurred operation costs?
3. What could be done for the improvement of a museum’s performance?
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The survival of cultural institutions in the 21 st Century and especially of museums
represents a real challenge partly due to the fact that the “rules of the game” in culture have
changed. Today’s museums have to create and develop business models which will help them
in their fight for survival in a world in which television, travelling abroad, sports and
entertainment all compete for a slice of the tourists’ spare time.
Due to the fact that museums are indirectly financed by the population through the
intermediation of the state, the analysis of their role in economy is important for the
identification of possibilities of increasing social welfare. If museums prove to be useless
consumers of resources, then closing them down would contribute to the reduction of public
expenses and thus to the increase of national prosperity. But if the economic and social
contribution of museums proves to be major, then we must identify all possible means for
integrated exploitation of the museums’ potential in order to obtain maximum effect with
minimum effort.
With reference to the financial aspect, museums have to analyze the products and
services they offer, as well as the manner in which their offer can be supported both on shortterm
and on long-term basis.
In order to provide an answer to the first question we studied the literature in this
domain and thus we were able to identify the reasons why museums must be regarded and
perceived mainly as productive organizations in the 21 st Century. Questions no. 2 and no. 3
were approached in the context provided by the analysis of the museums in the Maramureş
County. We analyzed the income and the expenses of Maramures museums during the year
2010, and the results obtained were extrapolated at national level. In its final part the article
presents a comparative analysis of the public expenses incurred for the support of museums
throughout the Maramures County, as well as the effects registered in tourism.
2. WHAT ARE MUSEUMS AND WHAT DO THEY, AS PRODUCTIVE
ORGANIZATIONS, OFFER? A LITERATURE REVIEW
Museums are the deposits of the cultural and educational values of a country. Many of
them are also research institutes which provide researchers with their “subject matter” in its
rough shape. They also play an important role as touristic attractions. For example, the
National Institute for Statistics estimates that the number of visitors for the 687 museums and
public collections in Romania in 2010 was 8,900,425, in decrease by 12.48% as compared to
year 2009.
Consequently museums are important institutions which use relatively high levels of
labor and capital in order to reach their objectives. Due to the fact that these resources usually
have alternative uses, the economic analysis is definitely relevant for the understanding and
evaluation of the museum’s activities.
According to Beverly Sheppard, „...museums are businesses. They provide services.
They sell things. It may be an implicit business model, but it’s a business model. The
important thing is to focus that business model on the things that make the visit valuable to
individual and families.” (www.museumtwo.blogspot.com, September 3, 2009).
Museums should be regarded as productive units which, in order to reach their goals,
engage into the transformation on inputs – via technology – into a mix of outputs valued by
the citizens. From this perspective some key-questions appear: What is the main function and
the objectives of museums and what are they trying to do? What are their main features as
economic entities? Why demand represents a special issue when it comes to museums? What
are the main trends in their offer?
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Weil (2002) succinctly expresses the main function of a museum: „In everything
museums do, they must remember the cornerstone on which the whole enterprise rests: to
make a positive difference in the quality of people’s lives. Museums that do that matter – they
matter a great deal”(p. 73).
For certain professionals (Feldstein, M., 1991), preservation, documentation and
research of the collection represent the main objectives for museums. For others it is the
education of the public and the maximization of the public’s access that are essential (Weil,
2002). Economists can contribute with few ideas though to the discussion related to the
objectives of museums. They have nevertheless examined the implications of the different
objectives these suggested, as well as the possible conflicts that may arise (Darnell, 1990).
One obvious example of such a conflict refers to the relation between the access
objective and the other objectives of the museum. The low price maximizes the access of the
public but can reduce the funding for other objectives such as preservation, research and
education. Darnell’s contribution helps in clarifying the nature of the potential conflict
between access and generating funding.
Museums, as productive organizations, present a few distinctive features worth
mentioning.
First of all, most museums offer a diversified output. The mix of outputs changes in
time, as Michael Hutter shows (1998), in the case of art museums. Secondly, museums do not
produce for the current generation only but also for future generations which cannot express
their preferences on the marketplace. Preservation of the current stock of values for future
consumption can be considered, from this point of view, an output. The difficulty resides in
knowing what to preserve given the fact that future generations do not have direct means of
expressing their preferences, and limited resources make it impossible to preserve everything.
Thirdly, the visitor’s experience – the most obvious form of a museum’s
“production”/output – resides in a palette of services provided including not only the viewing
of the paintings, buildings, and artifacts but also services such as souvenir sales, serving
meals at the restaurant, catering etc. The manner in which the palette of services is created
and the proportion in which these are combined can be crucial for the satisfaction of the
visitor. It is also important to admit the fact that visitors can gain utility both during the visit
and before as well as after the visit. The frequency of repeated visits seems to be affected by
time and by the satisfaction the visitor had after the first visit. (Hutter, M., 1998).
Some forms of museum “production” can act as substitute of the visit per se. For
example, video and audio productions and online publications with the collections of the
museum can reach a much wider public than the classic/real visit. These can also be a
valuable source of income as progress in information technology makes the virtual access of
museums a common fact. (Hutter, M., 1998).
Few papers approached the issue of costs in museums. (Jackson, R., 1988). For the
economic analysis the manner in which costs vary with the transformation of museum
“production”/output type and with the process of substituting labor with capital is relevant.
Numerous museums have not registered all their collections, thus they have obviously not
evaluated them. There certainly are big problems in estimating the market value of certain
exhibits or even of entire collections but the absence of this information suggests that
museums often make decisions with regard to allocating resources without having basic
information. (Frey, B., Pommerehne, W.W., 1989).
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The activity of volunteers has a special influence on costs (Hutter, M., 1998). These
individuals are important especially for private museums. The important characteristic of
volunteers from an economic point of view is the fact that they receive utility from the
“production process” itself: the volunteers are both ‘producers’ and ‘consumers’.
Museums are not immune to competition. On the financial part they compete for
public funding (which is low) and for the existent private resources. The number of visitors
does not seem to be affected by what other museums do. Even though some museum
managers do not prioritize the number of visitors, they will soon become aware of the fact that
the suppliers of public funding do take into account these figures, visitors representing an
important source of income. (Ashworth, J., Johnson, P., 1996).
There are at least two aspects of competition that are worth exploring. Firstly, there is
proof according to which the number of visitors of a museum is influenced by the life-cycle of
the “product” (Johnson, P.S., Thomas, B., 1998). Trends and preferences change. In any
analysis regarding the usefulness felt by the visitor, the presumption that “preferences are a
given fact” is incorrect. Museums themselves seem to play an important part in modeling and
developing these preferences. This is why no museum can expect a constant number of
visitors. Only when a museum adapts to the times, which are under constant change, does it
have a chance to attract visitors.
Secondly, innovations – technological or non-technological – have a constant
influence over the activities of the museum. Hutter (1998) provides a few examples of such
innovations. It is not possible that a museum remains isolated with regard to such
development of the supply side without ultimately suffering from a reduction of the number
of visitors. Unfortunately we know too little about innovation and about the process of
disseminating innovation in museums.
Bruno Frey’s paper (1998) brings up another important issue with regard to
competition. He says that certain large museums have gained the status of „superstar”. These
museums’ power of attraction is huge – starting with their size to the intrinsic quality of
collections – and has both positive and negative consequences for the less popular museums.
When talking about museums with regard to the nature of demand and the factors that
influence it, Heilbrun’s and Gray’s paper is revelatory (1993). They show that exposure to art
during childhood makes individuals more willing to visit art museums as grown-ups.
The important art museums hold “goods” representing a special kind of social value,
labeled as “artistic value”. These goods serve as identity particles of the community, which
have to be kept and maintained. Small museums play the part of local “distributors” of value,
giving credit to the works of young artists or serving as storage rooms for temporary
exhibitions. But museums, large or small, are not mere storage rooms. They exhibit and
interpret the “goods” in catalogues and exhibitions, thus contributing to the increase of the
social value supplied by works of art (Hutter, M., 1998).
In a world characterized by asymmetrical information, both producers and consumers
of economic goods have a special interest in using the artistic environment in order to draw
the attention (Falk, J.H., Dierking, L.D., 2008). Producers need to be recognized in the
multitude of entities which compete for the attention of the consumers. They need to be
recognized as carriers of value which is emotional and intelligent, sophisticated and sensitive
at the same time for the consumer. Association with museums and exhibitions represents a
powerful means of attaining such recognition. This is in fact the reason why private
companies become ever more important donors and supporters of the activities of museums.
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Consumers use the visits to museums for orientation in an environment ever more
immaterial. In the museum visitors are presented the elites, their ideas and the manner in
which elites perceive the world as they are presented in the succession of works of art. They
are connected to the mentalities and the images of past and present generations and cultures.
Knowledge about works of art thus represents an efficient method of generating a very special
human capital. But it takes a lot of effort and will power to acquire all this knowledge about
the past and about the works of art. Those who have acquired skills and the sensitivity
necessary to “decode” the images have an advantage as compared to those who do not have
these skills.
In fact, what visitors/consumers really look for in a museum results from the words of
Beverly Sheppard recorded in an interview given in 2009, together with John Falk: „Part of
what people do is seek out things that reflect something about themselves, and consequently,
that value added piece is something people are willing to pay for when it reflects something
about their identity. It’s about...finding ways to support individual experiences for everyone,
so that every visitor can say: ‘something was done for me’. (www.museumtwo.blogspot.com,
September 3rd, 2009).
3. CASE STUDY: AN ECONOMIC ANALYSIS OF THE MUSEUMS FROM
THE MARAMUREŞ COUNTY
Approaching the significance of the activity of museums from an economic
perspective represents a rather novel field of research in Romania, both with regard to the
interest manifested in the framework of the self-analysis of museums and with regard to the
attention manifested within the scientific environment of economic institutions. This is why
one can notice that analyses and case studies meant to assess the concrete situations of
Romanian museums are quite scarce, if not entirely absent, besides the few theoretical
approaches (Opris, I., 2008).
Considering the provisions of the new legislation regarding the management of
cultural institutions, in accordance with the provisions of Decree no. 1301/2009, starting with
year 2009 all managers of museums throughout the country have to write annual reports
regarding the management, and these reports also contain large sections concerning economic
aspect of management. Unfortunately these true primary sources which might prove very
useful for sector/global case studies currently function in a closed regime, as a sort of internal
documents of every institution, not being available to the outside. This is most probably the
reason why ever since 2009 there were no studies or researches based on such primary
sources available for the scientific community.
Within the economic analysis of the museums in the county of Maramureş several
primary as well as secondary sources were used for obtaining statistical data. As economist at
the County Art Museum «The Artistic Center of Baia Mare», one of the authors – Izabela Pop
– was able to access all information with regard to the activity of the Center, as well as of the
other museums in the county. Information related to the revenue of museums in 2010 can be
found in “Annex 9 – Account for the budget of public institutions financed from their own
resources and from subsidies – revenue on December 31 st , 2010.”
The source of the indicators registered in the Maramures tourism is a secondary one,
namely the Newsletter edited by the Maramureş Chamber of Commerce and Industry –
Hermes Contact, no. 257, November 2011, available online on the organization’s website
As regards the number of tourist registered in the county of Maramureş in 2010, the
data were obtained from the website of the Romanian National Institute of Statistics.
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3.1. ECONOMIC BENEFITS DETERMINED BY THE MUSEUMS OF
MARAMUREŞ COUNTY
In the viewpoint of Maryse Vaillancourt the museums becomes “an economic
locomotive when it acts as an attraction point of a city or region”.
From an economic standpoint, the most important advantage of the Maramureş
museums is that they generate revenues for the state budget due to tourism.
A very good method of assessing the cultural goods is the method of travelling costs. It uses
information regarding the expenses incurred by the public when visiting or enjoying cultural
goods (Pârvu, I., 2007).
In order to demonstrate the contribution of museums to the economic development we
analyzed the situation of the county of Maramureş both from the point of view of the
expenses of authorities with the funding of museums and from the point of view of the
economic effects generated by these expenses.
By the end of 2010 the museums in Maramureş had registered the following structure
of revenues:
Table no. 1: The structure of revenues of the Maramures museums in 2010
No. Museum Subsidy – lei - Current income – lei -
1. History and Archeology Museum 1.671.364 51.295
2. Ethnography and Folk Art Museum 1.500.000 11.289
3. Mineralogy Museum 873.703 196.608
4. Art Museum 857.300 24.725
5. Museum of Maramureş 1.330.710 131.611
Total 6.233.077 415.528
Due to the fact that the first four museums are subordinated to the Maramures County
Council, one can state that it invested 4,902,367 lei in 2010 in museums, while the City Hall
of Sighetu-Marmaţiei funded the Museum of Maramureşului with the amount of 1,330,710
lei.
According to the National Institute of Statistics, in 2010 in Maramureş there were
92,500 tourists, of whom 19,151 foreigners, and 73,349 Romanians. As regards the number of
visitors to museums, the same source informs us that museums and public collection from
Maramureş recorded a total of 200,724 visitors in 2010, of whom 89,932 visitors in Sighet,
82,811 in Baia Mare, and the difference of 27,981 visitors was recorded in other towns such
as Târgu Lăpuş and Săpânţa. (https://statistici.insse.ro/shop/, retrieved on April 18 th , 2012).
The economic effects generated by the existence of museums can be determined by
analyzing the indicators from 2009-2010 in the county of Maramureş, in tourism:
Table no. 2: Tourism indicators in 2009-2010 in Maramureş
No. Indicator 2009 2010
1. Turnover 140.646 mil. lei 133.614 mil. lei
2. Gross profit 5.411 mil. lei 4.599 mil. Lei
3. Gross losses 10.276 mil. lei 9.351 mil. Lei
4. Number of companies 745 766
5. Number of employees 2690 2606
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How should this information be interpreted from an economic and social point of
view?
Firstly, given the fact that any sale of goods or services addressing the final consumer
brings 24% of the value of that specific good or service to the budget (through indirect
taxation in the form of VAT), a turnover of 133.614 mil. lei represents VAT in total amount
of 32,067,360 lei. The state did not directly cash in this amount from tourism agencies
directly (because these have the right to deduct the VAT input tax). But if one considers the
whole production and supply chain necessary for the supply of tourism services, as well as the
value added by every ring in the chain, then one can rightfully state that due to the tourism in
Maramureş the state cashed in on 32,067,360 lei revenue in 2010 (because the beneficiaries of
these services are the final consumers who pay the VAT in this whole process; and if these
consumers did not exist then all other branches of the economy would experience a drop in
sales, which would mean a lower added value and implicitly a lower VAT cashed in by the
state).
Tourism services are mostly determined by the final consumers. This is why the
absence or reduction of these would not affect only the tourism sector but a part of the other
branches of the national economy as well.
Secondly, in 2010 the state obtained revenues of 735,840 lei directly from the tourism
companies, from the taxation of the gross profit (4.599 mil. lei x 16%).
Thirdly, due to the existence of tourism, in 2010, 2606 individuals had a job, which
means that the state did not have to pay welfare for them. Of course, if we consider the entire
chain required for tourism services, then the number of employed people would be higher.
Thus it is again proven that tourism represents an important pillar for creating jobs in other
fields.
Fourthly, the money provided by authorities for museums returned into the economy
either as direct expenses of museums, or indirectly, as expenses incurred by the employees of
these museums. Thus even though at a first stage the budget subsidy represented an expense,
later these expenses contributed to the growth of the turnover in different domains and
eventually determined the growth of the state revenue.
If we consider all these arguments, the logical conclusion is that by funding museums
the state ensures part of the leverages required for the functioning of the capital market. Thus,
even though museums lack the capacity of self-funding from their activity, they contribute
indirectly to the economic welfare of the state, the value they create being highly superior to
the state subsidy.
Under these circumstances the economic benefits of museums listed by Carol Scott
(2007), cannot but be true:
Development of local businesses;
‣Increase in the number of jobs;
‣Improvement of productivity in the public/business community;
‣Development of tourism;
‣Attracting new resources for the community;
‣Improvement or creation of public facilities;
‣Improvement of planning and design of public spaces;
‣Improvement of communication between the government and the community;
‣Cost and public expenses reductions in general;
‣Prevention of crimes.
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Yet in order to attract tourists the county must offer something special and at the same
time different in such a way that the supply of all types of tourism is covered (cultural, sports,
agricultural health, business, circuit, transit tourism etc.).
The statement according to which in 2010 the indicators for the Maramures tourism
sector are all due to the museums throughout the county cannot be supported. At county level
there are numerous tourism agencies which get their turnover from selling external tourism
services to the local population. At the same time rural tourism also played an important part
in this. Despite all these museums continue to be economically beneficial for the state given
the fact that it funds the Maramures museums with 6,233,077 lei and obtains revenues from
tourism, including from museum visits, in the amount of 32,803,200 lei (VAT and profit tax),
let alone the savings in the budget achieved through the higher number of employed people.
3.2. SOCIAL, EDUCATIONAL AND ARTISTIC ADVANTAGES OF
MUSEUMS
The research with the title “Artistic and cultural education in the European school”
done by the Executive Agency for Education, Audiovisual and Culture reveal the fact that
educational systems admit ever stronger the importance of developing creativity in the
children and they contribute to their cultural education. The curriculum of Arts aims at the
following: developing artistic skills, knowledge and understanding; involvement in a variety
of art forms; increased cultural understanding; sharing of cultural experiences. Cultural
education is at the same time expected to produce personal, social and cultural artistic results
such as: trust and self-esteem, individual manifestation, team work, intercultural
understanding and cultural participation. More recently there has been an increased focus on
artistic education as a means of developing creativity (often in relation to its importance in
innovation), as well as personal identity.
(http://eacea.ec.europa.eu/education/eurydice/documents/thematic_reports/113RO.pdf, 2009).
Thus one of the most important educational advantages of museums is developing
creativity and imagination. These skills are necessary not only in the artistic environment but
also in the scientific one where a specialist will not be able to reach his/her full potential
without these two features. Imagine, for example, a Marketing graduate lacking imagination
and creativity. How would such an individual be able to design and enforce a successful
promotional campaign if he/she does not have the ability to create something special? Or how
will a manager be able to demonstrate innovation spirit if he/she lacks imagination?
Museums also represent the most direct way of learning about the features and
characteristics of a community, thus contributing to multicultural understanding and
acceptance. The cultural patrimony under the administration of museums represents an
effective means of developing a community’s identity.
In fact, the European Council gives the well-administered cultural patrimony the
quality of “resource for sustainable development and for the quality of life in a society under
permanent evolution”, having the role of “creating a peaceful and democratic society both in
the process of sustainable development and in the promotion of cultural diversity”.
(http://old.parlament.md/download/drafts/ro/1697.2008.doc, 2008).
From a social point of view museums also contribute to the creation and development
of a collective identity by means of a common history and the feeling of belonging, assertion
of the public consciousness, decrease of social isolation, improvement of the understanding of
a culture and the different styles of living, encouragement of tolerance and understanding, as
well as to the diversification of recreational opportunities.
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From an artistic point of view, museums contribute to the promotion of authentic
works of art, the increase in the sales of works of art, to a better training and education in the
field of arts, as well as to the development of artistic groups or activities.
To conclude, we can state that the long-term social value created by museums is best
illustrated in the classification of Carl Scott: “personal development, social cohesion,
community empowerment, local image and identity, imagination and vision, health and wellbeing”
(Scott, C., 2007).
3.3. MEANS OF IMPROVING THE EFFICIENCY OF MUSEUMS IN
MARAMUREŞ
The research done by the Maramureş Chamber of Commerce and Industry highlights
the fact that “tourism in Maramureş does not constitute a significant sector, being on the
second to last position, right before agriculture, as regards its contribution to the county’s
economy”, despite the fact that “Maramureşul is a tourism brand recognized in the country
and abroad”. (http://www.ccimm.ro/ziare/HC-257.pdf, 2011).
Since museums and tourism are directly linked, the underdevelopment of tourism has a
negative influence upon the number of museum visitors, a situation which should stimulate
their interest in identifying and applying certain development strategies.
Museums also have the ability to contribute to the development of tourism “even
though, due to their status, museums are non-for-profit institutions, the countries with
attractive museums that are well-aware of the reality proved they had the ability to increase
the citizens’ level of culture and civilization – not at all insignificantly – and the economic
benefits of communities by means of cultural tourism” (Opriş, I., 2007).
Generally speaking one can notice a high concentration of tourists in the regions that
have something to say either from the point of view of the natural environment, or from a
historical, architectural and cultural point of view. Even negative history represents an
attraction for tourists. The issue is the manner in which these stories, personalities and objects
are advertised for in such a way that they stir the potential tourists’ interest.
In order to have a maximum effect the focus should fall on all tourism resources a
community has, because in this way the probability of attracting tourists will be greater. Yet
as long as a large portion of the community is not aware of the local potential (there are many
inhabitants of Baia Mare that do not know how many museums there are in the city), how
could this be discovered by a foreigner? This is one of the big problems of the Maramures
tourism strategy. There is great level of lack of communication and cooperation between the
institutions, organizations, community and private companies.
In those countries where they became aware of the fact that “investing in culture
means a sustainable investment in the future, because (…) the cultural patrimony represents
an important, yet not sufficiently exploited economic resource, which produces income”
(Kisilewicz, D., http://anale-arhitectura.spiruharet.ro/PDF/anale_fratilesti.pdf, 2011) urban
areas were created in such a way that they can offer both cultural appeal and the opportunity
of buying high quality goods. These urban areas are part of some very elaborate schemes for
urban revitalization, being included in the development and tourist attraction initiatives.
In the regions where tourism is very well developed one can easily notice that the
entire community works towards valorization of the local potential. Any hotel or boarding
house has a special area dedicated to tourists and where they can find leaflets, brochures,
maps referring to the locations worth visiting, but also to restaurants, bars, pubs,
transportation etc. In Romania, entities focus on themselves and instead of facilitating the
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tourists’ access they hinder it. The problem with this approach is that not only do the other
organizations suffer but the respective entity does, too.
Local Maramures authorities consider probably that by having created a tourism
information center and a site in English they have done their job in terms of developing
tourism in the county. A painful example of ignorance on the part of the authorities is the fact
that on the website of the Maramures County Council under “Tourist attractions – museums”
they only present the museums from Sighetu-Marmaţiei, as if those from Baia Mare were not
worthy of the tourists’ attention (http://www.cjmaramures.ro, accessed on April 22 nd , 2012).
There is an acute need of involving all economic factors and responsible institutions
for the development of tourism in Maramures. In fact they need to unite forces in order to
reach a common goal. And probably everyone agrees with this but they all expect someone
else to do something. This is why, just as large companies hire regional managers whose job
is to reach a target, the county of Maramureş would probably need such a manager in tourism
who would ensure the cooperation of all separate forces and thus contribute to the creation of
“unity in diversity”. The place of this manager should not be in an office, isolated from the
real world; this individual would have to move from one entity to another and ensure
precisely this cooperation amongst organizations.
Another method of increasing efficiency would be remunerating employees according
to performance, similar to the private sector, based on the framework of a fixed salary plus
bonuses. This would allow for a reduction of labor costs and at the same time would represent
a motivational factor for the increased involvement of employees in the promotion of the
museum as a tourist attraction. Currently, because the employee has the same salary every
month no matter the effort he/she has made in order to meet the objectives of the museum, a
large part of employees do not work at their full potential, which results in an inefficient use
of the human resource and implicitly to a higher level of effort than it would be necessary to
have the same effect.
It would also be necessary to hire a manager with solid organizational management
expertise, as well as proven skills in the successful administration of an entity. Currently most
manager positions are filled in by people with great specialized skills (in art, history, museum
science) but who do not have fundamental knowledge in economics. As long as at the top of
any organization there is such an individual, it is only natural that the act of management be
done “blindly” and the results poor.
CONCLUSIONS
Museums are cultural institutions which need to be regarded as productive
organizations in the 21 st century. They have income and expenses; they administer inputs and
outputs of goods and services; they serve the wide public offering visitors outstanding
experiences – noticeable changes at the level of knowledge and attitude, the continuation of
the exploration of an idea after the end of the visit – outputs which increase the quality of the
human capital; they function in a competitive environment, being able to take more or less
successfully a part of the people’s spare time. In other words, they improve the people’s
quality of life. All these represent arguments which justify the approaching of museums as
businesses with economic and social effects upon the communities.
From the point of view of operational costs museums greatly depend on the state: for
example, in Great Britain, approximately 53% of the income of museums are state subsidies
(DCMS, 1998), but these subsidies are on a falling trend as museums diversify their funding
sources and attract new donors.
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In Romania the situation is different. Historically speaking, cultural organizations,
especially those subsidized by the state, are happy to have an annual budget and to expect the
granting of funds from the main or secondary credit release authority. In good years new
projects are funded; in bad years initiatives are stopped, which makes the dependence of the
museums’ activity on only one source of funding – the state budget – unacceptable.
According to some specialists (Holling, 1973; Tilman, Lehman and Bristow, 1998),
stability can best be reached through diversity. In other words, financial stability can be
reached if funding sources are diversified. This means that the recent tendency of state funded
museums to supplement their funds from other sources is not just a good idea, but a
requirement. Museums in Marmures have begun to understand the need for multiple funding
sources for their activity (revenue from donations and activities performed by these represent
6.25% of the total revenues of 2010), but the dependence on one funder cannot to eradicated
as long as museums have not yet been taught how to attract a larger number of private donors.
Through the state investments in museums, these ensure the circulation of capital with
the aim of increasing the initial investment. Authorities ensure funding for museums and the
latter contribute to the development of tourism, as well as to the growth of the turnover in
other domains. Tourism and the other branches of activity, in their turn, invest money
bringing added value, and eventually everything returns to the state in direct and indirect
taxation of this added value. The bigger the number of intermediaries, the bigger the final
benefit of the state obtained from the initial investment. The only difference as compared to
the private sector is the fact that in the case of the state the route of the initially invested
capital until it returns as money is much longer. Under these circumstances we conclude that
museums are also a means by which the state ensures its proper functioning. If museums
closed it would lead to an economic crash of which the state would only lose.
Despite all these, by applying business models, museums in Maramures could obtain
higher income and thus contribute both to the reduction of public expenses and to the decrease
of their dependency upon a sole source of funds.
Considering the fact that the economic and social advantages generated by museums
have been proven, the next step is to identify concrete methods of a most efficient usage of
their potential. Practically one needs to transform the potential into results and effects, with
measures taken both nationally and locally.
The county of Maramureş is rich, both from the point of view of natural landscape and
the relaxation possibilities, and from the point of view of the preserved traditions and of the
existent sights. The museums in the county represent a resource which could be used for the
promotion of the region as a cultural center, aimed at attracting residents, tourists, specialists
and investors, resources which, unfortunately, are underexploited. For a better involvement of
museums in the process of local development the first requirement is a feasible strategy which
would ensure the involvement of the entire community and of all the players in tourism, as
well as their improved cooperation. Secondly, an internal reform of museums is required; it
could be achieved by identifying and applying the necessary instruments for a more efficient
administration of all available resources.
Since the positive contribution of museums to the economy and society has been
proven, future research should focus on identifying possible means of improving the degree to
which museums are used, as well as on perfecting tools for gauging performance of every
single museum. In Romania, management reports represent the first step, but a standardization
of indicators is necessary, so that the data recorded by different institutions be comparable. It
is also necessary to increase the level of accessibility to these reports, so that future research
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would be able to identify all problems related to improper functioning and thus be able to
suggest solutions for improvement with the broader aim of the improvement of national local
and individual welfare.
REFERENCES
1. Darnell, A.C., Johnson, P.S., Thomas, R.B. 1990.” Modeling Museum Visitor Flows: A
Case Study of Beamish Museum”. Tourism Management, 10, p. 251-257.
2. DCMS. 1998. Department for Culture, Media and Sport. The Government’s
Expenditure Plans, 1998-1999. London: Stationery Office.
3. Falk, J.H., Dierking, L.D. 2008. “Re-envisioning success in the cultural sector”.
Cultural Trends, 17(4), p. 233-246.
4. Falk, J., Sheppard, B. 2009. „Rethinking Membership and Admissions”, interview with
John Falk and Beverly Sheppard on September 3rd, 2009,
http://www.museumtwo.blogspot.com, retrieved in April 30th, 2012.
5. Feldstein, M. 1991. The Economics of Art Museums. Chicago: Chicago University
Press.
6. Frey, B.S. 1998. “Superstar Museums: An Economic Analysis”, Journal of Cultural
Economics, 22, p. 113-125.
7. Frey, B.S. and Pommerehne, W.W. 1989. Muses and Markets: Explorations in the
Economics of the Arts. Oxford: Blackwell.
8. Heilbrun, J., Gray, C.M., 1993. The Economics of Art and Culture: An American
Perspective. Cambridge: Cambridge University Press.
9. Holling, C.S. 1973. “Resilience and Stability of Ecological Systems”. Annual Review of
Ecology and Systematics, 4, p. 1-23.
10. Hudson, K. 1987. Museums of Influence. Cambridge: Cambridge University Press.
11. Hutter, M. 1998. “Communication Productivity: A Major Cause for the Changing
Output of Art Museums”. Journal of Cultural Economics, 22, p. 99-112.
12. Jackson, R. 1988. “A Museum Cost Function”. Journal of Cultural Economics, 12, p.
41-50.
13. Johnson, P.S. and Thomas, R.B. 1992. Tourism, Museums and the Local Economy.
Aldershot: Edward Elgar.
15. Johnson, P.S. and Thomas, R.B. 1998. “The Economics of Museums: A Research
Perspective”. Journal of Cultural Economics, 22, p. 75-88.
16. Kisilewicz, D. 2011. “Patrimoniul cultural - de la mărturie materială a istoriei la
calitatea de resursă”, Annals of Spiru Haret University 1(2011): 181, 177, retrieved in
April, 21 st , 2012, http://anale-arhitectura.spiruharet.ro/PDF/anale_fratilesti.pdf
17. Opriş, I. 2008. “Management muzeal, Târgovişte: Cetatea de Scaun,, retrieved in April,
20th, 2012, http://www.scribd.com/doc/53725283/MANAGEMENTUL-MUZEAL.
18. Pârvu, I. 2007. Manager de proiect, Ghidul profesionistului. Bucureşti: Centrul de
Pregătire Profesională în Cultură, p. 486.
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19. Scott, C. 2007. “Measuring Social Value,” in Museum Management and Marketing,
Sandell, R. and Janes R.R. (eds), London: Routledge.
20. Tilman, D., Lehman, C.L., Bristow, C.E. 1998. “Diversity-Stability Relationships:
Statistical Inevitability or Ecological Consequence?” The American Naturalist, 151, p.
277-282.
21. Weil, R. 2002. Making Museums Matter. Washington D.C.: Smithsonian Institution
Press.
22. Agenţia Executivă de Educaţie, Audiovizual şi Cultură. 2009. Educaţia artistică şi
culturală în şcoala europeană, translated by Adina Florentina Pescaru, retrieved in April,
21st, 2012.
http://eacea.ec.europa.eu/education/eurydice/documents/thematic_reports/113RO.pdf
23. Buletin Informativ Hermes Contact nr. 257, Camera de Comerţ şi Industrie Maramureş,
accesat în 19 aprilie 2012, http://www.ccimm.ro/ziare/HC-257.pdf.
24. Convenţia-cadru a Consiliului Europei privind valoarea patrimoniului cultural pentru
societate (Faro, October 27th, 2005).
25. Consiliul Judeţean Maramureş. 2012. Atracţii turistice – muzee, retrieved in April, 22 nd
, 2012,
http://www.cjmaramures.ro/detaliu.aspx?eID=380&t=Obiectiveturistice&Node=54.
http://www.museumtwo.blogspot.com
26. INS Tempo on-line – Serii de timp, retrieved in April 18 th , 2012,
https://statistici.insse.ro/shop/.
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THE DYNAMIC OF LABOR PRODUCTIVITY - A TOOL FOR ASSESSING
INCOME INEQUALITY
Ionuţ Constantin;
University of Bucharest
Raluca Bogdana Dumitraşcu;
University of Bucharest
ABSTRACT
Comparing income levels and population dynamics from Romania with the respective
levels in other economies, particularly those recorded in economically developed countries, is
a theoretical and methodological exercise of great importance, with many pitfalls and
questions. This exercise takes new connotations in the context of globalization of economic
activities and of inter-cashiers processes of the contemporary world.
In this set of concerns, a special place has the comparing measurements of the
average income of employed persons as a reward (as remuneration) for the paid work
performed.
Key words: income inequality, wages, income, labor productivity, labor force
1. INTRODUCTION
Adam Smith believes that inequality is inevitable in the conditions of an economy
composed of many social divisions. High social division lead to a better productivity, and thus
the income difference between classes with different levels of productivity is normal to
increase.
Increases in real wages in the same proportion to labor productivity across the
economy indicate the fact that labor demand is equal with the supply. In certain conditions
(constant rate profit, perfect competition, technological progress as a neutral factor, no change
in tax burden, etc..), this implies the fact that: wages grow in line with labor demand, labor
factor receives his contribution to added value; the share of the wages remains constant; real
unit labor costs remain constant. Proportionality in real wages and productivity is not enough
for stable development in the real effective exchange rates. Competitiveness price can change
because in the partner area real wages will not follow the productivity or because of the
difference of inflation. The big and persistent difference of inflation is in the normal way the
result of monetary conditions in different countries.
Therefore, in a monetary union, if real wages grow in line with productivity, in normal
way all members will help to create conditions for competitiveness development. However,
this is not a sufficient condition for a stable development of the competitiveness for a number
of reasons: the different intensity of trade with non-euro area countries characterized by
different monetary conditions and floating nominal exchange rates, the differences inflation
rates resulting from differences cyclical demand, inflation rate differences related to
asymmetric sectorial productivity developments and the dynamic process of recovery the
gaps (changing competitive advantage, improve product quality, etc..).
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2. PAPER CONTENT
The growth rate of wages should not be faster than labor productivity index over a
period.
The existence of large differences in wages in an economic unit can lead to:
complaints from employees, increase staff fluctuation, reduced productivity, etc.. The
existence of these differences in various sectors of national economy can lead to the outbreak
of strikes of employees of that branch to increase wages.
Wage policy represent at macro and micro level the actual instrument for adjustment
the labor supply and demand, for combination of employment and efficient use of labor. For
the salary to act as a lever to stimulate economic growth as a source of income and as a way
of increasing living standards, wage policy must satisfy many requirements.
First, to ensure proper correlation between increased production and the salary wage,
respectively - between the volume of the salary wage and those of goods and services offerd
on market; and between labor productivity and average wage increase.
In other words, wage policy stimulates labor productivity growth, acting as an agent
factor of macroeconomic stabilization, keeping inflation within reasonable limits.
Wage policy, including wage flexibility; represent levers of the allocation of recovery
of labor force on different sectors, industries, professions, qualification categories. Wage
policy should seek to establish the size of the salary according with the level of quality,
competitiveness, performance, etc.. Must be the result of the economic agents interests both in
terms of rewarding the participation in work and that of stimulating production and improving
profitability for reinvestment and development.
To satisfy these requirements at the macroeconomic level, wage policy should be
designed as part of the global economic strategy – next with the employment policy, fiscal
policy, monetary, fiscal and credit policy, as, at the microeconomic level, is a part of company
strategy. At company level, wage policy involves both internal side and external one.
Wage policy during economic reform, has developed and evolved due to continuous
decrease of production and labor productivity, which led from the start, to cancellation the
results and the effectiveness expected from the measures of wage policy. On the other hand,
the increasing action of some factors such as exchange rate, privatization, made wage policy
the move to second place.
3. ROMANIA AND THE INTEGRATION INTO ECONOMIC AND
MONETARY UNION
The difference between labor productivity in Romania and the euro area is an
important factor that may delay the adoption of euro currency. After entry into EMU
economic adjustment must be made through wages and unemployment and not through the
exchange rate or interest rate. Therefore, Romania's economy must have a comparable level
of productivity and flexibility of the production structure, so that adjustments (cyclic and / or
determined by the crisis) could be achieved without high costs.
Recovery of the development gap between Romania and the euro area can be achieved
only through economic growth without macroeconomic imbalances, which should have a
higher growth rate than the euro area. In other words, human capital and financial
productivity in Romania must be more than the euro area.
Before the economic crisis, Romania registered a dynamic labor productivity higher
than that from the euro area (see Table 1). This was a good premise for the economic recovery
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but, unfortunately, the economic growth wasn’t an “healthy” growth, beeing accompanied
with macroeconomic imbalances.
One of the major imbalances was regarding human capital, because the speed of the
growing rate of the wages in Romania exceeded the level of productivity and the currency
appreciation. This is the reason that the level of adjustment in labor productivity in Romania
was more severe than in the euro area. In other words, in this moment, we have to recover the
earnings unjustified by the market logic from the period before the economic crisis.
It is likely that these adjustments to continue because that level of inflation in
Romania suggests a structural problem, the allocation of resources across economic sectors.
In Romania, public sector wages had, in recent years, a trend of higher growth than the
economy overall. Wage-setting process in Romania is largely decentralized, while public
sector wage settlements continue to play an important role reporting to private sector wages.
Alignment of wage growth with the evolution of the productivity will be crucial to protect the
competitiveness and sustainable inflation,a prudent orientation of fiscal policy will be
essential, given the role of strong reporting of wages from the public sector in the Romanian
economy. Advancing structural reforms to enhance competition in product markets and
especially in some segments of the retail sector, would also help to restrict the inflationary
pressures.
Evolution of labor productivity (labor productivity index - GDP / hour worked) has
registered a positive trend, however, in 2010 labor productivity in Romanian represented only
41.7% from the productivity registred in the EU-27 and 36.71% of the productivity recorded
in the average country from euro area, which demonstrates the need to find appropriate levers
to improve the value of this indicator. However, it is encouraging the trend of labor
productivity growth from 21.8% registered in the EU-27 in 2000 to 43.5% (almost double
productivity) in 2008 and a slight decrease in 2009 and 2010.
Table no. 1 – The evolution of labor productivity (GDP / hour worked) – reported to the
average of the countries from the euro area.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
UE(27
countries)
100 100 100 100 100 100 100 100 100 100 100
Euro
area (17 116.6 116.1 115.3 114.5 113.4 113.9 113.9 114.1 113.8 114.1 113.6
countries)
Romania 21.8 23.5 26.5 28.5 31.5 32.6 35.5 38.6 43.5 42.3 41.7
Source:EUROSTAT
(http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=0&language=en&pc
ode=tsieb040 - accessed at 02.03.2012)
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Table no. 2 – The Evolution of the labour productivity (GDP / hour worked) – changes from
previous period
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
UE(27
countries)
Euro area (17
countries)
2.3 1.2 1.0 1.1 1.8 1.0 1.6 1.4 -0.6 -2.6 2.5
1.4 0.5 0.2 0.3 1.4 0.7 1.5 1.2 -0.4 -2.5 2.4
Romania 3.2 6.8 17.0 5.3 10.3 5.8 7.1 5.9 7.3 -4.7 -0.2
Source:EUROSTAT
(http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=0&language=en&pc
ode=tsieb040 - accessed at 02.03.2012)
Labour productivity growth requires implementation of training programs for staff at
all levels, especially regarding new manufacturing technologies, the concept of continuous
improvement of manufacturing process, application quality and environmental standards,
energy efficiency, use of computer systems, marketing and methods of making contracts
from distance, specific manufacturing. It is notice,that in the recent years, the increased
phenomenon of aging of the workforce, particularly due on the decrease of the birth rate, fact
that requires the development of programs to promote and stimulate the employment of adult
work force or to maintain it.
Table no.3 – Development of real unit labor force - changes from previous period
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
UE(27
countries)
0.2 0.1 -0.4 -0.3 -1.5 -0.6 -1.2 -0.9 0.9 2.9 -1.5
Euro area
(17 -0.3 -0.3 -0.2 -0.1 -1.1 -0.7 -1.1 -1.0 1.7 3.0 -1.4
countries)
Romania 15.1 5.3 -18.7 -2.0 -10.7 8.8 -5.1 1.5 6.6 -6.0 -2.7
Source: EUROSTAT
(http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=0&language=en&pc
ode=tsieb070 - accessed at 02.03.2012)
Table no. 4 – Average annual earnings in Romania for the employees with normal programme
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Net
earnings in 1748 1993 2075 2143 2414 3155 3713 4825 5457 5450 5891
euro
Changes
from the
previous
- 14.02 4.11 3.27 12.65 30.7 17.69 29.95 13.1 -0.13 8.09
period
Source: Wages and labour costs - Statistics Explained
(http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=0&language=en&pc
ode=tsieb070 - accessed at 02.03.2012)
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The evolution of the real unit cost with the labor force has registred a generally
positive trend, trend seen in the quite large fluctuations (but,, normal'' for a country that is in
transition) comparative with the average of EU-27 and Euro area countries. These fluctuations
are due to the increase or decrease wages and changes in the tax revenues, mainly due to
changes needs to attract foreign investors.
We can see that overall that average annual earnings in Romania has exceeded the
labor productivity growth but there is no direct link between the dynamics of those two
indicators, this being due to the development of some domains with potential for large gains
such as banking system, ICT (information and communication technology) constructions, etc.
or as I previously mentioned changes regarding income taxes.
CONCLUSIONS AND IMPLICATIONS
Globalization generated by the integration of economy was considered a powerful
force for achieving economic development. Although integration presents opportunities for
poverty reduction, involves the emergence of significant risks such as inequality, polarization,
changing power centers, cultural dominance and uniformity.
Thus, it is considered that globalization can influence the income inequality by:
equalize the prices of goods, input price convergence due to international migration and
capital mobility, resulting the reducing of wage inequality and differences between the
marginal productivity of the production factors and the results, and dynamic convergence of
income per capita.
Size and dynamics of the salary depend on the cost of the cost of labor resources,
which refers to the cost of production and reproduction labor force and the relationship
between labor supply and demand. Labor productivity is also a relevant factor - the higher it is
to achieve a higher income, and the employee receives a higher salary. The degree of
economic development of a country, labor force mobility, and discrimination in employment,
the degree of organization in trade unions and legislation on trade union movement and the
demands on each country are all the factors that influence the size and the level of salary.
REFERENCES
1. Atkinson, A. B., The Changing Distribution of Earnings in OECD Countries, Oxford
University Press, New York, 2008
2. Barr, Nicholas, The Economics of the Welfare State, Fourth Edition, Oxford
University Press, New York, 2004
3. Giddens A., Sociologie, Editura All, Bucureşti, 2000
4. Ioviţu, Mariana, Teoria şi practica bunăstării, Editura Teora, Bucureşti, 2000
5. Platis, Magdalena, Economia Sectorului Public, 2006, ediţie online -
http://ebooks.unibuc.ro/StiinteADM/platis/
6. Samuelson, Paul, Nordhaus, William, Economie Politică, Editura Teora, Bucureşti,
2000
7. Sen, Amartya, Dezvoltarea ca libertate, Editura Economică, Bucureşti, 2004
8. Smith, Adam, Avuţia naţiunilor. Cercetare asupra naturii şi cauzelor ei, vol. II, Editura
Academiei RPR, Bucureşti, 1965
9. Văcărel, Iulian(coord.), Finanţe publice, Editura Didactică şi Pedagogică, Bucureşti,
1992
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10. Zamfir, Cătălin (coord.), Politici sociale in Romania: 1990-1998, Bucuresti, Ed.
Expert, 1999.
Specialty papers and reports
11. Inhaber, Herbert, Carroll, Sidney, How Rich is Too Rich?: Income and Wealth in
America, Praeger, New York, 1992
12. Rotaru, Constantin, 2011, Concepţii despre mecanismele fiscalităţii în România
13. Waltman, Jerold, Marsh, Christopher, Minimum wages and social welfare
expenditures, Policy Studies, Vol. 28, No 2, Routledge, 2007
14. *** Administraţia Prezidenţială- Comisia Prezidenţială Pentru Analiza Riscurilor
Sociale şi Demografice, 2009 sept, Riscuri şi inechităţi sociale în România, disponibil
online la www.presidency.ro/static/CPARSDR_raport_extins.pdf
15. *** Convergence report 2010, Comisia Europeană, Luxemburg, 2010
16. *** Global Wage Report 2010/11, International Labour Office, Geneva, 2010
17. *** Human Development Report, UNDP 2002
18. *** Institutul de Cercetare a Calitatii Vietii. După 20 de ani: opţiuni pentru România,
2010
19. *** Labour market Developments in Europe, Comisia Europeană, 2011
ec.europa.eu/economy_finance/publications
20. *** Taxation trends in the European Union, 2011
21. *** Wages and labour costs - Statistics Explained
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Wages_and_labour_cos
ts (accesat pe 21 mai 2011)
22. *** World Development Indicators, The World Bank, aprilie 2011
Site
1. http://epp.eurostat.ec.europa.eu
2. www.ilo.org
3. www.oecd.org
4. www.worldbank.org
5. www.unrisd.org
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THE ROLE OF SOUTH EASTERN EUROPEAN PROGRAM IN THE
POLYCENTRIC DEVELOPMENT OF EASTERN EUROPEAN COUNTRIES
CASE STUDY: POLYINVEST PROJECT
Ionuţ Constantin;
University of Bucharest
Raluca Bogdana Dumitraşcu;
University of Bucharest
ABSTRACT:
Since 2007, Romania has the obligation to direct the national development policies in
conformity with the objectives and policies of the European Union to ensure a socioeconomic
level as effective in all throughout the community framework. The University of
Bucharest has been a partner in a lot of project and has sustained the development of
European funds in Romania. An important part has played also the Polyinvest project, that
was develop by the University – Faculty of Business and Administration, that had a very
important role in the development of the cooperation inter regions. The Polyinvest project
had a very good impact on the Romanian economy and regional development and had a very
good applicability in all the countries that were partner in this project.
Key words: : regional development, investments, investors, enviorment, cooperation,
economy.
1. LITERATURE REVIEW:
The subject of regional development is a much discussed subject in our days; we can
found a lot of books, and methodology written on this subject with applicative character and
also with a lot of information. There a lot of study cases on the programs that was created to
support the grade of absorption of the European funds. On the South Est Programme you can
find the guide line and also there are a lot of project develop on this programme. While some
papper only show how the programme was implemented, others, show the problems of the
projects (birocratic problems, hard to implement in some regions). But are many gaps in the
specialty review regarding European projects or implementing the projects and by this article
we want to show what problems we had when we had develop the projects and also to
increase the knowledge in this field.
You can find information regarding the subject on sites, or in the general review from the
project that were created and developed in this programe.
2. INTRODUCTION
EU membership has brought benefits to Romania in all the areas due to capital
infusion and control measures. To ensure flow of investment on the objectives of Cohesion
Policy, The European Commission has established specific funds that represent funding
programs on multi-annual periods, well structured, carefully organized and monitored, both
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national and European level. The particularity of these funds is that are developed in the
reimbursement system and only a few exceptions through direct funding.
The European Commission has allocated Romania for the period 2007 – 2010 a total
sum of about 19.6 billion euros, of which Objective Convergence it is allocated 19.21 billion
euros by the European Fund.
In Romania, during the period 2007-2013, were established eleven operational
programs for European Territorial Cooperation objective and seven Operational Programmes
(OP).
In the framework of European Territorial Cooperation Romania has developed several
projects in partnership with other countries in the European area.
The programme South East Europe was created to develop transnational partnerships
on matters of strategic importance. The major objective is to improve the territorial, economic
and social cooperation and to improve the cohesion, stability and competitiveness of the
region.
Specific Objectives
The major objective is developing with specific objectives, and they are:
1. the facilitation of know-how, information and innovation in society by a concrete cooperation
inter regions.
2. to improve the attractiveness of regions and cities taking into account sustainable
development, physical and knowledge accessibility and environmental quality by integrated
approaches and concrete cooperation action and visible results.
3. To sustain and develop the capacities for territorial cooperation at all levels.
These specific objectives of the Operational Programme will be develop and implemented
through Priority Axes, which contribute differently to the specific programme objectives:
Priority Axis 1: Facilitation of innovation and entrepreneurship
Priority Axis 2: Protection and improvement of the environment
Priority Axis 3: Improvement of the accessibility
Priority Axis 4: Development of transnational synergies for sustainable growth areas
The South Est Programme is recognized like the programme that have the largest cooperation
area and also the programme that but together countries with diversity.
2. PAPER CONTENT
University of Bucharest has been involved in such a program, among other 10 partners
from 8 European countries, called Polyinvest which has been developed between May 2009
and January 2012. Polyinvest is a program that is developed in the frame of South East
Europe Programme.
POLYINVEST project aims at improving conditions for investment in the rural areas,
directly tackling the development gap between the regions of the SEE space. This project
responds to the needs of the investors who can invest in various territories and can be helped
in the administrative and bureaucratic sector.
POLYINVEST project aimed to improve conditions for investment in the rural areas,
directly tackling the development gap between the regions of the SEE space. Through the
development of an innovative information service about the availability and characteristics of
marketable real estates, the project responds to: the needs of those public administrations
interested in enhancing and gaining an income from a part of their real estates, converting
them to productive uses, fostering the development of polycentrism; the needs of those
investors who, having the tools to know the investment opportunities in the various territories,
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can benefit from infrastructural efforts made by the Public Administrations Authorities and be
helped in the administrative and bureaucratic course.
The project has arisen from the will to attract investments toward the marginal areas of
the SEE space, putting onto the market real estate’s properties currently unused. These
properties at the moment represent a cost for public administrations, because of maintenance
costs and of uninterrupted loss of value due to deterioration and obsolescence. On the other
hand these real estates could represent an interest for investors who want to develop a
business related to areas’ potentials (i.e. in terms of touristic activities, availability of
commercial spaces, etc.). The lack of prearranged procedures aimed at easing this kind of
operations, linked to the lack of specific information about the presence or not of these
properties – and of their characteristics – hampers the exploitation of these opportunities,
although it represents an important factor of development for marginal rural areas which,
compared with urban areas, have a gap in the ability to attract investments.
The divide in the development of the different SEE space regions, is exemplified by
the different ability to attract investments between rural and urban areas. Urban areas usually
assure to investors a broad availability of structures and services that rural areas cannot offer.
Another limiting factor for rural areas is the difficulty the enterprises which want to localize
their structures outside the urban area meet when they try to find information about the
quantity and the quality of the available structures. This penalization affects also the unused
real estates of the public administrations; these real estates could represent for the investors an
important opportunity to improve area’s resources, meeting some forms of converging
collaboration with the Public Administrations Authorities. So POLYINVEST aims at
developing an information system useful for those Public Administrations Authorities which
want to convert to productive purposes a part of their real estates, currently unused because of
structural and historical reasons.
Starting from the previous experiences of the partners and of a strengthened best
practice, the objective of the project is to develop an active approach to the market by the
public administrations, favoring the definition and the implementation of complete territorial
offer packages; these packages will include information about the real estates which can be
alienated and information on the conditions which could favor the realization of investments
from private investors. POLYNVEST means to reach the following specific results:
1. individuation of real estates and of the opportunities for their improvement offered
the market;
2. Development of standardized administrative and legislative procedures aimed at
easing for the investors the purchase of the assets;
3. carrying out of an interface (accessible from the Internet through CMS
Technology), which can assure an easy access to the information about the chance for
investments on public administrations’ properties in rural areas: location of assets, their
characteristics, related administrative and legislative procedures, services of accompaniment
and technical assistance made available by the assets’ owner;
4. Develop a methodological guideline about improvement of investments in rural
areas to be a guide to local administration for better exploitation of their own rural area
properties.
The methodological approach of POLYINVEST was bottom-up. The highlighted problems of
the project and the needs of some of the Partners involved in the project represented the
project start-up. Subsequently, consolidation and strengthening of the partnership, definition
of specific actions and the sharing of methods and results during the meeting among partner
organized by the LP on November 4th 2008, constituted the project preparation (WP0). The
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adopted methodology entails an involvement of the Partners on many levels that is each
partner will be responsible for the activities for which can give an added value and
experience, and will take part as a participant the activities it needs support for. In the specific
case, the objectives of POLYINVEST will be accomplished through a detailed and coherent
plan of actions, and then reunited in 7 Work Packages. The method provides for a real estate
market analysis allowing knowing the market topical dynamics and the foreseen development.
Then some themes of interest attractive for potential investors will be singled out, and
a collection of technical, legislative, administrative, bureaucratic and procedural data will
start. The gathered data will be used to implement the interface of “POLYINVEST
information access platform” (PIAP), able to easy the management of data uploaded, both for
public administrations and investors. Once this system will be created, a European promotion
strategy will be necessary; this strategy will aim at conveying the data on real estates and
meet potential investors.
Finally, in order to make the results of POLYINVEST operative and profitable, 5 pilot
actions will start in 5 areas of the SEE space; these actions will test the work done in the
previous phases and obtain some “turn key packages” of procedures, ready to be available for
interested investors.
To synthesize, the main activities of POLYNVEST project was: a deep market
analysis and collection of data on available real estates; study of real estate market’s legal and
administrative procedures for each country; implementation and management of a platform
(accessible from the internet) to manage the data; comprehensive promotion activity to put on
the market the real estates and to obtain opportunities and potential investors; pilot actions
which has provide potential investors with real estate availability, already done administrative
and legal procedures and some planning simulations.
Main outputs of the Polyinvest projects are: Legislative Framework Repository
(LFR)–an archive for legislative and administrative information; Real Estate Repository
(RER)–an archive for the location and characteristics of real estates; POLYINVEST
information access platform (PIAP); Recommendation Report (RR) including the procedures
for real estates’ purchase and commercial conversion. Main results are: creation of a publicprivate
cooperation network in the SEE space; diminishing of the development gap of the
SEE regions improving marginal areas’ competitiveness; triggering off of economic
development and local resources’ improvement through exogenous investments.
The University of Bucharest was in charge to create a methodology, a market analysis,
to define the themes of interest and a census.
For the first action the team from the university had used a qualitative methodology.
In this methodology the team has defined the characteristics of the real estates to be surveyed
considering the useful hints given by each PP referred to its own territory; on this basis a
survey file format and the structure of the real estate database has been defined. This structure
was used as a guideline by the PP 10 in the platform construction.
For the second activity, market analysis, a real estate market analysis has been
developed; this analysis has identified the real estate market dynamics and its foreseen
development, through a focus groups and interviews with investors and stakeholders to
confront supply and demand. PP7 team, as partner responsible for this WP delivered a
methodology for Market Analysis and after other partners has applied our methodology and
realized their focus groups and interviews, we had centralized the data in one General Report
on Market Analysis. In total were conducted 14 focus groups with 132 participants and 16
interviews and the conclusions are:
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• Public administration shows positive feelings about the mapping of land and
buildings;
• The project should have an inter-regional and inter-country orientation: this
perspective will foster the development of at least neighboring countries;
• The project should have a strong component of public relations and communication: it
should be devised a way of real-time informing of all stakeholders;
• The project should make the connection between the land / building mapping and the
legislative component of business opportunities. This is seen as an important condition for
the success of a possible investment: knowing the place geographically and juridical;
• The project should consider delivering a database of experts in public space
reconfiguration: gentrification, industrial reconversion etc. This, besides the map and the
legal counseling will be the third level of information that will help fostering a sustainable
development and a self-sustained investment.
After the market analysis the team has define the themes of interest. This activity
aimed to identify some themes of interest in each involved territory, at defining context
packages which could attract investments. We have delivered a case study for our national
themes of interest and a general report for Themes of Interest included in General Report on
Market Analysis.
In the end we had to collect all the data from the partners and check the consistency of the
collected data and made a General Report on Real Estate Repository. In total were censed
approximately 250 properties (lands, lands and building and buildings).
All this information was uploaded on an electronic platform (www.polyinvest.eu). On
that platform we had synthesize the results of the market analysis and the legislative and
administrative surveys as well as to structure the available data in a user friendly form. All the
partners had to contribute in designing a structure of the database gained during the data
collection activities. The platform software has an administrative interface, through which the
resource data and procedures are entered into the repository, and an end-user interface where
the potential investors are able to access the available resources.
From a local economic and business point of view the data suggest that before every
investment project the stakeholders should survey the population structure by means of labor
force characteristics. A frequent mentioned problem seems to be migration of the core of
labor force: young or middle aged people. This is a double faced situation: a) on the one side,
especially in Western Europe, is a trend toward immigration of students who studied abroad
and b) on the other side, especially in Eastern Europe is a trend toward emigration of
unemployed people. The investor should regard each Eastern Europe country in a global
perspective: there are rather regional problems than local problems. With few exceptions, the
economies here are slow and the labor market have little efficiency in covering the need for
employment. Because of this situation it is expected that a large number of Eastern Europe
citizens to migrate toward Western Europe.
There is also a rural problem, especially in Eastern Europe. Here, and in small towns also,
large enterprises are rare. There is a tendency toward small business with little as possible
expenses. This is, by no means, a driver toward an increased quality of life. This can be an
opportunity for external investors because the local inhabitants can be retained with medium
and long term employment projects than can satisfy basic criteria for a decent standard of
living.
One key point that investors should consider in Eastern Europe especially, is the low
price for selling land. This is mainly suitable for agriculture. A problem can be that the land is
segmented in small sections and it can be difficult to convince different proprietors to sell at a
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reasonable price. Another key point is that there is a basic infrastructure on national and local
paved roads that can be adapted function of the investor needs.
CONCLUSIONS AND RECOMMENDATIONS:
The transnational approach of POLYINVEST was its real core issue. As a matter of
fact if its methodology was not shared and applied on an international scale, would not be so
effective. When we refer to the international context, the difficulties met by enterprises who
want to relocate their plants in rural areas, are more difficult because of different legislative
frameworks (national and regional), which are a serious hinder for European (and non-EU)
investors. The added value of an enlarged partnership in the SEE space, with public and
private subjects acting at a local level and knowing the problems related to public real estates
and to legislation concerning investments in this field, represents an advantage; this is true
especially for creating a system to improve the conditions for investments in marginal areas,
through the development of a broad European information net, which will be used by Public
Administrations Authorities interested in addressing a part of their real estates to
productive/commercial use.
The deficiencies of local economy show institutional problems, especially in countries
like Bulgaria, Greece or Romania. The investor should put this aspect in front of there to do
list. The support of the inhabitants is easy obtainable but the implementation of different
projects can be delayed or even stopped by local administration inefficiency or corruption.
The investor should hire a competent juridical specialist who can interpret complicated and
incomplete laws or government decisions.
Another problem can be the resistance to change. It seems that there is strong inertia
regarding reconversion from past activity domains. For example, if the local economy was
based on an industrial factory and this is no longer functional, the trend is toward migration
(the core of labor force) or subsistence agriculture (the old ones). Aging is regarded like a
serious problem in several regions. Old people seem to be considered unproductive. The local
government should change their perspective and seek to encourage enterprises that use
different abilities of this age segment. This is rather a mentality problem that can take time to
change.
In several countries seems to be significant differences between regions regarding the
orientation toward work and possibilities to invest. The investors should survey the
differences of economic potential between development regions and countries.
Regarding the resources for economic development the information collected was
perceptual and not a representative survey for the regions studied. In addition, the participants
at focus groups and interviews were experts in their field and good connoisseurs of the
business, policies and the functioning of the central and local administration and this can give
us a certain degree of the accuracy of the data analyzed here and in the country specific
reports.
.
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REFERENCES
1. Planul National de Dezvoltare 2007 – 2013, Guvernul Romaniei, 2005
2. Cadrul Strategic National de Referinta 2007 – 2013, Guvernul Romaniei
3. Ghidul Politicii de Coeziune 2007 – 2013
4. Programul Operational Regional 2007-2013, Guvernul Romaniei,
5. www.fse.ro
6. www.politici.ro
7. http://www.southeast-europe.net/en/projects/partnersearch/project_ideas/?id=3164
8. http://narr.gov.rs/index.php/narr_en/Projects/Support-for-
Entrepreneurship/Mechanism-for-fostering-innovation-in-South-East-Europe-FINNO
9. http://www.polyinvest.eu/
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AN ANALYSIS OF THE DIVERSIFICATION POTENTIAL OF INSURANCE-
LINKED SECURITIES FUNDS
Constantin Laura-Gabriela;
Academy of Economic Studies;Bucharest
Iamandi Irina-Eugenia;
Academy of Economic Studies; Bucharest
ABSTRACT
Following more than a decade of refinement and proving resilience during the most
recent financial crisis, the insurance-linked securities (ILS), part of the broad market of
alternative risk transfer products, are nowadays a significant instruments both for the issuers,
while trying to implement viable risk management solutions, and for the investors who pursue
diversifying their portfolios through exposure to an innovative asset class. The scope of the
present paper is to reveal the diversification potential of insurance-linked securities by
analysing the performance of ILS dedicated investment funds by deriving efficient frontiers
for an investor centring on frontier and emerging markets and expanding the investment
portfolio through environmental themes stocks and ILS.
Key words: Alternative Risk Transfer Solutions, Insurance-Linked Securities,
Frontier and Emerging Markets, Efficient Frontiers, Investment Funds
1. INTRODUCTION
Nowadays, within the framework of increasing global portfolio diversification
opportunities at international level, but at the same time, after the severe economic and
financial crisis, investors analytically assess the financial assets universe while trying to
balance the financial performance requirements with more specific ones, as the environmental
and social ones are.
Furthermore, the important environmental issues like the natural disasters that affected
the performance of (re)insurance companies encouraged them to finance their risks by
developing and implementing solutions different from the classic insurance market
techniques, generally known as alternative risk transfer (ART) solutions. One of these
solutions was represented by the transferring of the specific insurance risks to the capital
markets.
Within this context, an emerging asset class that proved to be resilient both in normal
and in turbulent times attired the attention of practitioners and academics as an important
diversification alternative: the insurance-linked securities (ILS).
As part of the alternative risk transfer (ART) solutions, the insurance-linked securities
are also mentioned within the scientific literature as result of a known phenomenon: the
convergence of the insurance markets and capital markets (see Cummins and Weiss, 2009).
Though the ILS market is diverse, by far, the most known insurance-linked security is
the catastrophe (CAT) bond and, the main risk the investors are confronted with in relation
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with these instruments resides in the incidence of one or more insurance-related events as
stated by Spry (2009, 10).
Designed through the securitization technique, the CAT bonds are issued by a special
purpose vehicle (SPV) and, in case the insurance event specified within the contract happens,
the coupons and/or the principal are ceased and the funds are used by the cedent/sponsor
(usually a (re)insurance company) to pay the claims.
Another form of insurance-linked security stands for the developing life bonds,
encompassing mainly two major arrangements, the mortality bonds and the longevity bonds.
Though not as developed as the CAT bond markets, these ones have a great potential
of evolving especially if taken into account the opinions coming from important reinsurance
companies like Swiss Re that the exposure faced by pension funds at global level exceeds the
capacity of the insurance industry underwrite it and, consequently, a solution is represented by
the foundation of a capital market for longevity risk, as Oudenampsen (2012) states.
Therefore, in line with the above line of thinking, the present paper aims at
researching the diversification potential of insurance-linked securities. The analysis will be
developed by considering the performance of ILS dedicated investment funds by deriving
efficient frontiers, in the Markowitz (1952, 1959) framework, for a frontier and emerging
markets based investor that wishes to diversify his investment portfolio by approaching
classic environmental themes (by selecting companies that fulfill conventional environmental
criteria) and by investing in insurance linked securities (financial instruments that allow
investors to address socially responsible issues, mainly stringent environmental and social
problems).
2. LITERATURE REVIEW
According to Ozcan (2005, 23-24) catastrophe risk is expected to appeal different
types of investors since natural disasters are not correlated with market risk and are
considered zero beta events. As a result, they provide a good source of diversification for
investors moving efficient frontier in a favorable direction and improving the risk-return
trade-off within investment portfolios. In this respect, the author mentions Froot et al. (1995),
Litzenberger et al. (1996), Canter et al. (1997) and Canabarro et al. (2000). Thus,
Litzenberger et al. (1996) reveal that as far as the correlation coefficients between catastrophe
risk assets and stocks and bonds are concerned, these ones are 0.058 and 0.105, respectively.
Froot et al. (1995) show that the correlation coefficient is significantly different from zero.
Furthermore, within the same scientific paper, the authors found that the catastrophe risk have
superior performance in comparison with bonds issued at national level and the CAT
securities returns are characterized by lower volatility than those of bonds or shares.
Canabarro et al. (2000) show that moving a small component of a portfolio of fixed income
securities in insurance-linked securities may increase the expected returns and the Sharpe
ratios of the diversified portfolios.
Cummins and Weiss (2009), by focusing strictly on the CAT bond market, investigate
whether the correlation coefficients between CAT bonds indices and the CAT bond funds and
several other relevant financial assets are significant and whether they changed during the
financial crisis. Though they find that during the financial crisis the correlations coefficients
increased, the overall conclusion is that catastrophe bonds, even if they are not "zero beta"
assets, are very close to being characterized as such.
In line with the above mentioned studies, Constantin (2011) and Constantin and
Iamandi (2012) focus on the catastrophe bonds performance indices and catastrophe bonds
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dedicated funds and study the diversification potential of this market. The overall conclusion
is that including catastrophe bonds within investment portfolios enhances the risk-return
profile.
Following these studies, within the present research the central concern is represented
by the diversification potential while investing in insurance-linked dedicated funds taking into
account that, as Barrieu and Albertini (2009, 2) state, the investor categories within the ILS
market include money market managers, pension funds, banks, other institutional investors,
insurance and reinsurance companies, while there is an increasing number of asset
management companies dedicated to investing only in insurance-linked securities risk. To
support this statement, Albertini (2009, 117) asserts that dedicated ILS funds stand for a great
portion of the investor base for non-life ILS. The author explains this: “… for investors with a
targeted portfolio exposure below triple digit million dollars, the costs associated with
qualified staff and infrastructure necessary to properly invest in the sector are too high, thus
creating a barrier to entry. In addition, given the relatively recent growth of the sector, skilled
resources able to operate direct investments in insurance-linked products are not widely
available.” In addition, accordingly to a recent report of the Swiss Re company, an update of
the Insurance-linked securities market the dedicated ILS fund managers embody, for the
2010–2011 period, the principal of the ILS investor base, with a 71% share (followed by
Money Managers – 20%, Reinsurers – 6%, Hedge funds – 2% and insurers – 1%) and are
seen as providers of stable capital for the cedent entities, while raising funds, mainly from
large pension funds.
3. THEORETICAL BACKGROUND
Our analysis studied the impact investing in insurance-linked securities via dedicated
funds has in diversified portfolios over the entire period of study. Henceforth, we derived
twenty-four efficient portfolio frontiers using or not the ILS index returns while both
considering and not considering short-selling. While allowing the short-selling case, the
maximum amount allowed was set to -1 (100%) for each asset, except for the ILS index.
Therefore, in order to take into account the circumstances when the short selling procedures
cannot be performed due to regulation bases, we also considered the no short selling case.
The investigation is performed from the perspective of an investor that centers on
frontier and emerging markets and diversifies his portfolio by including stocks that passed the
screening of major environmental themes. In order to test whether investing in ILS dedicated
funds would be a good strategy these portfolios are further diversified by considering the ILS
returns. Therefore, our investor, based with his investments in emerging and frontier markets,
pursues environmental and social requirements first by investing in stocks that respect
through their activities chief environmental criteria and second by investing in securities that
approach sustainability issues.
The research was developed for a post-crisis period; specifically we employed
monthly logarithmic returns recorded between September 2010 and March 2012. In order to
derive the efficient frontiers we used the MATLAB computational package. Therefore, we
constructed portfolios including or not ILS securities, derived the respective efficient frontiers
and compared the frontiers made up of efficient portfolios that include ILS securities with
those derived from efficient portfolios not including ILS securities.
The portfolios within our analysis were plotted in the risk (standard deviation) – return
area and, consequently we obtained a specific area. The upper boundary of that area,
specifically a curved line, represents the efficient frontier. On this line, each portfolio is called
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efficient as it has the lowest possible standard deviation given a level of return and it offers
the highest possible return, given a value of the standard deviation.
EMERGING AND FRONTIER MARKETS
In order to reflect the exposure of the investor to the worldwide frontier and some
emerging stock markets, the selected index was represented by the MSCI Frontier Emerging
Markets Index – FEM. The MSCI Frontier Emerging Markets Index is constructed by
aggregating all the country indices in the MSCI Frontier Markets Index (that, at the time this
article was written was composed of 25 countries: Argentina, Bahrain, Bangladesh, Bulgaria,
Croatia, Estonia, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Lithuania, Mauritius, Nigeria,
Oman, Pakistan, Qatar, Romania, Serbia, Slovenia, Sri Lanka, Tunisia, Ukraine, United Arab
Emirates and Vietnam) and some selected country indices in the MSCI Emerging Markets
Indices.
ENVIRONMENTAL STOCKS MARKETS
The exposure to stocks that accomplish environmental criteria we also chose a series
of indices developed by MSCI (Morgan Stanley Capital International). MSCI ESG
Environmental Indices include companies whose products and services focus on specific
environmental themes such as alternative energy or clean technology. The MSCI Global
Environment Indices selected within our analysis include developed market large and midcapitalization
companies that derive 50% or more of their revenues from products and
services in one of five environmental themes: alternative energy, clean technology,
sustainable water, green building and pollution prevention. Therefore, the selected indices are
as follows: MSCI Global Environment Index – GEI, MSCI Global Alternative Energy
Index – GAE, MSCI Global Clean Technology Index – GCT, MSCI Global Sustainable
Water Index – GSW, MSCI Global Green Building Index – GGB, MSCI Global Pollution
Prevention Index – GPP. The MSCI Global Environment Index is an aggregation of the
constituents in each of these five MSCI Environmental Indices.
ILS FUNDS MARKET
The ILS market is represented by a newly developed index, mainly the Eurekahedge
ILS Advisers Index. The index was launched by Eurekahedge, a market leading alternative
fund data provider, in partnership with ILS Advisers. The Eurekahedge ILS Advisers Index is
an equally weighted index of hedge funds that explicitly allocate to insurance linked
investments and have at least 70% of their portfolio invested in non-life risk.
The analysis of the descriptive statistics of returns (Table 1) suggests that, overall the
considered assets would have provided the investor with positive mean returns, except for the
case when investing in stocks respecting alternative energy criteria. Furthermore, it seems that
the companies following pollution prevention requirements provided the investor with the
highest mean return in comparison with the other indices. As far as the risk, reflected by the
standard deviation, is concerned, for the analyzed period, the ILS fund index exhibited
indicated less volatility than the stock market indices.
FEM GAE GCT GGB GPP GSW GEI ILS
Mean 0.00015 -0.03805 0.006186 0.00923 0.02097 0.00875 0.00479 0.00164
Maximum 0.06834 0.09761 0.093072 0.11417 0.13868 0.08058 0.08743 0.01159
Minimum -0.05709 -0.21604 -0.094743 -0.11903 -0.14218 -0.07635 -0.10827 -0.03997
Std. Dev. 0.03661 0.078316 0.05566 0.05927 0.06405 0.04887 0.05495 0.01063
Table 1: Descriptive statistics of returns
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4. PAPER CONTENT
The results of our research, displayed in Figures 1-12 reflect the diversification
potential of ILS investment funds.
Figure 1: Efficient frontiers – Global Alternative
Energy – short selling
Figure 2: Efficient frontiers – Global Alternative
Energy – no short selling
0.045
0.04
0.035
FmEm & GAE
FmEm & GAE & ILS
1.5
FmEm & GAE
FmEm & GAE & ILS
Expected return
0.03
0.025
0.02
0.015
0.01
Expected return
1
0.5
0
2 x 10-3 Standard deviation
0.005
-0.5
0
-0.005
0 0.02 0.04 0.06 0.08 0.1 0.12
Standard deviation
-1
0.005 0.01 0.015 0.02 0.025 0.03 0.035 0.04
The analysis performed for the case when the frontier emerging markets based
investor choses the stocks of companies with more than 50% of revenues coming from
alternative energy activities reveals that, when allowing short-selling (Figure 1), for the
portfolios formed by choosing to invest in ILS dedicated funds the risk-return performance is
enhanced, regardless the level of risk.
The corresponding research, undertaken without allowing short-selling (Figure 2),
exposes a case for the portfolios formed without including ILS securities: introduction of
constraints allows only for one efficient portfolio to be identified. Therefore, for this case, it is
inconclusive whether is better to invest in ILS securities or not.
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Figure 3: Efficient frontiers – Global Clean
Technology – short selling
Figure 4: Efficient frontiers – Global Clean
Technology – no short selling
0.014
0.012
FmEm & GCT
FmEm & GCT & ILS
6
FmEm & GCT
FmEm & GCT & ILS
0.01
5
Expected return
0.008
0.006
Expected return
7 x 10-3 Standard deviation
4
3
0.004
2
0.002
1
0
0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.1
Standard deviation
0
0.01 0.015 0.02 0.025 0.03 0.035 0.04 0.045 0.05 0.055
Figure 5: Efficient frontiers – Global Green
Building – short selling
Figure 6: Efficient frontiers – Global Green
Building – no short selling
0.01
FmEm & GGB
FmEm & GGB & ILS
0.009
FmEm & GGB
FmEm & GGB & ILS
15
0.008
0.007
Expected return
20 x 10-3 Standard deviation
10
5
Expected return
0.006
0.005
0.004
0.003
0
0.002
0.001
-5
0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.1
0
0.01 0.015 0.02 0.025 0.03 0.035 0.04 0.045 0.05 0.055 0.06
Standard deviation
When considering the case of investing in clean technology stocks and allowing for
short selling (Figure 3), there is also an obvious shift of the efficient frontier when including
the ILS securities. Furthermore, one can notice that, besides the north-western shift, for those
investors preferring very low levels of risk, investing in ILS funds offers a range of returns
that otherwise would not be attainable, considering the universe of investments within this
research.
The parallel research performed for the case without short selling (Figure 4) reveals a
similar situation: investing in ILS securities increases the performance of the portfolios.
However, it seems that for this situation, the range of returns otherwise unattainable is for
those tolerating low and, in addition, medium levels of risk. This could be the result of the
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fact that, when including restrictions in the model, the ILS assets investments provide a higher
potential of diversification.
When investigating in green building theme stocks and permitting short-selling
(Figure 5) it looks as if the performance of the portfolios is improved when including ILS
securities, for investors tolerating all levels of risk. Similar to this case, when adding the
constraint of no short selling in constructing the efficient frontiers (Figure 6), it appears that
investors should invest in insurance linked securities. As with the previous cases, there seems
to be greater range of attainable returns for the investors tolerating low (the short selling
scenario) and low and medium levels of risk (the no short selling scenario).
Figure 7: Efficient frontiers – Global Pollution
Prevention – short selling
Figure 8: Efficient frontiers – Global Pollution
Prevention –no short selling
0.045
0.04
0.035
FmEm & GPP
FmEm & GPP & ILS
0.025
0.02
FmEm & GPP
FmEm & GPP & ILS
0.03
Expected return
0.025
0.02
0.015
0.01
Expected return
0.015
0.01
0.005
0.005
0
-0.005
0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.1 0.11
Standard deviation
0
0.01 0.02 0.03 0.04 0.05 0.06 0.07
Standard deviation
Figure 9: Efficient frontiers – Global Sustainable
Water – short selling
Figure 10: Efficient frontiers – Global Sustainable
Water – no short selling
0.018
0.016
FmEm & GSW
FmEm & GSW & ILS
8
FmEm & GSW
FmEm & GSW & ILS
0.014
7
Expected return
0.012
0.01
0.008
0.006
Expected return
6
5
4
3
9 x 10-3 Standard deviation
0.004
2
0.002
1
0
0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08
Standard deviation
0
0.005 0.01 0.015 0.02 0.025 0.03 0.035 0.04 0.045 0.05
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When analyzing the case of pollution prevention stocks, and permitting short-selling
(Figure 7), we find an expected pattern: the portfolios’ performance is enhanced by including
insurance linked securities and, for investors tolerating very low levels of risk the range of
returns is expanded. When comparing with the no short selling case (Figure 8), the results are
similar and for low and middle levels of risk the span of reachable returns increases when
allowing investments in insurance linked securities.
As far as the last individual environmental theme is concerned, mainly the sustainable
water one, as anticipated, we found that choosing to invest in ILS expands shift favorably the
efficient frontiers, both when allowing short selling (Figure 9) and when eluding this
possibility (Figure 10).
Figure 11: Efficient frontiers – Global
Environment Index – short selling
Figure 12: Efficient frontiers – Global
Environment Index – no short selling
8
FmEm & GEI
FmEm & GEI & ILS
4.5
4
FmEm & GEI
FmEm & GEI & ILS
Expected return
6
4
2
10 x 10-3 Standard deviation
Expected return
3.5
3
2.5
2
1.5
5 x 10-3 Standard deviation
0
1
0.5
-2
0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0
0.01 0.015 0.02 0.025 0.03 0.035 0.04 0.045 0.05 0.055
The last analysis, regarding the diversification with insurance liked securities of the
portfolio held by the frontier emerging markets based investor investing in global
environmental developed markets stocks, revealed, as expected, that selecting to invest in ILS
through dedicated funds would have been a good strategy for the considered period, both
when allowing short selling (Figure 11) and when not (Figure 12). As for the individual
components previously discussed, the investors tolerating low levels of risk (the short selling
case) and low and middle levels of risk (the no short selling case), investing in dedicated ILS
funds would have offered returns that otherwise would not be possible, considering the
composition of the portfolios.
CONCLUSIONS AND IMPLICATIONS
Following the importance and dynamics of the insurance-linked securities market, on
the one side, and the consolidation of the dedicated insurance-linked securities funds as
important investors within this market, on the other side, our research examined the impact of
insurance-linked securities on investments portfolios formed by an investor in stocks from
frontier and emerging markets and in stocks fulfilling environmental criteria after the
financial crisis.
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The analysis, consisting in comparing efficient portfolios made up with or without
including insurance-linked securities within portfolios, both by allowing or not short selling
operations revealed that, as a general pattern, it is worth investing in insurance-linked
securities funds.
More specifically, while diversifying its portfolio by pursuing classic environmental
themes (alternative energy, clean technology, sustainable water, green building and pollution
prevention, individually or all together), our investor can further achieve diversification
benefits by investing in ILS through dedicated funds.
Furthermore, the study revealed another important pattern. While including ILS
securities in the investment portfolios, and allowing short selling transactions, those investors
tolerating very low levels of risk benefit from the expanded range of returns. As for the no
short selling case, the risk-return profile envisages a noticeable performance shift, allowing
again the broadening of the returns span for those investors tolerating low and middle levels
of risk.
As further research, our analysis will further focus on the dedicated ILS funds in order
to identify, through more complex econometrical models, potential useful patterns from the
investment perspective.
ACKNOWLEDGEMENTS
This work was co-financed from the European Social Fund through Sectoral
Operational Programme Human Resources Development 2007-2013, project number
POSDRU/89/1.5/S/59184 “Performance and Excellence in Postdoctoral Research in
Romanian Economics Science Domain”.
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THE DEVELOPMENT OF SERVICES IN ROMANIA
Danciu Lucian Alexandru;
“Lucian Blaga” University of Sibiu
ABSTRACT
The current paper addresses the manner in which the service sector in Romania can
help drive our economy back on the path of growth, a path seriously affected by the recent
global economic turmoil. The status quo of the service sector is analyzed, based on the
recently released country fact sheet, provided by the European Commission, which offers a
general landscape of our economy, including in terms of European funding.
These indicators are a key element in the judgment placed on our business
environment as well as our attractiveness, as a country, for foreign investors. However, we
strongly believe that statistical data must be correctly interpreted in order to obtain the
desired economic output.
Several interesting conclusions for economic recovery transcend from this analysis, as
well as the major issues which the service sector has, in the way of utter development.
Key words: Services sector, business environment, investors, service development.
1. INTRODUCTION
The service sector has been at the core of the development of the Romanian economy,
after the 1989 revolution. Statistical data has revealed several interesting modifications within
the structure of our economy. By far, the biggest mutation has been a shift in terms of the
macroeconomic sectors of our economy. This means that, as a difference from the pre-1989
period, there is a clear shifting of GDP percentage produced within the tertiary sector of the
economy.
We have the two main pillars of economic output, namely agriculture and industry,
but after the transition period began, ergo, the shift from a centralized economy, towards a
free market economy. According to the European Commission (European Commission,
2007), Romania has achieved that status and therefore, has been granted adhesion within the
European Union.
The term adhesion is used, rather than integration, because, from the social, economic
and financial point of view, the two notions are not the same. Ergo, integration is a much
more complex and complicated process.
Whether or not our adhesion was truly worthy or it served other purposes, it is
unknown. What we do know, however, is the fact that European admission has offered us new
opportunities for development, and our country has a terrific opportunity to take advantage of
the new mutations within our environment. One has to foresee the great chances that we have,
even, for example, in absorbing as much as we can from the 19, 7 billion Euros in nonrefundable
funds which the European Union has bestowed upon us.
In such a context, it becomes paramount that our country uses its entire available
means to increase its competitiveness, to become as adapted as possible to the new
macroeconomic status quo. We have, in our country, three main economic sectors which
constitute our economy:
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- The agricultural sector, ergo, the primary sector of the economy,
- The industrial sector, namely, the secondary sector of our economy,
- The services sector, the tertiary sector.
In terms of the first two sectors, they have reached their full potential of growth, both
intensively and extensively. This means that in terms of sustainable growth, the only sector
which can provide a sustainable growth is the tertiary sector. This is also because the service
sector has the highest added value, from the three main sectors mentioned above.
It thus becomes of the utmost importance to study the manner in which the service
sector can truly help an economy, in fact, our national economy, in terms of sustainable
development and the diminishing of macroeconomic shocks. In addition to the fact that this
sector has the highest added value within an economy, including the Romanian economy, it
also has the highest percentage of GDP, according to the latest statistical data (INS, 2010).
This means that the sector has contributed with more than half of GDP last year and has done
so for quite some time, a crescendo being noticed ever since the 1989 Revolution.
The current paper attempts to answer and argument the importance and the
development of the services sector in Romania, based on the economic interpretation and
analysis of the statistical data provided by the European Commission, based on the most
recent European intelligence concerning our country. The paper is influenced by the major
works concerning services within our national literature, issued particularly in 2009 and 2010,
and comes as a logical update of these papers, presented in section two. The actuality of the
current paper is given by the fresh statistical data issued by the European Union, concerning
our country`s fact sheet, with the main economic indicators during the 2014 – 2020 time span.
2. LITERATURE REVIEW
In terms of the specialized literature, the current paper has three main pillars, which
are as acclaimed, as they present interest for this field. The intense study of all these three
main papers has resulted, with the required updates, in a current analysis of the status quo
concerning our service sector.
The core material is given by the book “Tranzactiile internationale in economia
imateriala” (International transaction within the immaterial economy), which belongs to Ph.D.
Professor Cristiana Cristureanu, and which is currently under the 3 rd edition of printing. This
book has been a fascination for the authors as well as a reason for the study of services, and
services in Romania in particular, because it offers a complete view of the service field in
Romania. This book has been of immense importance for the study of services in our country,
because of several reasons: studies on services in Romania have been few, if any, until the
90s, so studying and comprehending the importance of a booming sector, even after the new
millennium, has been of the utmost importance. Its contents include taxonomy of the services
sector, as well as chapters concerning the international dimension of services, rules and
regulations concerning services, and the liberalization of the service sector. There is also the
second part of the book, which is based on case studies for several service sectors.
The second important pillar for the current paper was the 25 th working paper of the
IER (Institutul Economic Roman, 2010), by authors Agnes Ghibutiu and Monica Oehler-
Sincai and entitled “Comertul cu servicii sub impactul globalizarii si al crizei economice”
(Trade with services under the impact of globalization and the economic crisis). The study is
an ambitious one, and constitutes a real aid in tackling the services sector in Romania, on a
statistical basis, together with pertinent interpretations.
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The third pillar was given by the European Commission Country Fact Sheet, for
Romania, issued in February, which includes the main macroeconomic indicators for our
country, and which has an important practical applicability, because European Funds will be
directed towards Romania based on such indicators. It shows indicators at the national level,
grouped by the three types of growth, as well as at the regional level. In addition, it shows the
distribution of population by type of region and a few indicators by degree of urbanization,
which highlights the differences between cities and rural areas. The factsheet is correlated
with the Europe 2020 indicators. They show the current level, the target, the distance to the
target and recent change. The distance to target shows how far a country is removed from the
target it has set itself. This distance can be compared to the EU distance and the shortest and
longest national distance. Comparing the distances should provide an indication of the
relative effort required to reach the target. Where available and reliable, regional Europe 2020
indicators have been included.
These fact sheets are based on data primarily from Eurostat, but also from the Joint
Research Centre, the European Environmental Agency, the World Bank and other sources.
The targets have been collected from official documents. In some cases, absolute
targets have been translated into relative targets to allow for a cross country comparison.
3. PAPER CONTENT
3.1 DEFINING SERVICES
In order speak about services, we must first define them. A universally accepted
classification (Juravle, 2011) divides them into services for population, for private
consumption and for industrial services, as part of intermediate consumption.
A more complete and thorough definition is given by Prof. Cristureanu (Cristureanu,
2009), according to the function which a service fulfils. There are several criteria which are
being used to classify services, but we believe that this one, according to their function, is the
most relevant one, within an economy which studies Namely, services can be financial
services, logistics services, distribution services, consumption services, etc.
Other criteria which can be used to define services can be linked to the specialty of the
provider, which divides services into: judicial services, medical services, commercial
services, technical services, insurance services, etc.
We can notice that he array of the service sector is quite vast
In terms of the ISIC classification (Cristureanu, 2009), namely the International
Standard Industrial Classification, we have 138 pure services, divided into 6 categories, as
follows:
- Utilities and constructions,
- Commerce, hotels and restaurants,
- Transportation, communications, storage, financial mediation,
- Real estate services, lending, commercial services, public administration, defense
and compulsory social services,
- Education, medical and social protection services,
- Personal social, communal services
Of course, services are a concept which is not easily defined, as it is rather difficult to
define that which, in effect, does not have a physical form. However, we can attempt to define
services through their characteristics, such as intangibility, the inseparability of the provider
and the consumer, their inability to be stored, and their disappearance once they are
consumed.
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3.2 THE STATISTICAL INPUT
The current situation in which our country finds itself, after battling with a severe
recession, which began as early as the end of 2007, but was not acknowledged by our political
elite, is that in terms of our economic structure, our situation is somewhat dire. Ergo, in terms
of employment within the main sectors of our economy, we notice a great percentage of the
working population employed in agriculture, namely 27.8 %, where as the European average
is just 5.7 %. This means that our agricultural sector is even less productive than thought,
because it employs the largest percentage of the population, whereas it has a low productivity.
Industry accounts for 23.3 % of the total work force, somewhat above the European average.
However, in relation with the 3-pillar structure of the economy, namely agriculture, industry
and services, we include within the secondary sector constructions as well, which means that,
in fact, the secondary sector of the economy has a 31.3 % stake within the total employed.
The high productivity of the service sector can be noticed if we add the rest of the
employed workforce, in a total of 40,9%. Among services, the ones with the highest added
value are easily recognized by the fact that they also have a low degree of population
employed, namely the financial services, with a total of 4.5 %. However, even here we are
still way below the European par, as the average is of 15.6 %.
In terms of productivity, we can clearly see that Romania is doing satisfactory in some
areas, and disastrously in others. In terms of agricultural productivity, we are way below the
European average, with a total productivity of 37.9 %, as rationed to an E.U. average of
100%. In terms of financial services however, we can see that we find ourselves very close to
the average level, with a productivity of 89.9 / 100. Also, in other services of the economy,
we are still far from the E.U. average, but still above the minimal value, in effect 57.6 % as
rationed to 38.4 %.
Table 1. Productivity and employment indicators in Romania, according to the European
Commission
Economic structure Unit Year(s) Member
state
Employment in Agriculture (Agriculture,
hunting, forestry and fishing)
Employment in Industry (Total industry
(excluding construction)
Employment in Construction
(Construction)
Employment in Trade and Transport
(Wholesale and retail trade; repair of
motor vehicles, motorcycles and
personal and household goods, hotels
and restaurants; transport, storage
and communication)
% of total
employme
nt
% of total
employme
nt
% of total
employme
nt
% of total
employme
nt
2009
(2008)
2009
(2008)
2009
(2008)
2009
(2008)
European E.U.
avg. min.
E.U.
max.
27.8 5.7 1.4 27.8
23.3 17.5 10.2 28.0
8.0 7.6 5.5 10.9
20.2 25.6 20.2 34.2
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Employment in Financial Intermediation
(Financial intermediation, real estate,
renting and business activities)
Employment in Other Services (Public
administration and defence, compulsary
social security; education; health and
social work; other community, social and
personal service activities; private
households with employed persons)
% of total
employme
nt
% of total
employme
nt
2009
(2008)
2009
(2008)
4.5 15.6 4.5 28.9
16.3 29.1 16.3 38.7
Productivity in Agriculture;
(Agriculture, hunting, forestry and
fishing)
Productivity in Industry (Total
industry (excluding construction))
Productivity in Construction;
(Construction)
Index,
EU27 =
100
Index,
EU27 =
100
Index,
EU27 =
100
2009 37.9 100.0 33.5 314.5
2009 51.7 100.0 36.7 241.0
2009 75.0 100.0 45.1 142.2
Productivity in Trade and
Transportation (Wholesale and retail
trade; repair of motor vehicles,
motorcycles and personal and
household goods, hotels and
restaurants; transport, storage and
communication)
Index,
EU27 =
100
2009 68.9 100.0 45.4 172.9
Productivity in Financial Intermediation
(Financial intermediation, real estate,
renting and business activities)
Index,
EU27 =
100
2009 89.9 100.0 55.3 158.3
Productivity in Other Services (Public
administration and defence,
compulsary social security; education;
health and social work; other
community, social and personal
service activities; private households
with employed persons)
Index,
EU27 =
100
2009 57.6 100.0 38.4 160.1
Source: European Commission, Country Fact Sheet, Romania, Directorate General
Regional Policy, Analysis Unit C3, February 2012
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3.3 THE ECONOMIC INTERPRETATION OF STATISTICAL DATA
Several other key elements result after the main economic indicators are taken into
account.
Romania is still a country with several economic shortcomings, which are likely to
continue in the coming years. And also, in terms of identity, we are still looking for
arguments, as a result of what we have been dubbed, in effect, a functional market economy.
In terms of functionality, a market economy must have:
- A functioning supply and demand mechanism;
- An equilibrium price, towards which the market tends;
- National organisms which watch over the market, so that the rules of free
competition are being respected.
It is true; Romania has made several important steps towards gaining this title, but in
our belief we still have a long way to go. The reasons for this uphill struggle are somewhat
hidden, yet, as a paradox, in plain sight.
We first mention poor infrastructure. The service sector has an almost unlimited
potential for growth in our country, but this potential is not fully harvested, because of the
issues of infrastructure that we have, which are many. In terms of roads, recent studies
revealed a 50 year backwards situation for us, i.e. our roads are designed for the way traffic
was 50 years ago. This is completely absurd. In recent years, we had the ample opportunity to
absorb European funding, for transport infrastructure, with the help of the POS TRANSPORT
program, i.e. The Operational Sector Program for Transportation. Alas, our results were
appalling, as up to this point, we only managed to attract 3.47 % of the total allocated funds.
Although services belong to the immaterial, they rely heavily on a material basis, in this case,
infrastructure. Transportation is a service, but it requires infrastructure. Add the status quo of
our railroad system to our beleaguered roads and we have a major halt in terms of transport
development.
And, to add insult to injury, another important component of the service sector relies
on the same infrastructure, i.e. tourism. According to the most recent data concerning tourism
(INS Statistical Yearbook, 2010), the number of tourists which have come to our country has
decreased, in spite of intensive promotions and aggressive marketing.
This happens because of poor infrastructure, and, as long as we will not do anything
about it, things will remain the same, or even get worse, as tourists migrate towards countries
like Bulgaria, who, unlike Romania, know and realize that tourism can boom and help an
economy recover.
Another poor element within this sector is the highway construction system. A map of
Romania shows only portions of highways being built, at various speeds, but we have yet to
have a highway which links the West of the country to the East, i.e. the Black Sea, Constanta
and Bucharest. This causes transportation to be slow and tourists to keep away.
And the worrying fact is that the rate at which highways are being built is even slower
than it should be, as an entire country requires considerable investments. The most recent
official statistical data concerning tourists are presented below:
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Source: INS Statistical Yearbook, 2010, Section 20 – Tourism, page 5
Corruption is another major issue, as investors, either in the goods and services sector,
as investors are daunted by our justice system`s lack of resolve within this sector. In spite of
our progresses, corruption is widespread, and in terms of European supervision, we are still
not doing enough to counter this phenomenon. In effect, we have yet to have a single case of
convictions concerning large corruption cases, as due to judicial loopholes, attorneys find
ways to drag cases for years.
Also, we must mention the lack of resolve concerning the absorption of European
funds. Our percentage is extremely low, below 15 % in terms of effective payments, which
means that Romania is a net contributor to the European budget, instead of benefiting from
our adhesion. We have not learned from the experiences of others, such Poland or Slovenia,
which have not only rehabilitated their entire infrastructure, but have also expanded it.
Bureaucracy still daunts most service investors to transfer capital within direct
investments in our country, as in spite of recent state job cuts, the ministerial apparatus is still
considered slow reacting and oversized. By comparison, the process of creating a firm lasts
two weeks in Romania, and only several days in Ireland.
3.4 E PUR SI MUOVE
Yet, in spite of all the troubles, at the moment of speaking, Romania`s service sector is
evergrowing. With a development which began shortly after the revolution of 1989, within the
financial sector, the tertiary service sector boomed in the 2000s, as tourism became one of the
most sought for service within our economy, and as communications sky-rocketed.
According to the most recent data, which has yet to be confirmed by official sources,
in 2011 the service sector accounted for just over 50 % of gross domestic product (GDP), and
the sector employed arround 49.8 % of the workforce. This calculus was made on the basis of
statistic extrapolation, based on available intelligence from past years. The subcomponents of
services are financial, renting, and business activities (20.5%); trade, hotels and restaurants,
and transport (18%); and other service activities (21.7%) (Cristureanu, 2009).
The sector has also benefited from an increase within the IT companies, and this has
benefited the economy. As of 2012, the banking sector also seems to recover, yet credits are
still slow.
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Romania is a relatively new country in terms of international trade. With a presence
banned until the revolution in 1989-1990, foreign trade has grown rapidly during the 1990s,
as Romania has quickly liberalized its trade regime. We must state however, that this
liberalization did not come without costs, and that our country had several major setbacks
concerning privatizations. For the record, one must mention the bankruptcy of such
institutions as Bancorex, Credit Bank, which severely dampened public confidence in
unstable governments. If we also state that inflation was running amok within the economy,
and to some extent, it even reached numbers of 300% we notice that the path towards
privatization has not been an easy one.
But in spite of all the issues surrounding the economy, in spite of all the corrupt
politicians and regimes, the country joined the World Trade Organization in 1995 and the
Central European Free Trade Area in 1997. It also enjoyed special trading rights with the
European Union as a precursor to membership. As of January 1st, 2007, Romania became a
full-fledged member of the European Union. Some 85 % of exports still go to EU countries,
making
Romania's economy dependent on that of major markets, particularly Italy and Germany.
Romanian companies have found it hard to take advantage of the new export
opportunities, however. Meanwhile, imports have risen by 60 percent in dollar terms since
1990, as Romanians take advantage of their new access to consumer goods and as companies
import investment goods such as computers. As a result, the country runs a persistent trade
deficit. However, this trade deficit has gradually decreased since the 2000s, and the country
currently runs a very prudent policy which aims at making exports at least equal to imports in
several areas.
Fortunately, export growth has accelerated in the past 5 years, in spite of the current
crisis, thanks in part to high world commodity prices for Romanian exports such as steel,
aluminum, and refined oil products, and the advances in several areas such as car
manufacturing.
Nevertheless, in spite of all the progress which the country has made during these 20
years since the fall of communism, in terms of the service sector, the country has only started
to develop since the early 2000s. These are the years when, for example, the first mobile
operators invest within the country, the first credit and debit cards are issued, cable becomes
the new way to go for Romanian television, and Romanian tourists begin to travel abroad for
other purposes than to buy cheap goods from countries such as Hungary, Turkey or Bulgaria.
Even now, in terms of services, there are still sectors where development is sluggish.
But
Progress has been considerable, and the perspectives are good. In terms of international trade
with services, our country is still a net importer of services. As arguments, we present the
following, although the list is not, by any means, exhaustive:
Communications services, as well as telecommunications services are almost 100 %
foreign investments;
In terms of financial services, the banking system in Romania comprises of 43
banks, of which only 3 are Romanian, and the rest are subsidiaries of international banks.
In terms of travels, Romanian tourists leave the country at a ratio of 5:1 as
compared to tourists which come to visit us. Partly poor management, partly poor marketing,
Romania has always been a country with tremendous potential, but concrete results are still
lacking, and the list could continue.
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CONCLUSIONS AND IMPLICATIONS
The service sector in Romania is one which has registered a considerable development
during the last 20 years, and particularly, during the last 10. Having as the three main pillars
the communications sector, the tourism sector and the transportation sector, the services
market increased at an exponential rate in the last few years.
In terms of communications services, for example, Romania is 4 times more
connected than the average European countries. Mobile and data communications soared.
However, several obstacles remain and still plague the correct development of the
services sector, both as a composing element of our economy, as well as a market, such as
bureaucracy, poor infrastructure development, and widespread corruption.
The service sector will continue to develop, however, even if only due to the fact that
the sphere of services develops all the time, encompassing new services, and new fields. The
beauty of this sector is the fact that it is a continuous morph, a continuous of evolution,
gaining new meaning as the economy becomes more and more reliant on it.
Starting from the basic economic principle that a need, once satisfied, generates other
needs, we can truly see that services will become more and more a key element, a
cornerstone, within our lives, as individuals as well as nations. Economies are already reliant
on services. Romania makes no exception. Let us consider where the degree of IT
development was 10 years ago, and where it is now. In terms of global indicators such as
broadband connections per capita, Romania is among the top 5 states in Europe, as rationed to
its population (OECD, 2010).
In terms of information technology, private and corporate consumers now have vast
arrays of services, of online invoice payment, to banking operations, to purchasing online
products. This, in turn, means more and more needs which, as a paradox, require more and
more services to be developed and customized for user experiences.
However, this also means that our service sector is more and more volatile and subject
to crashes or even theft. Phishing cases are more and more frequent.
Romania is on a distinctive course towards globalization, and our service sector leads
the way. Because in spite of corruption, in spite of poor infrastructure, services continue to
thrive, and can lead the way out of the slump where we find ourselves now.
Investments, both private and public, within this sector, are key elements in
maintaining a sufficient level of attractiveness which in turn can drive investors to bring
capital in our country and thus help the economy. The future, in the world, as well as in
Romania, belongs to services, which are customizable, and can be personalized to a greater
extent than goods.
Further research is required, particularly within the structure of services, which is
quite vast, as we have seen, to truly and completely understand this phenomenon, if such an
endeavor is even possible. Globalization and free trade have fueled service development in
Romania, have driven our economy on the path of becoming a developed economy and have
made it possible for us to have access to almost free information, at the click of a button or the
turn of a scroll. Of course, this does not come without cost, but the booming effect of the
service sector can help us develop.
We must, however, be careful in aspects such as the regulation of services, as they
have a different regime than that of goods and are subject to particularities which goods do
not present. Services are unique, and issues arise, particularly in international trading with
services. Let us, as a country, heed the lessons which others declined and which now have
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taken their toll on unsuspecting victims. With service liberalization comes responsibility, as a
country as well as individuals.
So far, our management of the sector has been satisfactory, but needs improvement.
Research should cover the mathematical, as well as theoretical aspects of the services sector,
but it is paramount that these services must be studied dynamically, because only with the
help of dynamic studies, on particular timeframes, can we truly understand the notions and the
motivations of the actors on the services market, as well as their relations and the relations
between them and their proximal environment. A static analysis is not desirable. Statistical
extrapolation or multi-criterion analysis could represent the appropriate means of study for
this fascinating part of our economy.
REFERENCES
1. Cristureanu, C. (2009), Tranzactiile internationale in economia imateriala, Ed. C.H.
Beck, Editia a 3 a, Bucuresti,
2. Ghibutiu, A., Oehler-Sincai, M. (2010), Comertul cu servicii sub impactul globalizarii
si al crizei economice, Institutul Economic Roman, Working Paper nr. 25, Bucuresti,
3. Institutul National de Statistica (2010), Anuarul Statistic al Romaniei, Sectiunea 20 –
Turism, pag. 3 – 7, Bucuresti,
4. Juravle, D (2011), Structura balantei serviciilor si tendintele evolutive ale acesteia,
Alexandru Ioan Cuza University, Faculty of Economics and Business Administration,
MPRA Paper no. 28281,
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ENVIRONMENTAL TAXES PARALLEL BETWEEN ROMANIA
AND
EUROPEAN UNION
David Oana;
“Politehnica” University of Bucharest;
Mihai Maria Valia;
Petroleum-Gas University of Ploiesti;
ABSTRACT
Formed several years ago, the economic crisis and now makes its presence felt. Some countries have responded promptly and began to find ways to overcome;
others are still struggling with it. The paper captures the situation of Romania in the European context, the economic crisis in 2009 when the outbreak and the measures
adopted by the state from then until now. It also presents some ideas and measures on the work of the Romanian government would be adopted in 2011 in an attempt to
overcome the economic crisis and the economy recovers.
Key words: environmental taxes, environmental policy, polluter, Community policy.
1. INTRODUCTION
The ecological taxes and duties were adopted in 1997, so as to promote the use of the
fiscal instruments to increase efficiency of the environment policy. These are taxes and duties
that the Member States pay and have others do the same (not at the community level), a
strategy always promoted by the European Commission and which implies the usage of two
categories of environment taxes and duties:
Polluting emissions (for instance, taxes on water pollution, noise emissions in the
aeronautical sector);
Products (pesticides, excises on oil, etc).
The income derived from these taxes and duties is added to financially support the
environment protection actions and also to lower other taxes (i.e. labor taxes). To this end, the
EU strategy consists in paying great attention to the experience that the member states have
with environmental taxes, examining the economic and environment effects upon the already
existent taxes, as well as in monitoring their effects on the Single Market and competitiveness
of the European industry, in order to evaluate the efficiency of the above fiscal investments
and a possible shift of them to the community level.
2. PAPER CONTENT
Economic agents can change prices, at any level in economy. When an environmental
fee is introduced, the production of raw materials associated with the polluting emissions will
result into a risk tax that will significantly increase the costs of those raw materials. For
instance, coal represents the raw materials very much involved in local air pollution and
production of greenhouse gases. Should the cost increase does not turn into an equivalent rise
of final price, then the producers of these new materials lose money.
The supply elasticity, along with a price change, greatly depends on the access of
producers to the international markets. The equation is as follows: if the product can be
imported without paying any costs, supply is almost total elastic and the national price stays
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the same. In case the national producers are unable to bear the high costs, their products will
simply be replaced with imported goods.
But if the product cannot be imported or the imports are charged with the same tax,
this is when the national price goes up. In the end, the scales will tip in favor of the raw or
refined oil product. The elasticity of the long-term supply with raw materials will be higher
than the short-term one, as the producers will change their behavior of exploitation and
development. If coal becomes less valuable, other mines will not be opened and coal supply
will therefore gradually decrease.
Costs bearing by the local producers of raw materials will be sure for short- than long
–term and even surer whether they are challenged by the uncontrolled foreign competition.
An increase in the final price, namely lower demand will result into a smaller request for
materials used in goods production. The activities specific to the production of polluting
goods or of similar industries will face lower wages and massive layoffs.
The efficiency of an environmental fee depends a great deal on the nature of the polluting
agent involved, its spatial distribution and its concentration. Taxes work the best for the
pollutants that are uniformly distributed and for the cumulative pollution or when the
pollution-related marginal losses do not show up quickly, along with the short-term emission
of pollutants.
Taxes will create the static benefit-cost ratio, thus providing incentives to the various
factors involved, in order to disclose and present the information on the adjustment static
costs.
Taxes give a price warning to all the companies that produce polluting emissions via
their behavior in production and consumption. From a theoretical perspective, the
environmental taxes trigger a high efficiency in research and development, in adopting
investment decisions.
In a long term, the environmental fee impact will depend on the forecasting of
companies related to their continuity and future constraints of the system. Should the future
regulations are highly uncertain, the companies can opt for a compliance with short-term
approaches. When designing an environmental tax to take account of the following issues
presented in the table below:
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Issues considered in the design of
environmental taxes
Effectiveness of environmental tax
Limitations on government capacity
and resources
Efficiency
Distributional effects
Existing regulatory structure
Attitudes on compliance certainty
Problems
Short term - is uniformly distributed pollutant /
persistent / cumulative?
Long-term - effects on investment and
technology change
The ability to monitor certain pollutants
Static efficiency
Dynamic efficiency
Political feasibility
Who benefits and who has lost
Vertical and horizontal equity
Fixed costs of creating new monitoring
arrangements and legal frameworks
The new regulations will interact with existing
Existing regulations may be substituted
Different perceptions of their certainty
The main motivation for implementing environmental taxes in Romania is of a
financial-budget nature. Paradoxically speaking, the ecological reasons themselves play a
lesser role in explaining the need of increasing such taxes. Due to the dramatically reduction
of the industrial activity after 1990, Romania has passed with flying colors the targets set in
the Kyoto Protocol – to reduce the greenhouse emissions by 8%. Still, a clean environment
represents a public asset, whose intrinsic value cannot be underestimated.
A comparative analysis with the central and eastern European countries shows,
without an exception, that circa 85-90% of environmental taxes are linked to the fuel excises
(oil and diesel) – they stand out as the most significant contribution to the budget among
environmental taxes. Other areas to be likely taxable (air pollution, water, domestic waste)
will not amount more than 10-15% of the total environment-related revenues.
As a whole, most European countries have a rather high environmental fee, at least
compared with the United States – a thing noticed both in the taxing levels and fiscal
revenues. This occurs due to the high consideration that Europe takes with taxes as instrument
of the environment policy. Similarly, there is even more ambitious objective when it comes to
the reduction of fossil energy consumption, mainly for transport.
In the EU, environmental fee is defined as taxes whose tax basis is a physical unit that
has been proved to have a specific negative impact on the environment. The environmental
fee revenues come from three types of taxes: energy taxes (that contribute to three quarters
from total), transport taxes (a fifth from total) and pollution taxes and resources use (circa
4%).
The energy taxes include charges on energy products used for both transport and
stationary purposes. The most important energy products for transport are oil and diesel. The
ones for stationary use are fuel, natural gases, coal and energy. The CO 2 taxes are included in
the energy taxes rather in the pollution taxes.
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The transport taxes mainly comprise the taxes related to owning and using auto
vehicles. The taxes charged on other transportation equipment (for example planes), as well as
associated transport services (i.e. charter or flight schedule) are also included here, when they
comply with the general definition of environmental taxes. The transport taxes may be ‚oneoff
charges regarding the imports or equipment sale of recurrent taxes, like the annual toll fee.
The pollution taxes and resources using include taxes on measured emissions or estimated in
the air and water, management of solid waste and noise. An exception would be the taxes on
the CO 2 emissions, included in the energy taxes.
Romania can be said to be the country with the lowest cashing from environmental
taxes in the entire EU space. The explanation is that the Romanian governments after 1990
have always opted for keeping the taxes and excises at minimum. After accession to the EU,
Romania was impelled to bring the excises to a higher amount, but it has postponed the
harmonization of such taxes as long as possible.
This is the reason why our country derives the lowest revenue from environmental
taxes as a GDP percentage, both at a general level and for the three main groups: energy
taxes, transport taxes and environment and pollution taxes. Moreover, Romania is the only
country among the ten post-communist countries that acceded to the EU where the revenue
from environmental fee – as a GDP percentage – lowered after the negotiation process with
EU had started in 1999.
Keeping low the energy taxes has seemed not having a positive consequence, which
translates into the fact that Romania, is not efficient from the energy perspective. Likewise, an
issue that Romania is facing with is represented by collecting such environmental taxes. Even
though they should contribute to environment protection, they are small amounts due to the
fiscal evasion.
In Romania, people are addicted to their personal vehicles, since the public
transportation network is insufficient and not very well developed. Plus, we have a low level
in excises on fuels, versus others in the EU.
To increase the collections from environmental taxes should be a top priority for us, mainly in
the context of the present budget crisis and of the EU recommendations to shift the emphasis
from labor taxation (where Romania has a high fiscality) towards the consumption and
pollution taxation.
Due to the fact that the fiscal situation claims an increase of the taxation level as a
GDP percentage, there is a serious reasoning to support a gradual increase of environmental
taxes, of the improvement efforts to collect the taxes meant for the Environment Fund
Administration, as well as to implement new instruments used in different countries in the
European Union.
CONCLUSIONS
The environmental taxes and other economic instruments provide incentives for the
dynamic and static efficiency. They are feasible instruments that easily respond to the changes
in economy and technology conditions. The taxes can use very often the existent systems of
monitoring and distributing the taxes – and both require from the government to know about
the adjustment.
The environmental taxes have been adapted to certain types of pollution (for instance,
the pollution uniformly distributed), where the emissions can be monitored with a reasonable
level of accuracy and understanding, without exaggerated administrative costs.
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The specialists in the field believe that a policy of durable development is out of
question, in the absence of some efficient taxation policies in the environment sector.
The environment fiscality in Romania is low – thus, it is one of the causes for which
our country cannot succeed to efficiently promote its objectives of environment protection
and durable development.
It would be necessary to have a mentality change in the fiscality area, by having the
taxes reoriented, i.e. to transfer the emphasis on labor taxation to taxing the impact that the
economic activities have upon the environment.
REFERENCES
1. David O., 2009, Economic development and ecology. Connecting elements between them,
Publishing Oil and Gas University of Ploiesti;
2. Diaconu S., 2003, Ecological balance and sustainable economic development, Publishing
Railway, Bucharest;
3. David O., 2007, Distributional and efficiency impact of environmental taxes, in
“Sustainable economy. Analysis and economic forecasts”, Mustang Publishing, pp.255-259;
4. http://epp.eurostat.ec.europa.eu;
5. http://www.mmediu.ro/.
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PROJECT MANAGEMENT RISK ASSESSMENT
WITHIN LARGE CORPORATIONS
Dirva Cristian
Academy of Economic Studies, Bucharest
Dirva Anda Simona
Academy of Economic Studies, Bucharest
ABSTRACT
Risk is defined as uncertainty about a planning and it may arise from various
situations as economical turbulences, financial loss or gain, delays, social problems and so
on. Another cause for increased risk is the change of relationships between the parties
involved in a business process.
Risk management will provide a structured way of dealing with future uncertainty and
crisis situations, replacing hazardous reactions with efficient reaction plans. When we talk
about risk management within a project we are actually referring to a component of the
project planning and change management that will have to be taken care of across the entire
duration of the project, from the first to the final phase.
The purpose of the risk analysis is to identify the possible bottlenecks in the project
and develop strategies to take the correct actions that will address the cause and minimize the
effect of the risk factor. These strategies will help the managers and the parties involved in
the project to take efficient and effective decisions, reducing the project’s exposure to
unwanted situations.
Our study’s main purpose is to present the setbacks in convincing the decision factors
in large organizations about the use of project management inside their organization and to
demonstrate which are the advantages of a rigorous risk management using the project
management tools philosophy.
Key words: project management, risk, change, setback and analysis
1. INTRODUCTION
Projects are key activities in the organizations resulting in the improvement of existing
products or services, development of new ones, increasing sales, reducing costs, offering
better customer satisfaction and quality, enhancing the work environment and several other
benefits. Once the organizations have understood and recognized that projects are a key factor
of their ongoing business, they have embraced project management as a key strategy to
remain competitive in today’s exceptional business environment.
This paper addresses the importance of the project management procedures
implementation, especially in large organizations and it’s impact on the business.
We are trying to focus here first of all on the concerns and setback involved in a project
management system implementation in relation with the senior management point of view
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and existing corporate culture and policies. Our main focus is on risk management within
projects, the available tools to classify, measure, control and avoid risk.
As an adjacent theme we are discussing about change management in relation to
strategic planning for project management, this being a very important topic for companies
which whish to accelerate the project management learning and implementation curve.
This paper is the result of studying the culture, approach and project management
applied techniques of many organizations. Based on the results we have identified the needs
and setbacks in relation to a project management sustained program within the company and
offered the solutions to overcome the milestones in order to achieve successful
implementations. We are describing the philosophy, principles, practices and techniques for
managing risk within large-scale projects.
The purpose of this paper is to show that not all situations can be anticipated but, all of
those that can be anticipated should also be considered, evaluated and addressed with a
detailed action plan in order to minimize the negative effects or to achieve the most from the
occurrence of each positive event. Our scope is to show that the use of project management
has a high impact on the profit and loss scenarios be placing the organizations business into a
controlled, predictable environment.
2. LITERATURE REVIEW
Project risk management is a topic of major current interest. It is being actively
addressed by many government agencies and most of the professional project management
associations around the world, and many relevant standards are existent or being developed.
Some examples from the many approaches in use include:
. Project Management Institute (PMI), USA (2003), Project Management Body of
Knowledge, Chapter 11 on risk management;
. Association for Project Management, UK (1997), PRAM Guide;
. AS/NZS 4360 (2004), Risk Management, Standards Association of Australia;
. IEC 62198 (2001), Project Risk Management—Application Guidelines;
. Office of Government Commerce (OGC), UK (2002), Management of Risk; and
. Treasury Board of Canada (2001), Integrated Risk Management Framework.
The standards and the guides from the professional associations provide only an outline of the
topics that are essential for managing project risk, and they offer few insights into how the
risk management process works in practice. This study provides a practical complement to
these documents and publications.
3. THEORETICAL BACKGROUND
Risk is exposure to the consequences of uncertainty. In a project context, it is the
chance of something happening that will have an impact upon objectives. It includes the
possibility of loss or gain, or variation from a desired or planned outcome, as a consequence
of the uncertainty associated with following a particular course of action. Risk thus has two
elements: the likelihood or probability of something happening, and the consequences or
impacts if it does.
Risk management refers to the culture, processes and structures that are directed
towards the effective management of potential opportunities and adverse effects.
The risk management process involves the systematic application of management
policies, processes and procedures to the tasks of establishing the context, identifying,
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analyzing, assessing, treating, monitoring and communicating risk.
Risk identification is the process of determining what, how and why things may
happen.
Risk analysis is the systematic use of available information to determine how often
specified events may occur and the magnitude of their consequences. It may use any of a wide
variety of mathematical and other models and techniques.
Risk evaluation determines whether the risk is tolerable or not and identifies the risks
that should be accorded the highest priority in developing responses for risk treatment.
Risk treatment establishes and implements management responses for dealing with
risks, in ways appropriate to the significance of the risk and the importance of the project.
4. PROJECT MANAGEMENT IN RELATION TO CORPORATE CULTURE
AND VALUES
During favorable economic times the executives are reluctant to changes in
management style and corporate culture. Unfortunately there are times when the ‘bad
weather’ comes. As economic conditions deteriorate the organizations react and try to make
changes ‘on the spot’, reacting to the outside business affecting factors. During such periods
the change occurs more and more quickly but unfortunately the ability to change for such big
structures is usually measured in years, obviously not fast enough to keep up with the
economic environment. The lack of project management methodology and strategic planning
are the big two factors which lead to missing opportunities.
The history shows us that before the recession of 1989 – 1993 in U.S. companies were
implementing project management methodologies, if they were at all doing it, mainly at the
production levels of their organizational structures, while executives and managers were ‘hard
to catch’ on such meetings. They were all considering that their guidance was enough to keep
the company running and developing the business further on. Most of the project management
implementations were actually only consisting in the implementation of new tools for the
benefit of the employees, not for the company itself.
Facing the recession, the managers and executives realized that they were not as well
prepared as they thought and they were made conscious of they lack of project management
skills.
At the end of the recession, in 1993, the companies begun to recognize the fact that
not only the build of a strategy is important, but also the implementation of a strategic plan,
based on the project management principles. Suddenly the senior management begun to pay
attention to project management and admitted that the principles of project management could
be used as well for the implementation of the strategic plans and the operational plans.
We should obviously start by defining the term ‘success’ in project management, in relation
to the company’s needs. Success in projects is usually defined as the achievement of project’s
objectives within the allocated time, in the budget and meeting the requirements while quality
standards are kept as defined by the customer.
Experienced organizations have well defined corporate cultures based on procedures
that took years to be developed and that is the reason why the four preceding constraints have
been extended. The project implementation and completion must bring minimal or mutually
agreed scope changes without disturbing the organization’s corporate culture, values or the
usual workflow.
Even if the project manager needs to bring in the organization those changes, which
lead to the project success, the company’s executives must take care of the present values of
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the organization and this is exactly why the project manager should not expect senior offices
to give him free hand. In order to achieve a successful project the executives and the project
manager should be able to define that success in terms of both what is good for the project
and what is good for the organization.
The first step for strategic planning is to define the critical success factors. These
factors include all activities that should be performed to achieve long-term objectives. Even if
most of the organizations are devoted to fully implement a project management system,
unfortunately, different milestones bring serious problems that have to be overcome. If the
critical success factors can be achieved completely the project is a success but if only one of
those factors fails to be achieved the organization’s competitive position is threatened.
4.1 THE NEED FOR ‘CHANGE MANAGEMENT
Change management is one of the big topics in large organizations during the
implementation of the strategic planning for project management, especially because their
experience, culture, values and work procedures are well defined during a long period of time,
based on past experience. This is the main reason why the executives are paying a lot of
attention to change management, trying to minimize the risks that change will bring but also
to accelerate the project management learning curves.
The main purpose of a project manager is to create a tailored methodology and
procedures for the implementation, in such a way that the employees who will need to change
their work procedures and habits will not feel obstructed or confused.
Most companies use the same basic knowledge and procedures for the strategic
planning and project management implementation, as these tools are limited. The role of the
project manager is to make the difference. He is the one who grants the success of the project
and brings all involved decision making factors and operational levels at the same table. His
ability to manage the existing knowledge base and manage changes will make the difference
during the implementation, this being the main reason why the companies are successful or
not even if we are all practically basing our methodologies on the same knowledge base.
An ideal learning cycle for all the involved project members would be obtained by
individual training of each employee using the results of the project manager’s analysis in
such a way that he would be educated and presented with the ways and options to manage
risk, benchmark and continuous improvement. Unfortunately the time and cost factors of the
project will not allow the project manager to take such detailed actions and actual learning
will actually be based on the on-the-job experience of the employee, his educational
background and knowledge transfer.
The ‘human factors’ make the change management one of the big failure risks and
resistance to change is one of the most known problems, especially in traditional companies.
This resistance to change has different manifestations within the organization’s departments,
depending on their level of involvement in the project, expected level of change, work nature
and experience.
Statistics show us what is the departmental behavior and reaction to change inside
complex organizations, which are the structures that feel most threatened by project
management and why, as shown below (resistance to change presented from high to low).
Sales Department: The sales department is always focusing on success and bonuses,
in each organization. The greatest fear of the sales people is that someone else will take
credits for the company’s success and this will affect their performance bonuses. This is the
main reason why the sales department is the most change resistant department.
Marketing Department: The marketing people always fear that the project managers
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will be granted marketing attributions and that the customers will address the project
managers instead. This is a normal customer behavior and the reason for that is the usual
practice and attributions of the marketing people, as they are only usually involved in the
sales process and than they disappear. This is the reason why customers prefer talking to the
people who will be involved in the entire project, in this case the project management team
and also the source of the marketing department’s fear.
Finance and accounting: The main reason for fear related to the finance and
accounting departments is the workload. They consider that project management
implementation will result in additional horizontal reporting, by this means increasing their
workload and changing the vertical ways to report that they are used to.
Procurement: The procurement people want to be in charge of the entire procurement
process and consider that the implementation of a project management system will also bring
a parallel procurement system, bypassing their responsibilities and overview.
Human resources: The HR department is usually neutral to project management
implementation. Their only fear is that they will have to drastically change their training
courses in order to meet the new project management methodology, which makes them a little
uncomfortable because of a bigger workload.
Manufacturing: The manufacturing department opposes less resistance as they are
used to project based working. Even though production is not a project based process there
are often various certification projects in which they take part, maintenance projects and so
on.
Engineering, R&D, IT: These departments will always be the ones who oppose fast
no resistance to the implementation of project management procedures, techniques and
methodology as they are project-driven departments by default. Project management is
viewed here as a necessity.
The necessity to understand resistance to change is imperative if we want the project
to be successful. People tend to be resistant to change especially when they are satisfied with
the working environment but not only. Even if the people need a change in their workflow or
environment the project managers’ ability to demonstrate and convince them that the change
is possible and beneficial is crucial. People usually tend to be reluctant to change, putting an
accent on things they have to give up rather than the added value of the process. The
organization as a whole may be willing to change but there will be people who are not
handling change so easy and here comes in play the management pressure. The management
team has to be convinced of the benefit of change and added value, they are never allowed to
ease up on the change process, they will sometimes have to put pressure on the operational
levels or the risk that the employees will revert to the old habits will grow.
The management team must be able to develop change strategies which will allow the
organization to align itself easy to the change process and the only way of accomplishing this
goal is to clearly understand why should the employees take part at the change process and
present this in an attractive and persuasive way.
These are the reasons why it’s often said that projects which involve change
management are actually the most difficult projects to handle by the project management
team. The human factor is essential in change management and the only way to achieve
success in such a project is to identify some key-factors that will grant the project members
cooperation and the project’s success:
- Identifying the most common reasons for change management and their source
- Identifying ways to overcome the resistance to change
- Applying the change management principles and procedures to insure the creation of a
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valid project management environment
Once these key-factors were identified the departmental and human resistance can be
overcome and the project can be implemented.
4.2 STRATEGIC PLANNING AND RISK MANAGEMENT
At the beginning of each project the project manager and his team are making a risk
analysis. This step of the project strategic planning is crucial for identifying the main
problems, which may occur during the completion of the milestones.
4.3 STRATEGIC PLANNING
Strategic planning is the process of identification and implementation of procedures
within an organization in order to achieve its future direction in a dynamic environment, being
a key-process for the company’s adaptability capability. The resulting policies and procedures
are top-down applicable to all organizational levels.
The main goal of an organization is to supply competitive services or products, being
responsive to the customer demands and flexible in the environment where it operates. By
achieving these goals the company is able to survive on a long run. A good understanding of
the market demands and a precise formulation of the future path of the company are crucial
components of the strategic planning kick-off.
The formulation process is always the responsibility of the top-management and its
outputs will be transferred in form of a plan to the middle management. The middle
management is responsible with the implementation of the strategic planning, the second
phase, which presumes a very good understanding of the economic environment, market
position, opportunities, threats, company weaknesses and strength.
Project management comes here in play as a planning, analyze and implementation
tool to help middle management achieve the goals. Because the implementation process
involves all the management and functional company levels, the middle management has to
integrate the new procedures and policies and achieve a efficient, smooth fulfillment of its
task.
Integration management is one of the main competencies of a project management
team. Their main objective is to develop an implementation methodology that will provide the
organization with consistency of their actions in the execution phase. The project
management tools used to achieve this goal are as follows:
Functional & Management Baselines
Project Definition Process
Technical Baseline
Financial Baseline & Metrics (identifies how the costs will be analyzed,
variances explained and how will the reporting be done)
Technical Specifications
WBS – Work Breakdown Structure
Schedules
Spending Curve
Resumes (of the involved project members)
Policies and Procedures
The organization for the Project
RAMs – Responsibility Assignment matrices
One other benefit of the strategic planning is that it provides standardized and unitary
communication tools across the organizational levels, between functional units but also on a
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vertical loop (top-down / bottom-up).
By offering good communication tools, the strategic planning process will offer each
organizational level a better information flow, making each ‘actor’ aware of the reason for
change, eliminating the fear of unknown and reducing the employees’ reluctance to change.
The last and probably the most important advantage is relate to the way the planning is done,
always based on simple and logical processes. The methodology must be clear and all actions
presented must be based on a logical decision-making process, with a clear understanding of
the objectives.
A long-term continuously applied strategic planning management methodology will
affect the profitability of the company and provide a competitive advantage for the
organization, serving the direct interests of the stakeholders (shareholders, employees,
creditors, suppliers). A well-developed senior project management methodology will specify
the means of addressing the stakeholders and which climate should best describe this
environment.
In the strategic planning process the project team will have to pay extra attention to the
economic environment and how will it affect the course of the project by considering
indicators like inflation, cost of capital (what are the involved costs to solve a potential
temporary cash flow problem), forward pricing rates (what will be the costs trend over the
next years) and quality of cost estimates (how accurate are the estimates).
The critical success factors for strategic planning for project management are a sum
of all those actions that must be performed in order to achieve the long-term goals and the
inability to accomplish all of these factors will most likely result in a negative effect on the
company’s strategic position on the market.
Based on previous implementation experience the most common problems that the
project team will encounter are:
There’s scope creep in every project and no way to avoid it.
Completion dates are set before project scope and requirements have been agreed
upon.
Detailed project plans identifying all of the project’s activities, tasks, and subtasks
are not available.
Projects emphasize deadlines. We should emphasize milestones and quality and
not time.
Senior managers don’t always allow us to use pure project management
techniques. Too many of them are still date driven instead of requirements driven.
Original target dates should be used only for broad planning.
Project management techniques from the 1960s are still being used on most
projects. (Strategic planning for project management using a project management
maturity model, USA 2009, by John Wiley)
4.4 RISK ANALYSIS
The scope of the risk analysis is not only to identify the potential situations, which will
affect the implementation process and setbacks on achieving the goals, but also to create
specific action-plans and procedures that will eliminate/diminish the effects of the factors.
Obviously the team will not be able to identify all the risks and situations that may
occur and, more than that, the history shows us that some of the important risks will be
anticipated but not considered. There are also problems that will occur simply from
misconception and the main cause for this behavior is to consider that all problems have only
one cure. A good project management strategic planning and risk analysis cannot guarantee
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the success of the project and a smooth implementation road, but it can level the bumps on the
way, making the decision-taking process easier and safer.
4.5 RISK TREATMENT
Once the risk identification phase is completed the project team will have to determine
what are the correct actions and responses to be taken in order to minimize the overall risk
exposure for the identified risks. It is obvious that unless the correct actions are taken to treat
the risk, the entire risk assessment process has been wasted. The risk treatment process
practically converts all the identified risks in the risk analysis phase of the project into
practical actions and schemes which will eliminate, minimize or redirect the risk effects.
The project risks prioritization will be made based on a sum of ratings allocated during
the risk analysis phase of the project. The risk classification is usually made as follows:
Extreme Risk. The project team will have to focus on avoiding this risk category, if
possible. If there are no options to avoid this risks completely, the project management team
will have to focus on reducing the likelihood of the risk occurrence, reducing its impact on the
project or to transfer / share the residual risk
Problems are risks with a high likelihood to happen but characterized by a low impact
on the project. In order to address this risk category the management will usually improve the
work procedures and try to eliminate or reduce its frequency.
Catastrophes are those risks which have a low likelihood but high impact on the
project. This risk category is usually addressed by transferring the risk to insurance
companies and the development of crisis management plans.
Routine risk category are risks that will be managed on-the-spot, usually with a
moderate impact and a random occurrence.
The next step after the risk identification and classification is to develop a general plan
to address these risks. Such a plan will consider offering general responses for some of the
risk categories and specific responses, depending on the risk type. Usually the extreme, high
and medium risks will be especially addressed by the project team, using tools like
brainstorming, previous experience and knowledge, evaluation of past projects. This review
will have as output a list of responses to risk. For particular risks with a high impact on the
project and medium-high likelihood the project team will usually describe in detail the actions
to be taken and when would be the best appropriate time to react so that the effects are
minimized. These responses are chosen from a list of potential actions after a trade-off
between the project members, considering the involved action cost. For each action plan and
options list it is recommended that the project management team considers a benefit-cost
analysis. They will have to provide the team members a list of trigger-points for the actions
and, if necessary, a follow up procedure which will insure that the reaction has minimized the
impact or the residual risk is under control.
In order to be able to create a good risk treatment plan we have to take into account a
sum of factors as follows:
we have to categorize our risks depending on their impact on the project (e.g. extreme,
high, medium risk)
we have to evaluate and assign our options ‘in case of…’
evaluate what are the costs, benefits and downside for each option
select optimal options for the project according to the previous analysis and develop
the detailed Risk Action Plan
Make sure you have allocated extra needed resources (human, technical, budget…) in
order to be able to sustain your Risk Action Plan
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4.5.1 RISK ACTION PLAN
The main purpose of the Risk Action Plan is to point out available actions / options for
each major risk of the project, to document in detail what are the risks, available action plans
to suppress the effect of each risk and what are the effects of each action plan.
Each action will affect one of the three key project coordinates: cost, schedule or
scope. The detailed action plan should point out the effects of each response, so that the
project team is aware of the impact of their actions over the project. Trade-offs will be in this
case required.
The risk action plan is part of the project plans and has to be integrated with the
company’s management procedures and policies. This plan will be managed exactly as any
other project activity and has to be correlated with the existing procedures for budgeting,
resource allocation, project, asset, health, insurance, environmental and human resources
management or any other existing internal procedures and policies.
4.5.2 RISK TREATMENT STRATEGIES
The project team will be able to choose the best risk treatment strategy only if they can
rely on a detailed analysis over the impact of each option on the organization. If the risk
occurred they have to be aware of the potential benefits and costs of each action that will
potentially reduce the risk impact, including the direct and indirect costs and effects of
potential delays or supplemental resource allocation.
Generally speaking the risk treatment strategies are developed based on each type of
project. Though it is impossible to develop a general applicable risk treatment plan for every
project the major guidelines and strategies have to consider the risk prevention / avoidance,
impact mitigation, risk sharing, risk insurance and risk retention. By correctly identifying
these risk / response categories the organization is able to determine at what level is it
prepared to tolerate risk and based on their corporate culture and internal policies the senior
management can decide together with the project manager how far these action should be
combined to be implemented in the project frame.
In order to eliminate / reduce the risk sources the project team will need to develop
prevention strategies. The main available tools for risk prevention consist of alternative
approaches, improvement of the policies, procedural changes, better training for the project
team members, detailed process planning, protective systems development, quality assurance
procedures, regular audits and control procedures.
By risk avoidance the project team is expected to identify unaccepted risks in the
project and develop the project plan accordingly, so that these particular undesired risks are
completely avoided.
The risk analysis is usually part of the contract and risk avoidance measures are
usually included in the contract, together with the countermeasures. By considering these
elements as part of the contract the project involved parties will get a general feel on the
potential risk factors and be able to agree on the level of risk sharing.
Some particular risks cannot be avoided, especially those risks resulting from external
factors as weather conditions or economic environment.
Impact mitigation deals with the prevention strategies to diminish the impact of these
risks on the project, ensuring that consequences on the organization will be minimized.
Some of the most important components of the impact mitigation is contingency
planning, crisis management and disaster recovery plans. These strategies are not creating
new risk prevention responses, as in the previous project phase, as they are based on the
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results of the previous analysis. Insurance is one of the most commonly used impact
mitigation strategy, as it is transferring the risk factors to a third party.
Risk transfer usually impacts the project costs. The basic principle of risk sharing is
that risks should be handled in a project by that party which is capable of best managing and
controlling the risk. Contracts are the main tool to allocate risks and share them between
project members. Sharing the risk with a third party (e.g. supplier) does not necessarily
transfer this risk completely and does also not necessarily eliminate this risk. It may happen
that the risk still occurs but the responsibility is transferred to the contractor, transforming it
into a ‘contractor performance’ failure. Here comes in play the ability of the contractor to
manage and suppress risk. If the contractor does not have a risk management plan in place or
a limited ability to manage risks it is likely that supplemental risks will result, leading the
project to a crisis situation. The risk assessment phase is the main tool to identify which party
of the contract is better at managing risks and based on this analysis the project team will be
able to develop a risk sharing plan which will be included in the contract. A proper analysis
will identify the risk consequences and help minimizing the costs for taking the risks.
Insurance is one of the most used and well-known risk sharing strategies and it usually
addresses physical assets and some commercial risks, those risks that have a low probability
but great impact on the project.
Risk retention addresses those risks that cannot be transferred or shared. This risk
category will be extensively analyzed by the organization and a detailed risk management
plan must be developed in order to minimize the effects of these events. The project
management team will have to be able to supply the senior management with a
comprehensive and feasible action plan for such risks and a detailed analysis on their impact
on the project. The project management team have to take particular care to implement
retained risk prevention and control strategies to ensure that the residual risk remaining will
be kept at an acceptable level.
CONCLUSIONS
What is success? When is a project considered successful?
One of the challenges of the project team, besides identifying the risks and reaction
plans, is to set up the Project’s KPI’s (Key Performance Indicators). The key performance
indicators will be used to evaluate the project management implementation process. Once
these indicators are identified and set, obviously together with the customer, we have created
a way to measure the project’s success.
A big problem in project implementation and success measurement comes from the
next simple question: ‘When is our project considered successful and what do we mean by
success?’. Is a project successful when at it’s completion we have achieved 90% to 100% of
the goals? Is it successful if the goals were only 60% met but the customer is satisfied and
wants to develop new projects with the company and the project management team? The
answer for the this questions is simple: the managers and customers usually set unachievable
targets (80%-90% success) and, more than that, the success is perceived relatively to each
involved party’s expectations and feelings. It might be the case when the success of the
project, measured in relation with the planning, initial scope and KPI’s has a rate of 60% but
the customer is more than satisfied. It usually happens so when the project team has set an
initial project scope and, even though this initial scope was not achieved, another parallel and
not forecasted scope was the output.
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As we can see, project management does not guarantee success or scope achievement
but it will offer tools to plan, forecast, manage, control and evaluate the projects. Project
managers will supply detailed project documentation, extensive and comprehensive detailed
documentation on each project phase, including several reaction options in relation to each
type of risk and a deep inside on the effects, based on a rigorous cost-benefit analysis.
REFERENCES
Project risk management is a topic of major current interest. Many government
agencies and most of the professional project management associations around the world are
actively addressing it, and many relevant standards are existent or being developed. Some
examples from the many approaches in use include:
1. Project Management Institute (PMI), USA (2011), Project Management Body of
Knowledge
2. Association for Project Management, UK (1997), PRAM Guide;
3. AS/NZS 4360 (2004), Risk Management, Standards Association of Australia;
4. IEC 62198 (2001), Project Risk Management—Application Guidelines;
5. Office of Government Commerce (OGC), UK (2002), Management of Risk; and
6. Treasury Board of Canada (2001), Integrated Risk Management Framework.
7. The Changing Environment of Business A Managerial Approach, 4th Ed., by G.
Starling © 1995.
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THE USE OF E-BANKING BY THE BRANCHES OF SECOND-LEVEL BANKS IN
KORÇA (ALBANIA): OPPORTUNITY AND CHALLENGES
Elda Dollija;
University “Fan S. Noli”, Korçe, Albania
Majlinda Bello;
University “Fan S. Noli”, Korçe, Albania
Gentisa Furxhi;
University “Fan S. Noli”, Korçe, Albania
ABSTRACT
E-banking is a relatively new service offered by second-level banks in Albania. The
use of this product on one side brings enormous advantages and benefits for both banks and
customers, but on the other side it is associated with enormous barriers and challenges too.
The purpose of this paper is to show how much and how the branches of second-level banks
that are situated in Korça (Albania) are using e-banking, the advantages and the benefits of
this service, the tendency of offering and the trend of sales and the challenges the secondlevel
banks have to face with.
Since e-banking is a service offered by all branches of the same bank, examining only
their branches in Korça, we can make a generalization in national level for the services
offered by e-banking, while remain specific to the city of Korca the characteristics of sales of
this service such as: the tendency of sales, barriers and challenges, that the branches of these
banks, are facing with.
To realize this paper, a questionnaire with six questions was prepared and presented
to the banks. Each branch used to complete it referring to the different aspects of offering and
selling of e-banking, its opportunities and challenges.
Key words: e-business, e-banking, internet, ICTs, opportunities
INTRODUCTION
We live in a new era, called “the era of technology and the internet”. Both technology
and the internet have greatly influenced our way of behaving and living, by offering new
opportunities and challenges. So technology and the internet have facilitated many procedures
and activities that previously required more time and expense. And now, by staying cozy,
sitting in our office or at home, at every moment we are free, we have the chance to perform
many operations that previously were ask to present in a certain place and at a certain time,
being limited physically and temporally. But even this, in turn, requires large investments in
financial and knowledge.
The number of the users of internet and ICT’s products and services and their interest
is growing more and more. Businesses, on the other hand, as the offers of these new products
and services, need to exploit these opportunities to satisfy the new need and demands of the
consumers. Businesses and consumers are interested in these products and services and they
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are trying to exploit their advantages and opportunities. But on the other hand, both
businesses and consumers have to overcome many obstacles and have to face with many
challenges. Due to growing interest for these products and services, this is an issue that is an
important subject that is attracting the attention of many studies.
Different papers and statistical studies show that the Albanian internet and ITC’s users
are not yet numerous, and the use of services offered through them, is in the first steps (Sevani
and Bahiti, 2008). This paper will be focused on the services offered by the internet and ICTs
from the second-level banks. To be more accurate, the study refers to the branches in the city
of Korça. E-banking is a new service through the use of the internet and ITCs offered by these
banks in Albania.
To realize this paper we had to develop a questionnaire and by analyzing its data we
aim to get informed firstly if these banks offer e-banking or not. Then if the answer to this
question is positive, the aim of this study is to get know what kind of e-banking services are
offered by each bank; if they are satisfied with the performance of service sales, what do they
predict about the future of e-banking, who are the clients that make a more frequent use of it,
why do the clients buy or buy not this service and which are the challenges they have to face
with, and so on.
The theoretical part of this study explains the terms such as e-business, e-commerce,
what is internet and ICTs, focusing on two fundamental types of benefits from e-business:
Value Creation or Value Enhancement for one or more of a company’s stakeholder groups;
and Lower Costs of providing goods and services to the market place. We can assume that the
benefits are equal for more businesses but the barriers thy have to face with depend on the
level of ICT’s development of the country. Anyway we can summarize that some of the most
common barriers include: unsuitability for the type of business; enabling factors (availability
of ICT skills, qualified personnel, network infrastructure); cost factors (ICT equipment and
networks, software and re-organization), security and trust factors and challenges in areas of
management skills, technological capabilities, productivity and competitiveness. Than the
theoretical part focuses on banks, and particularly in those products and services that are
enabled by ICTs (Automated Teller Machines (ATM), Credit Cards, Debit Cards, Smart
Cards, Electronic Funds Transfer (EFT) System, Cheque Transaction Payment System,
Mobile Banking, Internet Banking, Telephone Banking etc.); and by internet (Access account
information, Review and pay bills, Transfer funds, Apply for credit, Trade securities, Find out
if a check was cleared, Find out when a bill is due, Apply for mortgage, Search for the best
loan rates, Compare insurance policies and prices, etc.)
LITERATURE REVIEW
Information and Communication Technologies (ICTs) have become an essential part
of our lives. In the past decade, the use of ICTs throughout the society took off with the
introduction of the internet. Today, because the internet can facilitate the quick and efficient
movement of information among trading partners at a greatly reduced costs, business via the
internet or electronic business (e-business) has become one of the principles mean of doing
business.
The United Kingdom Department of Trade and Industry (DTI) describes e-business as:
“When a business has fully integrated Information and Communications Technologies (ICTs)
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into its operations, potentially redesigning its business processes around ICT or completely
reinventing its business model…e-business, is understood to be the integration of all these
activities with the internal process of a business through ICT”.
A summary of some of the definitions related to e-business is given below:
“The transformation of key business processes through the use of Internet
technologies”. www.ibm.com/ebusiness/
According to Chaffey (2009): “e-business is aimed at enhancing the competitiveness
of an organization by deploying innovative information and communications technology
throughout an organization and beyond, through links to partners and customers. It does not
simply involve using technology to automate existing processes, but should also achieve
process transformation by applying technology to help change these processes.
Canzer (2006), suggests that: “e-business can be defined as organized effort of
individuals to produce and sell, for profit, products and services that satisfy society´s needs
through the facilities available on the internet”
There are many more definitions of e-business but we favor those that emphasize the
fact that the ICT technologies are being used to extend and/or develop business systems
within a strategic business framework. This key aspect of any relevant definition is that whilst
technologies may open new business opportunities, they must be developed for
commercial/business reasons and not because they are there!
Most definitions of e-business imply integrated and relatively sophisticated systems
such as those found in a true supply chain. They are regarded as showing a distinct separation
of it from e-commerce (simple web presence, web based order taking etc.). However, our
definition of e-business covers the full panoply of ICT based business systems that have a
presence outside of the company.
Sometimes people use the term e-commerce instead of e-business. In a strict sense, e-
business refers to all business activities conducted on the internet by an individual firm or
industry. In contrast, e-commerce is a part of e-business; the term refers only to the activities
involved in buying and selling online. These activities may include identifying suppliers,
selecting products or services, making purchase commitments, completing financial
transactions, and obtaining service Canzer (2006).
Though there are a growing number of examples of the use o ITCs for e-business in
developing countries the effects to date are small compared to what is expected to occur
(Riyadh, Akter & Islam, 2009)
As the economy of Albania is picking up the service industry, especially the banking
industry is extending the national and regional coverage to be able to provide the needed
financial service. In this development it is expected that the use of internet would facilitate the
adoption of e-business in the Albania banking industry as a means of offering fast, flexible
and cost-effective ways of doing business as well as enhance their competitiveness. This state
of development will be important especially as volume of trade increases and Albania and
other developing countries require fast transfers of monies, payments across continents and
many other services that promote growth of business.
As with most developing countries that have pursued economic and structural reforms,
Albania has been undergoing a process of financial sector restructuring and transformation.
Banks in Albania will need to reinvent themselves in this new conductive but challenging
environment. This is important because electronic transactions will continue to grow and only
countries that make a movie towards embracing e-business will participate in this revenue
generation (Duncombe and Heeks, 2005).
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Banks today are becoming aware of both the threat and the opportunity that the
internet represents. E-banking refers to electronic banking. It is like e-business in banking
industry or the process by which a customer performs banking transactions electronically. E-
banking is also called as "Virtual Banking", "Online Banking" or “PC Banking”. As the
number of users using internet is growing rapidly, e-banking is a great opportunity for the
banks. So, e-banking is a result of the growing expectations of bank's customers.
The most popular services covered under e-banking are:
o Automated Teller Machines (ATM),
o Credit Cards,
o Debit Cards,
o Smart Cards,
o Electronic Funds Transfer (EFT) System,
o Cheques Transaction Payment System,
o Mobile Banking,
o Internet Banking,
o Telephone Banking, etc.
As a consumer, you can use Internet banking to:
o Access account information
o Review and pay bills
o Transfer funds
o Apply for credit
o Trade securities
o Find out if a check was cleared
o Find out when a bill is due
o Apply for mortgage
o Search for the best loan rates
o Compare insurance policies and prices
According to Basu and Muylle (2007), companies can gain two fundamental types of
benefits from e-business. These are generally described as:
Value Creation or Value Enhancement for one or more of a company’s stakeholder
groups; and Lower Costs of providing goods and services to the market place.
Examples of Value Creation include improvement in internal and external communication
through effective e-marketing, increment of sales through an electronic commerce (ecommerce)
website integrated with a back office systems and improvement in supplier
relations and productivity through collaborative workspaces (Basu and Muylle, 2007).
Examples of lower cost are: reduction in communication and travel costs using online meeting
tools; shared workspaces and; benefit from license free open source alternatives to proprietary
software.
Windrum and Berranger (2002) suggest that the commercial benefit of e-business lie
in five areas. Firstly firms are able to expand their geographical reach. Secondly, important
cost benefits lie in improvement efficiency in procurement, production and logistic processes.
Thirdly, there is enormous scope for gaining through improvement costumer communications
and managements. Fourthly, the Internet reduces barriers to entry for new market entrants and
provides an opportunity for small firms to reorient their supply chain relationships to forge
new strategic partnerships. Finally, e-business technology facilitates the development of new
types of products and new business models for generating revenues in different ways.
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The banks, as part of service activity, are exploiting the opportunities and the advantages
offered by internet and ICTs. Here are some specific advantages offered by e-banking
(European Commission, study report no.06 / 2008):
1. The operating cost per unit services is lower for the banks.
2. It offers convenience to customers as they are not required to go to the bank's
premises.
3. There is very low incidence of errors.
4. The customer can obtain funds at any time from ATM machines.
5. The credit cards and debit cards enables the Customers to obtain discounts from retail
outlets.
6. The customer can easily transfer the funds from one place to another place
electronically.
But on the other hand, e-banking and ICT’s adoption faces more barriers and
challenges. The most critical barrier can be ascribed to the very limited information and
communication infrastructure available in Albania. Common barriers include: unsuitability
for the type of business; enabling factors (availability of ICT skills, qualified personnel,
network infrastructure); cost factors (ICT equipment and networks, software and reorganization),
security and trust factors (security and reliability of e-commerce systems,
uncertainty of payment methods, legal frameworks and Intellectual Property Right) and
challenges in areas of management skills, technological capabilities, productivity and
competitiveness. Lack of reliable trust and redress systems and cross - country legal are
regulatory differences also impedes e-business adoption.
While many commentators hold the view that e-commerce has the view that e-
commerce has many advantages for developing countries, Albania has a number of major
challenges to overcome before it can more fully exploit the benefits of e-commerce. A
number of constraints, specific to doing e-business in Albania, are apparent. These include
bur not limited to the following: low level of economic development and small per- capita
incomes; limited skills base with which to build e-business services; the number of internet
users needed to build a critical mass of online consumers and; lack of familiarity with even
traditional forms of electronic commerce such as telephone sales and credit card use (E.
Bazini, D. Ilia, A. Qarri, 2011).
Perhaps one of the greatest constraints to the adoption of e-business as a means to
generate efficiencies is a culture reluctance to interface with buyers and suppliers
electronically. Such challenges remain major obstacles, limiting the potential benefits of e-
business. The challenges are: the cost of implementation, security concerns, perceived
costumer readiness, lack of knowledge of Information Technology (IT). And e-business, the
relatively high costs associated with investments in ICTs, the lack of technical and managerial
skills and reluctance on the part of companies to network with other enterprises and lack of
executive support and concerns regarding the reliability of technology (K. Sevrani, R. Bahiti,
2008).
PAPER CONTENT
This is a regional study focused on the branches of second-level banks that perform
their activity in the city of Korca, Albania. This study refers to e-banking which is one of the
newest services offered by these banks. The aim of the study is to show first if they offer this
service or not than it tends to explain the characteristics of e-banking for each bank that offer
this service.
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The survey included the branches of 9 active second–level banks in Korça. These
banks were asked to fill the questionnaire. If the answer of the question if they offer e-banking
was Yes, they continued with the other questions: what kind of e-banking services do they
offer; are they satisfied with the performance of service sales, what do they predict about the
future of e-banking, who are the clients that make a more frequent use of it, why do the clients
buy or buy not this service; which are the challenges they have to face with, and so on.
First question: Do the banks offer e-banking service?
If the answer of the first question is yes, when did you start to offer it?
By analyzing the data of the survey we concluded that 7 of 9 banks use internet to
perform banking services. The banks that offer and do not offer e-banking are listed in the
table below.
Table. 1
Offer E-banking Services Do not offer E-banking
Services
Raiffeisen Bank
Emporiki Bank
Pro Credit Bank
NBG Bank
BKT Bank
Societe General Bank
Tirana Bank
Credins Bank
Union Bank
The responses of the answer: when did you start to offer e-banking services, are shown
in the graphic below.
Source: Survey “The use of e-banking by the branches of second-level banks in
Korça (Albania): opportunity and challenges”, 2012
As we see at the graphic, the results of the survey show that e-banking is a new
product offered recently by the banks operating in Albania. It initiated from Credins Bank
(which is the only bank with 100 % of domestic shareholders) in 2003, followed by Societe
General Bank in 2005, than Tirana Banka in 2007, Union Bank in 2008, and so on.
Second question: Are the banks satisfied with the performance of product sales? What
do they predict about the future of e-banking?
Because of the different types of barriers that both the bank and the clients have to face,
since it was first launched up till now, the demand for this product has not reached the
expected and desired levels by the banks. It is obvious that different clients have different
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reasons, but we can summarize the main barriers that make it impossible for the clients to
adopt e-banking:
The lack of PC-s and knowledge of the use of PC-s by the clients which inhibit
physically the use of this product
The lack of the Internet at home
The lack of trust for online transactions because of security concerns
Lack of knowledge of this product
Third question: Are individual or business clients that use most e-banking?
The survey showed that this product is mostly used by business clients who comprise 71
% of clients that have purchased e-banking and individual clients comprise only 29 % of the
users of e-banking. There are two main reasons that explain this result. The first reason is that
business clients comprise the majority of the clients of the banks (including all the banks) and
they frequent regularly the banks and make a lot of different banking transactions. The second
reason is that almost all business clients have a PC connected to internet, a thing that many
Albanian families still lack. This is the major challenging the individual clients are facing
today.
Fourth question: Do the clients who have bought e-banking make e frequent use of it?
The result of the survey showed that only 71 % of the clients who have bought this
product, use it regularly and the other 29 % use it very rarely. This is because of security
concerns. Both individual and business clients are skeptical of the use e-banking for
transactions online. They just have a look at the account balance and check for payments and
when it comes to transfer money they prefer to go to the bank and do the transfer of money
physically.
Source: Survey “The use of e-banking by the branches of second-level
banks in Korça (Albania): opportunity and challenges”, 2012
Fifth question: what kind of e-banking services are offered?
The different kind of transactions offered by almost all the banks offering e-banking
are:
Account information:
o Check the current / saving account balance and its transactions;
o Check the Time Deposit balance;
o Check the debit and credit card statements
o Check and discharge your credit card’s obligations through your current account;
o Check and print out all your account statements;
o Check old payment and those in continuance
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o Check the consumer loans and housing loans (arrears, payment date, installment
amount)
Transfer money:
o From your account to another your account or to another persons’ accounts at the
same bank. Money is being transferred immediately and the beneficiary has immediate
access to the money.
o From your account to other accounts in other banks (transfers inside Albania). Money
o
is received by the other bank within the same day or the following working day
from your account to other accounts in foreign banks anywhere in the world (transfers
outside Albania)
All the banks aim to extend the number of e-banking services.
Sixth question: how often do the clients use e-banking?
The result of the survey showed that only 71 % of the clients who have bought this
product, use it regularly and the other 29 % use it very rarely. Furthermore, most of the users
use mostly this online service to check the balance of their account and check of all payment
orders done from their account and in their favor. Although the banks offer their continuous
support and assistance on how to use this service online, the major part of the users are very
skeptical to use this service for payment orders because of security concerns. So they prefer to
go personally and do these transactions by the bank’s employees.
Conclusions and implications
This survey refers to the use of e-banking services by the second-level banks in
Albania. To be more accurate, the survey refers to the branches of these banks in the city of
Korça (Albania). As the products and services offered by the banks are the same for all their
branches, examining only their branches in Korça, we can make a generalization in national
level for the services offered by e-banking, while remain specific to the city of Korca the
characteristics of sales of this service such as: the tendency of sales, barriers and challenges,
that the branches of these banks, are facing with.
To realize this survey we made a questionnaire of six questions that was completed by
the nine branches of the second-level banks that perform their activity in the city of Korça.
The banks were asked if they offer e-banking; when did they start to offer it; what kind of e-
banking services do they offer; are they satisfied with the performance of service sales, what
do they predict about the future of e-banking, who are the clients that make a more frequent
use of it, why do the clients buy or buy not this service and which are the challenges they
have to face with.
Analyzing the answers of the questionnaire we concluded that seven out of nine banks
(nearly 78 %) offer e-banking services. The answers of the questionnaire concluded that e-
banking is a new service offered by the second-level banks in Albania. It started first in 2003
by Credins Bank. Then we can conclude that this product was adapted rapidly (year after
year) by the other banks just to follow the competitors. So since 2003, when it started for the
first time by Credins bank, up till 2010 this service was also rapidly spread to other sic banks
(respectively: Societe General Bank – 2005; Tirana Bank – 2007; Union Bank – 2008; Pro
Credit Bank – 2009; Raiffeisen Bank and BKT Bank – 2010). While Emporiki Bank and
NBG Bank do not offer this service yet.
Despite the enthusiasm and the optimize of the banks to offer this new service and
despite all the facilities, advantages and opportunities that e-banking offers to customers, the
reality shows that the barriers and the challenges are greater than the advantages. Numerous
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obstacles have made this product not have the desired trend of sales. These are national and
macroeconomic obstacles which need longer times to overcome. A part of them are individual
barriers (for example the lack of knowledge on the use of PC and internet) that will overcome
only with the pass of time and with the growth of new generations who are familiar with PC
and Internet. On the other hand there are some other obstacles that do not depend entirely on
the skills of the individuals (such as security related issues and possession of a PC). These
barriers are more difficult and require even more time to recover.
If we could classify the clients of the banks into Individual and Business clients we
conclude that for businesses the obstacles are more surmountable. As almost all businesses
have PCs and are connected to the Internet, their employs are more experts in using PCs and
are more familiar internet navigation compared to individuals. But on the other hand, security
concerns for online actions remain the same for both individual and business’ costumers.
However, the increased demand for e-banking services means that both business and
individual clients are overcoming the obstacles.
The data of the survey showed that the costumers that have bought e-banking service
do not make a frequent use of it. So the number of the services offered by e-banking is
growing but the costumers do only use some of them. For example, they just have a look at
the account balance and check for payments and when it comes to transfer money they prefer
to go to the bank and do the transaction physically. That is because of security concerns.
Referring to the theoretical part (which highlights the wide extention of the Internet
and ICTs as well as opportunities they offer, and take into consideration the barriers and
challenges that businesses in general, and the banks in particular have to face with) and based
on the data processing of the questionnaire the aim of this survey is to show up the use of e-
banking services in the branches of second –level banks in the city of Korça. As the number
of the banks offering this service; the number new e-banking services; and the number of
clients buying and using this service are increasing, we could conclude that the banks have
become aware of the advantages and the opportunities offered by this new service. They are
trying to exploit them and at the same time they are trying to customize the content and the
characteristics of these services according to costumers’ requirements to challenge the
barriers.
The restriction of this study is that it is limited to the banks’ point of views, and do not
consider the costumers’ opinions. This paper may be the first step toward a more integrated
study including both the banks and the costumers’ opinions about respectively the offer and
the use of e-banking services.
REFERENCES
1. Amit Basu and Steve Muylle “How to plan e-business initiatives in established
companies” MIT Sloan Management Review, Fall 2007
2. European Commission, DG Enterprise & Industry: study report no.06 / 2008 “ICT and
e-business impact in the banking industry.
3. Evelina Bazini, Djana Ilia, Albert Qarri (Barriers of ICT implementation within SMEs
in service sector in Albania) EuroEconomica, ISSN:1582-8859 , Issue 3(29)/2011
4. Brahm Canzer: “e-Business, Strategic thinking and practice”, second edition, 2006
5. Dave Chaffey: e-Business and e-Commerce Management. Strategy, Implementation
and Practice” fourth edition, 2009
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6. - Kozeta Sevani and Rovena Bahiti: “ICT in small and medium enterprises (case
of Albania) ICBS 2008.
7. Richard Duncombe and Richard Heeks, Institute for Development Policy and
Management (IDPM), The University of Manchester, UNIDO: “Information &
Communication Technologies (ICTs), Poverty Reduction and Micro, Small &
Medium-scale Enterprises (MSMEs)” November 2005
8. Al Nahian Riyadh, Md. Shahriar Akter, Nayeema Islam: “The Adoption of E-banking
in Developing Countries: A Theoretical Model for SMEs” International Review of
Business Research Papers,Vol. 5 No. 6 November 2009, Pp.212-230
9. European Commission, study report no.06 / 2008
10. Norazah mohd Suki: “An Empirical Study of Factors Affecting the Internet Banking
Adoption among Malaysian Consumers’ Journal of Internet Banking and Commerce,
August 2010, vol. 15, no.2 http://www.arraydev.com/commerce/jibc/
11. www.ibm.com/ebusiness/
12. -http://www.ecommerce-journal.com/articles/28283_internet-and-e-commerceindustry-albania
13. -http:www.dti.gov.uk
14. http://www.nb2bc.co.uk/what-is-e-business
15. www.proinno-europe.eu/sites/default/.../Albania
16. www.credinsbank.com
17. www.raiffeisen.al
18. www.procreditbank.com.al
19. www.bkt.com.al
20. www.societegeneral.al
21. www.tiranabank.al
22. www.unionbank.com
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URBAN TOURISM AND OPPORTUNITIES
FOR IMPLEMENTING ITS GORJ COUNTY
Enea Constanța
“Constantin Brâncuși” University of Târgu-Jiu
Enea Constantin
“Constantin Brâncuși” University of Târgu-Jiu
ABSTRACT:
Density value and historical monuments - churches and monasteries, museums,
memorial houses – Targu-Jiu city situated among the first cities in the country in terms of
cultural and historical resources.
Targu-Jiu is famous for its landscape beauty, the richness of traditions, for places of
worship, and especially for folk art masterpieces. All these aspects have been stylized and
immortalized the genius by the force of symbols by Constantin Brancusi from Targu Jiu the
triptych: Table of Silence, Gate of Kiss and endless gratitude column. Objective reasons, but
mostly subjective, work of Brancusi of Targu Jiu was not promoted to attract tourists and
develop professionalism, default, tourism as economic sector and alternative energy profile of
the county.
Targu-Jiu is still a tourist destination in the tourist macro-product Romania.
Reality shows that the incoming activity is weak in Targu-Jiu County. Most travel
agencies conducted mainly Romanian outgoing activity, considered today by local operators
as more profitable.
If we consider that at present, demand for domestic tourism is down and will follow
this trend until the economic situation of the population will improve marketing efforts must
be directed Targu-Jiu to attract as many tourists coming in developed countries. Generally, in
Targu Jiu, tourists come in organized groups, the circuits designed, distributed and promoted
by agencies turoperatoare in Bucharest.
Targu-Jiu is now only a transit area. Therefore, it is necessary to design a highly
attractive tourist offers to retain tourists seek at least one day in the area. To fulfill this goal
is necessary to develop a coherent marketing strategy for the whole tourist area of Targu Jiu.
In this sense it takes a collaboration of all involved and interested in developing the
hospitality industry in the region regarding the content of tourist programs will be promoted
under the brand Brancusi.
To achieve this goal have started to achieve a SWOT analysis of tourism Brancusi.
Keywords: urban tourism, sustainable development, triptych brancusi, promotion
1. INTRODUCTION:
The county has an important tourism potential represented by an attractive scenic
landscape through art and architectural monuments of great artistic value, some of them of
great international interest and a valuable heritage of folklore and ethnography.
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Tourism in Targu-Jiu can be oriented in several directions: historical and religious
tourism, sports and leisure tourism, especially cultural tourism.
Density value and historical monuments - churches and monasteries, museums,
memorial houses - Targu-Jiu city situated among the first cities in the country in terms of
cultural and historical resources.
Unique and unparalleled in the world remains "brâncuşi outdoor museum complex in
Targu Jiu," forever chiseled in Hobiţa titanium. This is an attractive tourist attraction of
international interest, which, by highlighting the managerial principles, enables rapid
development of tourism industry can be a source of significant growth in coming years the
entire area.
Targu-Jiu is famous for its landscape beauty, the richness of traditions, for places of
worship, and especially for folk art masterpieces. All these aspects have been stylized and
immortalized the genius by the force of symbols by Constantin Brancusi from Targu Jiu the
triptych: Table of Silence, Gate of Kiss and endless gratitude column. Objective reasons, but
mostly subjective, work of Brancusi of Targu Jiu was not promoted to attract tourists and
develop professionalism, default, tourism as economic sector and alternative energy profile of
the county.
Although the value of artistic works created three Targu-Jiu can be a guarantee of
tourist attraction, lack of consistent measures for officials in this area have failed to form and
to impose on the world tourism market famous brand "Brancusi". No correlation with travel
services and local tour operators work, Brancusi in Targu Jiu works there is not enough for
"industrialization" of tourism and large-scale introduction in the tourism and international
tourism product
"Brancusi in Targu Jiu." Tour operators to develop and promote tourism offer
Brancusi difficulties in using it, due to inability to align tourism services by providers to the
quality standards required internationally. Targu-Jiu is still a tourist destination in the tourist
macro-product Romania.
2. CONTENTS:
In countries with a tradition of hospitality industry is tourism programs of 12 days as
tourists do not have time to get bored. A tourism product which runs for 7 days only in Targu-
Jiu would not yet possible because foreign tourist is dynamic, dense amateur programs. He
wants to "score" as many goals, tourist attractions and activities tourist agenda (U.S. tour
operators promoting their offers for the "Europe in just five days").
In Targu-Jiu, usually, the visitor sees two monasteries, works of C. Brancusi, then gets
bored and moves on to other attractions. In fact, this should be fixed as marketing strategy,
promotion of tourism product within the same (type circuit) of two or more complementary
tourist destinations (Northern Oltenia: Valcea, Florida, Mehedinti).
Therefore, an attractive and works of Brancusi of Targu Jiu is the only main reason
that foreign tourists would be attracted in Romania, and that once here, they are oriented to
other tourist attractions.
Reality shows that the incoming activity is weak in Targu-Jiu County. Most travel
agencies conducted mainly Romanian outgoing activity, considered today by local operators
as more profitable.
If we consider that at present, demand for domestic tourism is down and will follow
this trend until the economic situation of the population will improve marketing efforts must
be directed Targu-Jiu to attract as many tourists coming in developed countries.
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Generally, in Targu Jiu, tourists come in organized groups, the circuits designed, distributed
and promoted by agencies tour-operators in Bucharest. Targu-Jiu is now only a transit area.
Therefore, it is necessary to design a highly attractive tourist offers to retain tourists
seek at least one day in the area. To fulfill this goal is necessary to develop a coherent
marketing strategy for the whole tourist area of Targu Jiu. In this sense it takes a collaboration
of all involved and interested in developing the hospitality industry in the region regarding the
content of tourist programs will be promoted under the brand Brancusi. To achieve this goal
have started to achieve a SWOT analysis of tourism Brancusi. Thus, among the tourism
product strengths of Brancusi can mention:
• The complex has exceptional artistic works Brancusi of Targu Jiu;
• The unique. Is the largest outdoor complex ever undertaken by Brancusi, with
immeasurable value;
• Location of works that form triptych brâncuşian East-West axis, which passes
through downtown Targu-Jiu and is divided into two equal parts. Brancusi axis has a length of
1752 m and is pedestrian, the favorite place of pilgrimage for locals and tourists;
• The proximity of Brancusi's works, the axis is the most important structures of the
functions of accommodation, restaurants and entertainment (Targu-Jiu hotels and Targu-Jiu,
Cristian library Tell, C. Brancusi University Cathedral of the Holy Apostles, etc..)
• Organizing annual Tg. Jiu international competition sculpture "C Brancusi";
• Brancusi is the most famous figure in Romanian history, the country and abroad,
being a bridge between art and tourism;
• Brancusi Romanian spiritual mentor is true, is revered and is a "good" national
• Brancusi is universal, his work belongs to the image and World Heritage;
• Brancusi is a quality mark in the art institution, certainly. Brancusi's image in
tourism promotion is a guarantee professional success, while promoting the tourism product;
The large number of Brancusi's art lovers is an important asset in promoting cultural
tourism in Romania in general and Targu-Jiu in particular;
• existence worldwide of over one hundred of foundations, associations and clubs that
promote work and image of C. Brancusi;
• Tourism type events by organizing cultural events related to C. Brancusi (winter
season the School of Arts, homage to sculptor birthday, Winter Exhibition of Popular Arts
Symposium "Brancusi the endless" The Sacred in Art - Spring Salon of young sculptors,
cultural tourism program, "Road of Brancusi" National Exhibition of Art Photography "Table
of Silence" Miracle Brancusi - sound and light show at Endless Column, Rally "Endless
Column", Colloquium "Brancusi - Endless Energy" sculpture camp "Constantin Brancusi"
(wood, glass, stone), Colloquium: "Heritage Brancusi - solutions and responsibilities",
Brancusi Award nomination, popular arts Autumn Fair, Autumn Fair of sculptors Tg Jiu
Festival annual grant awards for art Brancusi);
• The existence of alternative tourism potential allows complex and diverse tourist
programs, the main attraction works Brancusi of Targu Jiu: traditional houses, handicrafts,
sports tourism opportunities (summer-winter), high natural potential (existence of natural
springs), special landforms, well preserved natural environment, great diversity, attractive
natural landscapes (forests, rivers, lakes, mountains), local gastronomic specialties, traditional
cuisine, customs and traditions, music and traditional dances, winter sports , agrotourism,
ecotourism;
• The local population is friendly and open to tourism, in addition local authorities
(politicians and directors of the county) have identified tourism as a priority activity in the
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county's economic development, which could lead to overall economic development of
Oltenia region, private firms manifest also increased interest in tourism.
• basic tourism infrastructure in some places can be developed from scratch;
• The many forms of tourism in the county: Itinerant tourism with cultural valences,
health tourism, rural tourism, ecotourism, transit, tourism, hunting and fishing, equestrian
tourism, tourism for winter sports tourism, congresses and meetings, leisure tourism,
recreation and leisure.
Cultural tourism has great possibilities of attraction for foreign tourists by integrating
national cultural heritage values in the European and world (works of Brancusi).
In addition, a special attraction of the area is the many craft activities taking place here: the
making of glass objects (Targu-Jiu existence of three glass factories and two master glass
blowers worldwide recognized), painting icons (on glass icons fireplace, unique in the world
Tismana Polovragi), wood carving (Peştişani-Hobiţa, Novaci), pottery (Găleşoaia), sculpture
(Peştişani, Dobrich), tissue (Tismana Arcani, Runcu - and her famous Tismana carpets) and
workmanship of the leather, fur (Novaci, Baia de Fier). Therefore, we consider it essential to
create networks of local artisans selling venues, which include tourist information and
promotion activities.
Promoting brâncuşian circuit includes villages about childhood, school and travel
Brancusi's knowledge (Hobiţa, Peştişani, Brădiceni, Tismana).
Weaknesses of the tourist product Brancusi:
- Lack of a museum with all the works in miniature Brancusi and related written
explanations;
- Lack of trained guides in knowledge work and Brancusi's biography and foreign
languages;
- Lack of communication and cohesion between local authorities and pro-Brancusi
foundations and associations to achieve objectives of common interest;
- Mentality of people to make quick money rather than provide quality services,
including travel services directly related to promotion and image of Brancusi's works;
- Indifference of people to protect works of art and the environment;
- Large number of beggars who annoys tourists groups that creates an unfavorable
general;
- Lack of room restaurant brâncuşi (Brancusi is a skilled and passionate chef, author of
valuable recipes);
- Insufficient training of specialized workers in the hospitality industry, lack of
motivation of staff;
- Low investment interest;
- Relatively low quality tourism services in the region;
- Index lower occupancy of accommodations (the 30%);
- Transport disruption due to the state of access roads (poor infrastructure, lack of
signs, potholes);
- Tourist infrastructure deficiencies: lack of specialized stores (sporting goods,
souvenirs, maps, guides, leaflets, etc..), State of conservation and cleaning of monuments;
lack of markings tourism;
- Existence in some cases the precarious living conditions, lack of cleanliness;
- Insufficient supply of leisure;
- The territory had only very sporadic equipment and recreational sports available to
tourists;
- Insufficient development of existing tourism potential;
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- Insufficient promotion of tourist attractions (the lack of traffic signs and signals of an
effective, tourist information), lack of tourist information centers, lack of promotional
materials such as brochures offered free accommodations or in the municipal park where they
are located two of the works of C. Brancusi, lack of cultural guides in the tourist can find
activities and cultural events taking place during his stay, lack of organization of events
highlighting the traditions and customs of the region;
• external appearance seen poverty and neglect impression many historical
monuments, even in areas.
Opportunities:
• Restoration of county road network, giving priority to providing access to the sights,
usually frequently sought;
• strengthening partnerships among all tour operators in the area in this regard shall be
designed and promoted tourism programs combining sightseeing in Florida, Valcea and
Mehedinti or making a circuit "Tourism in Northern Oltenia" including famous monasteries
this area, rural tourism and C. Brancusi's works;
• Create a travel scholarship to Targu-Jiu;
• organization of traditional houses rental holiday period. These houses could be built
in one or more professional European network of shared network location and travel agencies
in Romania;
• provision of care facilities with meeting rooms, seminars as well as related
infrastructure, because businesses are among the main motivations of tourists to return to
Targu-Jiu and know the area;
• encourage the development of new forms of tourism (adventure, science, treking,
waching birds, etc..)
• support projects that introduce tourism value, cultural and spiritual goals and related
Brancusi;
• creating new jobs and opportunities to make career appearance in the hospitality
industry;
• improving infrastructure;
• Establish a network of tourist information centers near major tourist attractions;
• creating an international business center near the axis Brancusi;
• creating partnerships with organizations and foreign investors in the tourism sector;
integration in EU-funded programs;
• growing interest of tourists from France, Luxembourg, Belgium Brancusi's works;
Threats:
• any premature degradation of monuments of art and architecture;
• increasing competitiveness among regions and lack of cooperation between them;
• lower real incomes of population, inflation;
• Reduce availability of free time;
• changing consumer preferences for cultural tourism, tourism that migration to other
forms of tourism and other countries and / or regions;
• manifested intense competition domestically and international tourism, illegal;
• instability of government policies on tourism and taxation;
• weather conditions, combined with possible natural disasters;
• poor perception of Romania abroad.
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CONCLUSIONS:
Tourist destination "Targu-Jiu-works Brancusi" is included in 10-15% of tourist
circuits in Romania, but in general, is considered a transit zone, the average length of stay of
tourists here is of 1-1.5 nights. Therefore, we think that designing a custom unit offers. This
should include their travel programs, is to allow retention of 3-4 nights tourists in the area.
Such an offer should include proposals combined, a variety of programs for hunting and
fishing, hiking, horse rides, mountain biking, visits to fold, climbing, paragliding etc.. To
facilitate the design of tourist programs unit for "Brancusi" is necessary to have effective
communication between representatives of travel agencies and care facilities (hotels, villas,
pensions, etc.).
In conclusion, creating a tourist trade "Brancusi" supposed to be a complete product,
including visiting and some cultural attractions such as monasteries, museums, churches,
cities, etc. .. Able to extend the stay of tourists in the area more than two days have designed
additional attractions (outside monasteries, adventure tourism: Jiu air boat rides, rock
climbing, paragliding, mountain biking, equestrian tourism.
In terms of reception building (activity took momentum very recently), it is considered
that implementation should be considered a traditional architecture, both exterior and interior
to create a specific atmosphere of the area. In addition, the tourism products in the area should
be valued gastronomy specific integrated traditional and cultural events (eg, organizational
folklore programs at dinners, parade costumes, etc..).
The main measures to be taken under this policy is obvious that marketing should be
aimed at reshaping the relationship between the price of tourism products and quality
services, so that high rates charged are justified as quality. Since the main attraction is the
tourism product "Brancusi, a strategy must be designed for uniform tariffs, promotion,
marketing arrangements. Similarly can be designed and marketed a voucher allowing visiting
all the museums in the area at a promotional price. What care facilities recommended by the
Targu-Jiu tourist destination is the promotion of low prices for a minimum package of
services to attract tourists to the destination, as there will tempt them to spend more by
offering services Additional excursions in the area, hiking, visiting local attractions (pen,
reserves), organization of folklore programs, selling souvenirs (handicrafts) etc.
Currently, the Targu-Jiu local travel agencies not to be recognized as receiving agents
("ground operator") by national and European travel companies. Local travel agencies (as,
indeed, most of Romania) prefer the pursuit of "outgoing" (sending Romanian tourists
abroad), rendering the activity of retailers for tour operators in Bucharest and other cities in
the country.
As a result, a great opportunity to local travel agencies is the development of incoming
activity, consisting in attracting foreign tourists in Targu-Jiu. In this respect, it is necessary to
work with major international tour operators such as TUI, Thomson, American Express,
Thomas Cook etc.
In this area, tour operators have reported problems that sometimes occur in the
relationship between travel agencies and units of accommodation, communication between
them is sometimes flawed. Thus, there were situations in which contract rates between these
units were greater than those displayed in the reception. The result was that the price of travel
agencies was higher than its unorganized tourism accommodation (self). Therefore, tourists
who have used the services of intermediaries in the hospitality industry, once you arrive at the
reception were dissatisfied with the discrepancy between the rates.
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Therefore, objectives and strategies for promotion of tourism market "Brancusi" will
be implemented through a National Program Marketing and Promotion, which will include
actions addressing the professionals in tourism and / or potential tourists.
The program will be reviewed and adjusted periodically (preferably annually) and will
include:
• evaluation of tourism activities;
• analysis of the promotional activities;
• Analysis of tourism demand trends;
• Analysis of services and products;
• identifying new products and services can be offered successfully on the market;
• establishment costs required to implement the program;
• establish the organizational framework of realization;
• assessing the impact of the proposed program will have application on domestic and
international tourist market (number of tourists, tourism revenues).
A prerequisite for the development and implementation of the National Marketing and
Promotion of Brancusi's works is the creation of appropriate organizational framework - the
type of partnership between central and local organs of state, businesses, associations and
professional organizations, their organizational status and operation.
REFERENCE
1. Niculescu G, Strategii de promovare a produsului turistic „tripticul brâncuşian de
la Tg Jiu Conferinţa Ştiinţifică Internaţională Eco – Trend 01- nov. 2006 Târgu
Jiu,
2. Stănciulescu G., Sustainable tourism management in urban centers, Economic
Publishing House, Bucharest, 2004
3. http://www.romaniaeuropa.com/cauta.php?bibliografie=ion% 20 & free =
free
4. http://enciclopediaromaniei.ro/wiki/Jude% C5% A3ul_Gorj
5. http://www.scritube.com/economie/comert/6424181814.php
6. www.brancusi.ro
7. www.infotravel.ro
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RÂNCA RESORT - SKI AREA BEST OF CENTRAL AND EASTERN EUROPE
Enea Constanța
"Constantin Brâncuși" University of Târgu-Jiu
ABSTRACT:
Mountain tourism is one of the traditional forms of tourism in tourist affirmation of
Northern Oltenia, nationally and internationally, both through natural potential available by
the low degree of degradation of the landscape, and the efforts that have investment made
specific offer. However maintaining and expanding national and international tourist market
supply of this mountain area, in the context of trends that characterize the competing
countries require new efforts offer guidance on several important lines of action.
Rânca resort, situated at the highest altitude in the country - 1,600 meters, is the only
mountain resort in the area that offers opportunities for winter sports, featuring the best ski
area in Central and Eastern ski.
Considering the promising potential for both ski resort trail (downhill) and the crosscountry
skiing at the same time and for walking and recreation specialists are a number of
proposals for the development and sports facilities.
Proposals for modernization, consolidation and development of the resort Rânca.
Capacity of the ski slopes, and all of theam, including planning solutions and their cost and
performance stages, leading to an estimate of the total capacity of over skiers at a rate of
87,000 154,000 skiers / hour.
Key words: mountain tourism, ski area, strategy, modernization, development
1. INTRODUCTION
In our country, the mountains occupy over 36% of the country, which ranges between
Romanian geographical space defining elements of the Carpatho-Danubian-Pontic (Tigu,
2002). Framework of continuous habitation, Carpathians were imposed and the cradle of
tourism in Romania. Mountain tourism potential - represented by increases, peaks, plateaus,
glacial lakes, ski slopes and fields, valleys, gorges and other spectacular landforms - was
highly valued in some massive, while many others remained practically unused .
North Oltenia, or Oltenia under the mountain, is a special area historically and cultural
tourism has a potential exception. Located in complex domestic and international tourist
flows north - south and east - west, it has created favorable conditions for increasing tourism
activity, understood in all its amplitude. Tourist reasons deemed as relevant to assess the level
of tourism surrounding the Carpathians and the Olt to Iron Gate and allow closure of travel of
large-scale presentation area includes North Oltenia Valcea, Florida and Mehedinti.
Valcea county presents a wide geographical range, as they meet the most interesting
landscapes, followed by the densely populated valleys and depressions, housed in the hills, to
the boiler and Custura alpine glacier.
Land of mountains and hills from both sides of the Olt Valley together with the same
name are rare tourist wealth. It is due not only picturesque region, the large number of mineral
springs, ancient traditions of the inhabitants, but also achievements in large-scale
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construction, the ease of movement and linkages by focusing on one of the main ways
Carpathian. All these made Valcea is one of the first places in the country of tourism
opportunities in the various forms and with great growth prospects. Recovery high tourist
potential of the fundamental aims.
Mehedinti expansion ahead, opportunities for recreation and education of the
population by attracting domestic tourism circuit of a geographical area that can offer many
opportunities for recreation, relaxation, knowledge and health restoration and aimed derived,
obtaining favorable economic results due to a satisfactory level of tourist traffic in this respect
is putting special emphasis on fostering international tourism. Also, modeling of the natural
environment organized by specific means, the tourism industry, will reveal further valuable
elements of landscape, which gives a sense of dynamism and beauty territory.
2. CONTENTS:
Order description of the main tourist areas in Northern Oltenia is based on strict
criteria as geographical focus is on natural and human potential of the county. Landscapes and
picturesque mountain villages, caves, historical monuments, places of recreation and leisure
admirable attraction of this tourist area that runs through much of the Carpathian basin
Oltenian or alpine route penetrates deep into the Parâng and Vâlcan.
Parang mountains and high peaks of Vâlcan their stone wall marks the northern border
of the county and concentrates rich natural tourist potential, given the differences in altitude,
geological structure, the morphological complexity and the influence it exerts on other natural
components.
Basically, these massifs are attractive for tourists and allow winter sports, hiking,
mountaineering, speleology, fishing and hunting sports because of the following features:
they are easily accessible, have a network of longitudinal and transverse valleys, the passes
and gorges that favored the construction of modern roads or forest, with relatively low
altitudes.
Road transcarpathian (DN67C), crossing the ridge and leaving a clear path Parâng
meadows, mountain views, which open on one side of it, leading from the Şugag Novaci (108
km) and then Sebeş a true bridge between Oltenia and Transylvania.
Down from the high peaks of Parâng - undisturbed abode of chamois - the Alpine
Road Novaci - Şugag arrive in Rânca, alpine resort situated at 1600 m altitude. Rânca resort is
"a realm leg / a breath of heaven" as the ballad, a place with an invigorating Alpine climate,
an ideal day to forget stereotypes. Sounds like a place from another world, where nature
reigns making ourselves available, generous, its beauties. Presents some peculiarities which
gives originality, which means that is able to interest tourists amateur winter sports, climbing,
mountain hiking Mountain tourism gorjean with secular traditions, climatic conditions of
development have materialized in the three massifs: Parang Mountains, Godeanu Vâlcan and
occupying 30% of the county.
The mountain tourism potential is given by a summary of components - varied and
spectacular landforms, rivers and lakes, flora and fauna of great interest, climate, slopes and
ski areas, etc.. Due to the influence of Mediterranean climate, snow persistence is low in most
regions of North Oltenia, except for areas of northern Florida and Valcea counties where
snow remains for a period long enough, especially in resort Rânca. To better understand the
importance of the tourist area Novaci - Rânca be started from the very location of the county
in the country context and area of great tourist value of the Sub-Carpathians of Oltenia. Thus,
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north county is almost entirely occupied by two large massive - and Vâlcan Parângul - and the
small part of the massive Godeanul.
Of these Parang Mountains dominate the top of the mountain Gorj Parângu Mare, with
an altitude of 2518 m, placing them third in the Romanian Carpathians.
Novaci town situated on the river Gilort on DN67C, is distinguished by its valuable
potential that favors development of tourist activities throughout the year.
The main attraction of its elements are about 450 m altitude, sites in the foothills of
Parang, which ensures their climatic conditions in mountain areas (cool summers, with many
sunny days and low rainfall and long winters not too cold, but great abundance of
precipitation as snow that lay in layers with a thickness of 40-60 cm per year on the northern
slopes persistent about 5 months), picturesque landscape, unpolluted landscape with sedative
effects, ozone air; slopes orientation northern, heavily wooded, large farms, well off, with
houses with architecture specific to the mountain or building new utility features modern,
traditional folk elements and architectural monuments.
Established for these reasons following functions Novaci tourist city:
- Travel by transit, city and can serve as a stop for tourists in transit to Rânca or
visiting tourist circuits of the studied area: 45 km away from Targu-Jiu, 50 km from Ramnicu
Valcea and 255 km from Bucharest;
- Stay for rest, recreation, for which special conditions in both summer and winter;
- The assumptions that favor action during the summer, resulting in presentation of
village tourism potential, it adds that novacean is an important dispersion of valuable tourist
attractions to the Parang Mountains. From there roads to the resort Rânca, birth Lotru Olteţ
Valley, Cave Polovragi Muierii, slopes doll - massive Parângul Great Gâlcescu glacial lake,
etc..
From Novaci ancient shepherds settlement, settlement known today by its Nedeia by
his ballads about shepherds, variants of the ballad "Miorita" can climb to the Alpine resort
Rânca, located in Parang Mountains, located at an altitude of between 1500 m and 1700 m
In general, massive feature Parang glacier is a large extension of relief, which is
composed of a combination of increases rocky, sometimes covered by scree fields arranged
significant erratic and glacial valleys or, in some of them running through the lakes. To the
south, the landscape is diversified by the appearance of a karstic present varied through
gorges, hills, clints, steep walls, caves, which are developed mainly along the valleys Olteţ
and yellow. From a climatic mean annual temperatures of 17 degrees Celsius to 600 m
altitude and 20 degrees Celsius to over 2480 m altitude, negative values recorded from 2000
m upwards. Temperate - continental, with Mediterranean influences and low temperatures,
provide specific climatic conditions of mountain areas, such as the high peaks of the
mountains, respectively Rânca, snow sometimes falls in September and remains stable layer
until May. Average depth of snow - the period indicated - is over 50 cm, the maximum being
recorded in March.
The main rivers in the area are Gilort, Yellow and Olteţ, waters that cross the
mountainous region consists solely of crystalline rocks, cutting deep valleys wild steep slopes,
deep in which trout romp in all its glory. Parang Mountains hosts a large number of glacial
lakes in which the large and permanent water are lakes Gâlcescu, Taurus, Slăneiul, Mija and
bird. A feature of these lakes is the bridge of ice formed on them that lasts from early
November until June.
The nature of climatic conditions, diverse terrain and variety is mentioned vegetation
and fauna of this area. The presence of almost general low altitudes typical forest species -
birch, beech, coniferous (pine and spruce) is reduced with the transition to higher altitudes,
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leading to gaps alpine peaks. This area houses and hunting sea fauna species, so increasing the
area for tourism and recreational interests.
Rânca resort provides access to two-way communication, namely: DN67 Novaci -
Şugag been in pretty good condition and allows access to the resort, including winter, when
snow is quite high, and forest road Gilort valley, properly arranged for operating profile,
which leaves a 5 km link to Rânca.
Due to the tourism potential of sport and recreational area available, but also because
the technical and material of the resort has grown in recent years can see a large increase in
the number of tourists throughout the year, but particularly in winter. As the only mountain
resort in northern Oltenia, which offers winter sports opportunities in the cold season, his
attention focused on the authorities to modernize and develop them.
Climate, landforms appropriate low temperatures, together with the charm of nature
are elements convincing as possible to attract tourists eager for entertainment, recreation, and
the winter sports. In terms of facilities and sports and leisure facilities there is a single
mechanical plant to climb (elevator), conducted in an area where skiing on a trail untouched.
Also there is also a facility for children up (baby-ski).
Low temperatures recorded in this area favors the gradual melting of snow, a situation
associated with a gentle slope morphology, results in missing animals, a prerequisite for
activities related to winter sports tourism.
Among the socio-cultural and historical resources should be included and tourism
resources related to economic activity. They concern the engineering and architectural works
such as dams and water accumulated interest hydro-geological, hydro, buildings and other
economic objectives.
Rânca resort, situated at the highest altitude in the country - 1,600 meters, is the only
mountain resort in the area offering opportunities for winter sports, featuring the best ski area
in Central and Eastern ski.
Considering the promising potential for both ski resort trail (downhill) and the skiing
but also for walking and recreation specialists are a number of proposals for facilities and
sports facilities. A keen interest in resort development presented a French company Sectra
Infrastructures, which came with a set of proposed planning area for winter sports.
Proposals for modernization, consolidation and development of the resort Rânca. Capacity of
the ski slopes, and all team, including planning and cost solutions and steps to reach, leading
to an estimate of the total capacity of over 87,000 skiers at a rate of 154,000 skiers / hour.
Ski slopes (walk). In the high plateau Rânca have provided two cross country trails,
offering skiers ride a variety of exposure and landscape plans, and degrees of difficulty,
length of 10 km. From December to February can provide long routes in the bottom of the
mountain.
Necessary cable lifts (funiculars). Since cable transport problems have more special
aspects of strict professional and high level of interest they will show in further detail.
Following studies on the development of tourist resort Rânca, having as a central base lodge,
ski areas resulted to equip a total of 11 lifts and cable for people who wear a variety of types,
namely: gondola, chairlift debraiabil, chairlifts with fixed coupling, with vehicles 2 and 3
seats, lifts and bipost mono. Their location in the territory, choice of cable cars and setting
transmission capacity of each plant belong exclusively to the specialists who have made
thorough studies in the field. The proposals made in the area of analysis of the State in all
respects: relief and climate, snow cover, accommodation and food options, the main
population centers that provide clients the necessary ways and means of transport, etc.. A
special aspect of the present study is the proposal that cable installations to run in stages. To
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avoid the risk of economic inefficiency is proposed that tourist development of the area
studied and especially the lifts to be made in small steps based on findings.
To ensure access to facilities and utilities that provide reception facilities of the resort
Rânca several variants are proposed cableway:
- Gondola - Gilort Valley startup - monocable lift with closed cabin (gondola) 4 or 6
people and coupling that auto off in the stations and cable carrier - tractor. The cabins stations
are carried by a chain conveyor, the speed of 0.20 m / sec, so embarking and disembarking
passengers to be possible when walking on specially built platforms. Telegondolelor doors
close and open automatically in predetermined points (entry-exit persons). Nights and days
off are parked in the two rail stations suspended, provided with appropriate automatic or
manual switches. Gondolas are made on the platform to pick up and start automatically in line
depending on the demand for transport, but not intervals less than those established by the
project. Control system is arranged in the station of cabins and supervised training in
technical booth located in the station extension.
- Lift debraiabil - monocable lift, gondola lift especially designed on the principle that
vehicles are in the form of seats 2, 3 or 4 places. Another difference is that embarking and
disembarking passengers is otherwise so: picking up the station on track is properly arranged,
the skiers launch automatically controlled by a barrier.
- Fixed lift - lift monocable formed as vehicles with seat capacity of 2 or 3 places,
permanently coupled to the cable carrier - tractor. Operating speed about 0.2 m / sec allows
embarking and disembarking passengers while driving, the principle lifts debraiabile -
mandatory for vehicles with 3 people and recommended for those with 2 seats. The country
has numerous 2-seat vehicle lifts and cable coupling constant carrier - tractor.
Housing capacities. Of correlations that is realized in international practice between
surface and capacity harnessed ski area, on the one hand, and accommodation necessary, on
the other hand, the achieved results can accommodate, indeed, large, 70,000 places chalets,
hotels and campgrounds. Taking into account the reception capacity of the resort, the effort
and investment that in perspective, tourism demand will disperse and other winter sports
centers, which will make the country believe that Rânca resort with its satellites will be
developed to a capacity of about 1000-1200 accommodation and catering for them.
This capacity will be developed over time in relation to achieving facilities for winter
sports, and tourism demand, the economic achievements of the phase, a primary consideration
in deciding to gain further facilities of the resort. The structure of the accommodation capacity
will play an important role chalets, mountain specific.
CONCLUSIONS
Diversity of accommodation by:
- Complete offer of accommodation by building higher category accommodation (4
star, 5 star);
- Modernization and development of delivery units (chalets, cabins, motel) 2 and 3
stars for international tourism;
- Complete food supply by building new restaurants "altitude", allowing foreign
tourists dining in the ski area (resort Rânca).
Particular attention should be given to leisure activities. They should be more
extensive than in previous cases, they require numerous features, making cultural activities,
entertainment and sports complex and a body of professional animators to train tourists in
various actions and to create such a pleasant ambience. The cultural - entertainment and sports
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will follow the capitalization factors artistic and ethno - folklore, and presentation of shows
with famous artists.
In the resort Rânca will take steps to achieve sporting and recreational facilities will be
part of the facilities of the resort. In this respect it is proposed arrangement of polyfunctional
sports (tennis, volleyball, oina, natural ice rink), club library, facilities for table tennis, trout
pond, picnic places in neighboring forests (fireplaces, rain shelters, bins, banks and tables,
etc..), point of renting sports material, etc.. It is also important to follow at all times, the roads
and paths to tourist sights to be visited.
Another Rânca resort development project called "Development of Florida tourist
area" proposed to be financed from the PHARE 2001 proposes to implement the following
work:
-Rehabilitation and development of access by county road DJ 665, arrangement of
parking and highway stop on the route;
-Execution of technical equipment, consisting of sewer Rânca-Novaci Rânca-Novaci
treatment plant;
-Construcnca-Novaci;
-Construţii new and existing construction completion;
-Built information and promote regional tourism and mountain tourism;
-Station "Rescue Rânca", etc.. (According to Annexes 3, 4, 5 and 6).
REFERENCES:
1. Erdeli G. and I. Istrati, Visitor facilities - Ed Univ, Bucharest, 1996
2. Glavan V, Tourism in Romania , Economic Publishing House, Bucharest, 2000,
3. Glavan V, Tourism planning land, Ed Eden, Bucharest, 1996.
4. Stanescu I, Romanian tourism potential - Eldorado future, Ed "Paco", 2002
5. Stanciulescu G, Micu, Economy and tourism management. Problems, projects and
case studies, Bucharest, CH Beckm 2009
6.Tigu G, Alpine tourism, Ed Uranus, Bucharest, 2002
7. http://www.fpdl.ro/public/pdfs/proiect_novaci.pdf
8. http://portalnovaciranca.ro
9. http://ro.wikipedia.org/wiki/R% C3% A2nca, _Gorj
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EMPLOYMENT LAWS IN CONSTRUCTION PROJECTS: SOME EMPLOYMENT
LAWS ISSUES IN CHINA CONSTRUCTION PROJECTS
Reza Esmaeilifar
School of Housing, Building and Planning, Universiti Sains Malaysia
Cao Jinke
School of Housing, Building and Planning, Universiti Sains Malaysia
Abdelnaser Omran
School of Housing, Building and Planning, Universiti Sains Malaysia
Abdul Aziz Hussin
School of Housing, Building and Planning, Universiti Sains Malaysia
ABSTRACT
Human resources are deemed to be strategically important to organization. In the
circumstances, managers basically focus more on the pay and fringe benefits of the personnel
or on the rules and regulations related to the management of human resources to the
determine other aspects of the case. The first important step in human resources management
is recruitment and supply of manpower. If this step fails to employ job applicants with proper
qualifications, it will result in open and hidden problem. More emphasis must be put on the
applicant’s education, experience and professional expertise with respect in employment. In
this paper the main emphasis are in three sections. First, it starts as an employer that want to
hire worker, second the problem that one worker has in this atmosphere and at the end it
referred to woman lobar issues. As mentioned females have more than half of china work
zone, as result this section need more focus.
Keywords: Employment, law, Construction, Projects, China.
1. INTRODUCTION
Most of countries have enacted their own labour laws and regulations which are
according to their national characteristics. The scope of labour law application is expanding
and the labour law has been a complete and systematic legal system. To protect workers’
basic rights, the national labour law generally provides the minimum standards of working
conditions. Limited by our group members’ knowledge and information, we mainly research
the Chinese labour law in construction industry (Stephen, 2009). The Labour Law of the
People’s Republic of China was enacted on 5/7/1994. The law involved 13 chapters, 107
items. The content includes general principles, employment promotion, labour contract and
collective contract, work time and rest time, wage, labour safety and health, special protection
to women and children workers, professional training, social insurance and welfare, labour
dispute, supervision and inspection, legal liability, supplementary articles. The labour law is
the fundamental law of China; it laid the foundation for the labour legislation. According to
Stephen (2009), the guiding ideology of the labour law is:
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1) To reflect the constitutional principles and protect labour’s rights;
2) To improve the development of productivity;
3) To provide an uniform basic criterion and standard;
4) Insist on the national conditions and act on international practice as far as possible.
The economy of china had very significant changes in recent years, especially in
construction section. The china is large country with many sovereign and distinct sections.
There are main differences among areas. This paper concentrates on employment law in
mainland of china construction project. Broadly speaking, all companies before contract will
check the costumes position and also customers before giving contract to a firm. According
to some law and rule a company proceed to employ lobar and hire them. This law and
method that firms use for hiring new workforces have direct effect on company, government
and society. The world is on a fast lane tending towards a global village, creating a massive
migration of expertise from less privileged countries to highly privileged countries. But in this
case we speak about china, a country with huge population and with the most massive
workforce in world. All method is changed for this country. The china has cheapest workforce
because of this huge population that has but main point here is workers. The biggest
challenges for employers in china is to have found decent lobar and who has skilled. The
other point is after hiring these workers what happened to them. How the employers arrange.
It would be better to say, how the condition will designed for them that they can work, and the
efficiency approach to the peak of itself. In fact, provide the space that workers can work is
important for bout side. At first glance of this part we pay to this importance that is the
workers in good condition or not, as important part this paper will give a general view of this
situation. In next part, our focus will in woman lobar as biggest part of worker in china. At
first in this part an overall view given, and in next section it reviewed that they have more
problem than male workers in china. It tried to give best effect of this problem on employers
and country. Finally, in the last part tips are mentioned that can be useful for correcting,
improving and solving this problem in employment law in construction project of china. The
Labour Contract Law of People’s Republic of China was enacted on 29/6/2007 and was
formally implemented on 1/01/2008. This law usually is called the new labour law. The new
labour law improved the system of labour contract, and it is the main object of study in this
paper.
2. RESEARCH OBJECTIVES
The current case study is aimed to determine method strategy for employment of
construction industry in china. To achieve this aim, the following objectives were proposed:
1) To identify employment problem in china
2) To identify china construction labours
3) To identify the problem of wage arrears for migrant rural workers
4) To identify the problem after labour’s employment or recruitment
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3. SIGNIFICANCE OF THE STUDY
The identification of the type of problem in employment law of construction project
that can be useful for construction Company and must use in projects, it is the main point of
this case study. First step is identifying working base in china and recognizing Chinese
workers. In the other world in this case study it tried to give overview of china construction
industry atmosphere, and for next step it tried to have good review of the problem in this case.
It would be better to say the construction of this paper was on some port of problem in
employment law problem in construction industry. The recognizing more china contractors
and workers and how they work also their objectives it could be on next level for this case.
This paper tries to answer to four main questions:
What kinds of problem are happened in china employment law?
What kind of worker work in construction industry in china?
Are these problem finished by employing workers?
How this problem in employment law can solved?
4. RESEARCH METHODOLOGY
All the data were basically collected from one source only; secondary sources. The
secondary data about china were collected through the literary sources that collected in
websites and articles related to employment problems in China. Some part of the data around
employment problem in construction industry, workers and general information about this
section emerge from personal information about china. The case study is limited to the
purview of the websites and china construction industry articles, but there is no access to real
Chinese contractors for asking questions or questionnaire. The provided data and information
about china and china’s company information was just based on data obtained and found on
the websites and other personal published data.
5. BACKGROUND OF STUDY
Construction company must, according to the law on construction, includes all
financial institutions that execute construction and the sub-activities, such as sites or ground
investigation, design, installation, construction, material, tools supply organization and
employees. In China, however, it is generally accepted that worker must be resident in china.
Construction companies can implement these different work or and other option that operate
in this case (employ manpower) is, they may be use other a construction firm, installation
firm, engineering firm or engineering department manpower or equipment. Essentially, the
existing state owned or collective construction power in China was shaped in the 1950’s by
altering the private contractors who been prior to 1949. For frankly speaking, china
government changed eight army section and sent them to number of construction enterprises,
in fact they sent for undertaking the construction projects and for riding this sector in right
way, it would be better to say for the economic development of program in august 1952.
Basically, this behaviour of china government was the fresh start, on the other world it was
turning point. During this period of time almost one million construction labours come from
the periphery to the cities (from rural to the inland - southwest and northwest China) to be in
the construction projects. This work continued in those decades. The ‘third-frontier project’
was the name that called and rebuilds the national economy geographically was objective.
The current china construction industry is prepared of eight distinct sorts of construction
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institutions in terms of acquisition. They are counted such as urban and rural collectives,
private firms, joint venture, Hong Kong, Macao and Taiwan contractors. The
construction work force other than the above seven types is devoted to as other companies.
The numbers of each type of company are shown in (Table 1).
Table 1. Number of construction companies by type of ownership
With a closer look at the high points, its vivid this is unbalanced with this growing
movement and on the other side with the fast pace of construction, obvious law and regulation
are needed in employment. These sections need more attention from bout side (employers
and employees). Arranging and give to the construction industry decent and enough work
forces is an importance. In other word, employment who and how behaviour with them is not
just important in construction, it’s the main point in economy and industry. In our case the
contract become more important for bout side. The new labour contract law is a social law. It
focuses on solving the problems in real labour relations. Such as the employers don/t sign
labour contracts, don’t pay wages, and use short-term contracts to injure workers’ interests.
Therefore, to build a harmonious and stable labour relation, the purpose of the “Labour
Contact Law” is located in the tilt to the employees. This “tilt”, enhances the employers’
awareness of using workers in law and raises the rate of signing labour contract. At the same
time, it also increases the cost of production and causes some impact to the enterprises,
especially to the construction enterprises. Construction industry is a labour-intensive industry.
The features of the employment are large number, high mobility, dispersion and stage. These
features result in larger impact to the construction enterprises. With the operation of the new
“Labour Contract Law”, the whole construction industry faces a series of new problems.
6. PROBLEM STATEMENT
These problems in construction industry in china can divided such as:
1) Non-standard employment, low rate of signing labour contracts
2) Don’t pay social insurance for their employees or only pay part of it
3) The problem of wage arrears for migrant rural workers still exists
4) The execution of the labour contract law is still incomplete
5) The problem after hiring labours.
A research shows that there are three main components of construction enterprises
employees. The first one is the “own workers”, who generally signed a standard contract. But
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with the separation of the management and operation, the proportion of such person in the
construction employment is getting smaller and smaller. The second one is the technicians of
sub-contractors. After the qualification of construction enterprises repositioned in 2001, many
construction enterprises work as sub-contractors. They are independent corporate entities and
they service labour subcontracting for the general contractor. There are only 30% workers in
these companies signing contract. They are usually the technicians. The third one is the rural
migrant workers who are subordinates to the “labour contractor”. They accounted for more
than 70% of the total number of workers in construction industry. But basically, they don’t
sign labour contracts. The most problems occur in the “70%”.
6.1. UNSTANDARDIZED EMPLOYMENT AND LOW RATE CONTRACT
LABOUR
Labour contract is the maintenance worker and enterprise of labour relations, is the
important content of the worker labour rights. However, according to the survey, most
enterprise construction group is not with migrant workers sign labour contract, or to sign lab
our service contract instead of labour contract, some just oral agreement. Some construction
group in order to deal with the department concerned, they sign labour contract by
themselves, of course, and the workers don’t know anything about the contract. Moreover,
engineering project contracting units just responsible for the progress of the projects, safety,
and engineering quality, and they haven’t management responsibility of construction group
personnel. Because of the migrant workers are neglected and the relationship is not standard.
So migrant workers legal rights are not effectively guarantee.
6.2. DID NOT PRESS FORMULARY PAY SOCIAL INSURANCE FOR THE
EMPLOYEES OR ONLY PART OF PAY
Due to Social insurance system and implementing regulations and some problems are
influence of labour contract signing. At present, most of the construction enterprise to use a
large number of migrant workers, but they didn’t help them follow formulary pay society
insurance or pay only part. On the other side, because of the social insurance can't transregional
transferring, and migrant workers scare will affect current wage income or surrender
formalities multifarious and other reasons, they choice give up it. Finally, some labourintensive
enterprise and small profit-making enterprise believes that the current social
insurance rates on the high side, beyond the enterprise bear ability.
6.3 THE EMPLOYERS DEFAULT MIGRANT WORKERS’ WAGE IS
COMMON
So the payment does not reach the designated position, enterprise flow capital
insufficiency, the low price win the bidding and so on, that the construction enterprise can’t
pay wages on time or pay full , some default on time for a year or more.
6.4 INCOMPLETENESS OF EXECUTION OF LABOUR CONTRACT LAW
The “Labour Contract Law” has a lot of problem, the term between announcement
date and enforcement date is too short (29/6/2007-1/1/2008), and there is no trial period. So it
makes the enterprises lose their head and oppose it. In their opinion, some workers job-hop
unauthorized or obey job arrangement, this impact the company’s product, but the law less
restrain workers in this area. The law tends to labour unilaterally; the company can’t layoff
the workers easily and this cause difficulty in the management.
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6.5 THE PROBLEM AFTER HIRING LABOURS
Specifically these problems are related to employment of worker and their conditions
after hiring. The problems and issues are started by neglect of contractor after employ labour.
7. EMPLOYMENT IN THE CONSTRUCTION INDUSTRY IN CHINA
7.1 THE ENTERPRISES ALSO WANT TO STANDARDIZE EMPLOYMENT
The purpose of “Labour Contract Law” is building a harmonious and stable labour
relation. The contract between employee and employer is a legal constraint to them. But to
this constraint, enterprises and workers have their own concerns. For migrant workers, they
usually come from rural, and the most concerned about for them is how much money they can
get every month and can they get the wages on time. If they sign a labour contract, the
company must buy social insurance for workers, and the workers also need to spend 10% of
their wages to pay for the insurance. Both of them are unwillingness for the cost. If the worker
jumped to other company, he can only take away the part which contributed by himself in the
insurance and the process is very complex. (The part contributed by the company was taken
by the country). The feature of migrant workers is liquidity; most of them work in the same
place no more than one year. The contract may impact the company adjust the number of
workers in process of the project (This process changes quickly and is unforeseeable). This
will impact the construction progress (managers can not increase workers in the peak) and add
cost of the enterprises (managers can not decrease workers in low-peak period). And the
inflexible contract will also reduce workers’ wages, because in the low-peak period, they can
only get a little basic wages and can’t find other job due to the locked contract. So both of
workers and companies are unwilling to sign contract according to law.
7.1.1 NUMBERS EMPLOYED AND DISTRIBUTION OF WORKERS
This part is included all labour in construction section (rural and urban). According to
the latest estimate 34 million people worked in construction section in china during 1999, in
fact almost 5% of the total population of workers in china work in construction industry.
Table 2. Total workforce and construction workforce
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At first glance on Table (2), it is shown that how this labour were distributed among
public companies, urban cooperative and rural cooperative. In Table (3) employment in
private companies in the urban zones shown. The chart shows that employment in the
private area, despite this progress, after compering to total it’s still a small piece.
Table 3. employment in privately-owned urban enterprise
The statistical information that shown in these 2 two in above are related to the
construction employees in some type of employment. But like other countries in china also
there is a casual subdivision in construction industry. In this category village people or rural
can be who build houses for themselves or other aim with take help from relatives or other
local residents (with employing normal people). It has shown in table 2 and 8 that there are
diminish of labour in casual constriction section and it obvious if pay attention to these to
table, as result it shown in table 1. It would be better to say casual workers move to the
official constriction section. The volume of this employment is estimated at 5.8 million which
is almost 2 per cent of the whole construction workers.
7.2 THE ENTERPRISES ARE ALSO THE DISADVANTAGE GROUP
The contractor undertakes the project from the developer, and employs workers to
build it. Contractor is the link in construction project, but they are also under the pressure of
both sides. To workers, they are managers, sounds like they are at the advantage status.
Actually, there are some problems such as arrears of wages. But they have their own troubles.
The root cause of the problems is the developer defaulting on construction costs. In today’s
construction environment, the developer usually requires the contractor enterprise to fill up
money in the project. In this situation, if the developer can’t pay the project money on time,
some big contractor may not owe the wages of migrant workers, but other small and mediumsized
enterprises can’t afford it. They are not willing to owe the wage, but the companies
don’t have enough liquid capital. So we must solve the construction costs first, and then we
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can root out the problem of arrears of wages. But how can we solve this problem? I think we
can focus on it more than signing a labour contract. Only the Labour Contract Law can’t solve
this.
7.3 IT IS DIFFICULT TO ENFORCE THE “LABOUR CONTRACT LAW”
STRICTLY IN CONSTRUCTION INDUSTRY
Firstly, in the construction industry, the signing of labour contract is according to the
project. The features of construction project are short-term, flexibility and seasonality; these
features determine that it is difficult to enforce the “Labour Contract Law” strictly, especially
in the north. The northern winter lasts a long term and it can’t start construction. A manager
said:” if I sign a strict labour contract with workers, in the winter, there is no construction and
I have to pay the wages for them, I would loss.” This is the fact, who can afford the additional
expenses? The purpose of the law is to protect the interests of workers, but it must also
consider the capacity of enterprises. An enterprise must gain profit first, and then it can afford
workers’ wages and get sustainable development. Furthermore, there is a big difference
between the labour market price and the standard labour quota price. A normal worker’s quota
price is 64 RMB (Chinese Yuan, the exchange rate to RM is 2:1) everyday, but the market
price is more than 120 RMB. (This is the data of Shandong Province in 2010). The market
price is nearly twice more than the quota price and the gap is 56 RMB. But the total wages of
the project is fixed and limited. To balance the gap, the enterprise has to lengthen the work
time or increase the task in unit time. So in the construction site, working overtime is
universal. If the enterprises pay overtime wage according to the “Labour Contract Law”, most
of them may loss.
7.3.1 PERMANENT VERSUS TEMPORARY WORKERS
Local or central government choose the manager of construction companies before
1984. The labour bureau recruited all staffs and workers. .” Once employed the staff and
labour would gain a permanent employment status called “fixed worker”. Nobody could
dismiss them unless they committed a crime”. (The construction industry in chana/ lu you-jie
and pual w.fox) Nevertheless, on 18 September in a decree distributed , 1984 the State
Assembly (the central government of China) essential to stop recruited of “fixed worker”.
The instrument is titled “Tentative provisions for construction industry and capital investment
administration system reform [1984] No.123”. According to this public and private
construction section must reduce their “fix workers” in future. Principally they will not
employment “fix workers” except if it be essentially for keep the enterprise technically
operational with hiring skilled workers. While the, they have to enter into hiring for a limited
number of years. Table (4) shows the number of workers in the economy as a whole, and the
number of construction workers, who have more or less permanent employment status. They
enter into contract of employment with the employing enterprises for a certain period
of time and 31 regularly renew it, usually at an interval of three years. They are in
effect permanent employees. The construction workers in this category include
administrative, professional, technical and clerical staff. Workers who have been retrenched
and are now working for their previous employers on a temporary basis are not included.
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Table 4. total permanent workforce and permanent construction workforce
The contractors prefer use temporary labour because they don’t need contract or
insurance. On other word temporary workers are cheaper than permanent, also for permanent
worker contractor have to pay money even the days he don’t work.
7.4 CONSTRUCTION LABOUR BASES
As we know a lot of workforces in china come out of rural part of china, the people
who are cheapest lobar for contractor to use. These days it become more difficult for
contractor to fine cheap worker in urban but this rural worker, it would be better this villages
people, are good opportunity for contractor and manager to bring the cast down with hire
them. In fact contractor with hiring these workers that often don’t have sufficient skill in
construction, contractor and project are relying on rural workforce. The contractor can
answer to there need in hiring worker by using these workers. However, the lack of skill and
experience of these workers cannot change fast and these rural building lobar need time to get
use to the modernized activity in big cities of china. Sending rural workers to the urban areas
for improving their skill become formalised among village council and other small cities
government. The labour-sending administrations and the labour-receiving administrations
to the main cities that want a great treatment of construction worker have go to
agreements on teaching and recruit of the rural worker since 1989 in china. The largest
amount of lobar that used in china during these they are like this. After this we say “The
Construction Labour Bases” to them. The overall view of china in construction workforce
employed is shown in (Table 5).
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Table 5. breakdown of incoming construction labour force employed in china
7.4.1 INCOMING CONSTRUCTION FORCE ADMINISTRATION OFFICES
Whit increasing population in rural, a massive number of labour will be population
focus on village. Add in the rural population is cause for migration of people to urban and
other developed areas. As result, the majority of them are employed by urban construction
company for participating in project. Nevertheless, the big parts of them are not satisfactorily
educated, skilled and trained. On the other side, some of them even bring some turbulence to
the cities. In other view of this issue some construction firms get advantage from lack of
information of payment of workers and other employment terms, and they pay them less
than have to paid. For control this part and have good monitoring on the rural people that
come to urban for work, the municipal construction commissions have establish an office, that
called incoming construction force administration office. It’s in charge for having control and
office applications of the construction labour force that come from outside of urban to cities
for finding jobs. In addition they have to be registered and licensed by this office. One of the
most important jobs of this office is training these workers and teaches them skill.
7.5 TERMS AND CONDITIONS OF WORK IN THE CONSTRUCTION
SECTOR
In majority of countries, the construction industry have has a special attraction for
young people who are interested to working in urban part. As we know construction is include
3D jobs, the jobs that have more difficulty, dirty and dangerous part. There is good definition
in this case around people that can be useful for recognizing this part in china as well as
possible, young people how come out of villages and rural areas for finding job in urban and
be employed, it’s the only way for them to going out of hard life and to get rid of poverty and
finding better life. A lot of them came to construction project and earn money after that they
back to rural and have investment in agriculture, this is the cause of coming a lot of rural
young people to urban for work. They need many for a starting a better life, it would be better
to say they need better life. The average annual pay for construction personnel in SOEs and
urban collectives is shown in (Table 6). Nevertheless, the annual salaries of permanent
labours are more them temporary labours, particularly who come from village and rural parts,
its back to contractors and sub-contractors who their employees. These workers are not
received the payment until the end of year. The contractors pay to these workers with
payment to bank account of workers during labours work for them, hardly adequate to
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protection food and other daily costs. This payment has main connection to the late payment
from projects owners to the contractors. The main thing here is, only contractor who bring the
rural people to urban for work and have them under control use the payment that must paid
timely. According to a survey, without holidays, rural workers work more than 10 hours in a
day, on average, they don’t have good salary. Majority of the rural workers do not pay decent
for food. They eat simple food; don’t spend on meals a day more than 5 Yuan. Majority of
workers save money to buy or rent house. For saving money they make ready their own
kitchens and cook themselves. The kitchens are armed and kept in bad situation. They
complain to the employing firms to prepare better terms and conditions of job (The
construction industry in china/ lu you-jie).
Table 6. Average annual payments to construction personnel at end of year (Yuan)
Some parts of these complaints have been answered. For example, the pay rates to
construction labours are imposed regulation by host government. The administration
published standard pay rate to keep workers informed how much contractors must pay to
them. Works in construction industry from place to place have varied terms and conditions.
Generally, they will be much better in big cities than in small cities and small areas. Just the
payment in big cities is cause for workers for going to these cities for work, however there is
no big different among cities, it would be better to say the payment in big cities is more
higher.
CONCLUSIONS
Undoubtedly,” Labour contract law" conducive to the protecting labourers’ rights and
interests, but from the executive situation in building industry, how to establish a rational and
scientific labour contract law system is still a major issue. Labour contract system should be
more feasible and universality, get rid of law enforcement law-abiding embarrassed, mainly
lies in the way the perfection of the law itself. The circumstances of job have been seriously
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improved during these years. The construction companies to compete for further progress
needed them to have sufficient and enough skilled workers. As result they are forced to hire
domestic workers from the margins of cities or rural part who came to urban for fining job. In
other side, these workers need decent condition for work, and preparing this condition is firm
job. The company is responsible to prepare good situation of life and living for their workers.
Such as amusement facilities such as reading room, table tennis, TV room and etc. For the
first part one of the solution methods can be on government hand. Administrations can play a
basic character in this section by having good monitoring. The government can establish
office and with recognizing workers who come out of rural to urban for work arrange and
manage this part. On other side government with giving awareness to worker about their
salary and wage can stop the violation of the workers right. Some kinds of office that do this
important already work in china. In addition this office also can play other character such as
teaching workers, it would be better to say giving workers skill. As written in above one of
the biggest problem in china is having a lot unskilled labours. A big part of rural workers that
came to urban for finding job or work are working in construction section. The construction
industry of china is the most sensitive part and on normal mistake can have very massive
result. It is important and necessary for this section to have enough and sufficient labour.
They need teach worker before using them, it better the worker have this skill. Company can
save money and time if this part improved and going in right way. Finally, these workers who
came from rural part need at least some requirement for living as worker for company. The
workers that work in construction, they work most of times day, and their job are include 3D
job. They need good food, resting room and entertainment for continuing this job. If company
cannot prepare this workers requirement, definitely have bad side effect on their works.
RECOMMENDATIONS
The problem above seems that all construction enterprises’ don’t want to obey the law.
However, the problem is not so simple. In fact, the enterprises have their own difficulties.
There are many problems in the execution of Labour Contract Law in construction industry.
The execution of “Labour Contract Law” in construction industry meets a lot of problems,
which is everyone who works in construction industry and legal profession doesn’t want to
see. If a law is not universal, it is bound to lose the significance. The problems have existed,
then the words to explain it is unmeaning. The top priority is solving it. The legislator should
thoroughly consult wide range of views from various parties to improve it as soon as possible
to make it applicable in various industries.
1). Legislators should modify and improve the “Labour Contract Law”
2). Give the construction industry more support policies or legislate for the construction
industry separately.
3)’ Construction enterprises should adapt to the “Labour Contract Law” as soon as possible.
Construction industry is a low-profit industry. The profit margin is very low. If the
government adds extra pressure to the enterprise, it will make the enterprise overloaded and
even go bankrupt. The construction industry is a labour-intensive industry; it doesn’t have the
advantage of capital-intensive, management-intensive and technology-intensive. Because of
the special circumstances, the government should give construction industry more supportive
policies. Without these policies, the strict execution of the “Labour Contract Law” in
construction industry is very difficult. One of the most important thing in this case back to
the government monitoring, it would be better to say generally, the government control on
this case have to increase. The private sector and contractors must know if they do something
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wrong or do fault, they have to answer to government and maybe pay compensation.
Construction industry is one of the pillar industries. It solves the employment problem and
creates lots of GDP. Enforce an unsuitable law in construction industry will lead to bad
consequence. More than 60% enterprises may go bankrupt and a mass of unemployed people
would pose a threat to social stability. On the government guidance, the policy to construction
is unclear and inadequate. So we appeal for the separate law in construction industry. With
this law, the construction enterprises can have a good development environment, both in
domestic and international environment. In construction industry, it is a fact that the “Labour
Contract Law” faces a lot of problem, but the enterprises should consider more about how to
solve the problem by them and adapt to the new law to minimize the risks. First of all,
enhance the management of labour contract and improve the employment system. There are a
lot of construction workers, so condition is complicated, therefore have to carefully treat it.
But the staff members and was sent to construction site, the construction enterprise shall sign
labour contract with these staff; And the other related personnel, such as construction team
leader, construction team members, and whether to sign labour contracts, should be depending
on the concrete circumstances, of course, if the above personnel is indeed building enterprise
employees, that ought to sign labour contract with them, to establish an employment
relationship. However, if they are not belong to enterprise internal employees, but they are
employed by construction formation, and do not belong to labour relations; there is no need to
sign labour contract. Actually, labour service cooperation relationship is a fact, so the
construction enterprise shall be signed the subcontractors corresponding agreement that
prevent the labour relationship is recognized for labour relations and brought the legal risk.
Finally, for a lot of construction labour force, it should as far as possible through the services
company, use of labour contract law provisions of the labour dispatching system so that the
company's risk to the minimum. Secondly, the construction enterprise should to complete
social insurance system as soon as possible. Construction enterprises and the relevant
departments had better research the suitable endowment insurance measures to characteristics
of the migrant workers , and should be following the "low rates and wider coverage, but can
transfer, and can connected with nowadays endowment insurance system " principle,
Moreover, should be according to the stability of farmer workers' employment and income
level, and the differences between different cases , and then make can be in city endowment
insurance, rural endowment insurance and migrant workers endowment insurance , choose the
ginseng of policy from among. At the same time, research and develop the national unified
social insurance concern to transferring, convenient labourer cross-regional employment.
REFERENCES
1. http://www.fabang.com/a/20110926/446340.html
2. Lu, Y.J., & Pual, W.F., (2001). The construction industry in china. International
Labour Office Geneva
3. www.Wikipedia.com
4. Ronald, C.B.. (2007). Understanding Labor and Employment Law in China.
Cambridge University Press. 978-0-521-19148-7
5. Yu, F.C. (2009). China's new Labour Contract Law. China Economic Review, 20
558–572
6. Logics of Action, Globalization, and Employment
7. Stephen, F. (2009). Relations Change in China.
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THE SITUATION OF SMALL AND MEDIUM ENTERPRISES IN ALBANIA
Aida Gabeta,
University “Fan S. Noli”, Korca, Albania
Esmeralda Polena,
University “Fan S. Noli, Korca, Albania
Eva Dhimitri,
University “Fan S. Noli”, Korca, Albania
ABSTRACT
The progress of small business is a key factor in regional development of the country.
The small business is the vertebral column (spine) of trade economy and for the economies in
transition. Although with realized progress, it has to be emphasized that the business climate
in Albania still reflects problems which are related with the controlling setting, informality
range, corruption etc. The main problems such as barriers and mortality, limited innovations
generators etc. influence very much in a business. Dishonest competition, high taxes,
inflation, economic crisis and other factors have made that many of small businesses in
Albania (the region of Korca) to run to closing. The performance in the small businesses is
important in order to help these enterprises to fulfill their roles in the economy as a whole.
One of these crucial factors is the implications for the use of strategic management in SMEs.
Do SMEs need to develop a strategic plan? There is considerable debate about application of
strategy in small businesses, but the positive impacts of strategy on a firm’s performance
cannot be ignored. Company strategies required for SMEs to grow and be successful could be
based either upon technological or commercial innovation, or on a focused niche strategy
with a differentiated product of services. Even if implementing these strategies, any growing
company with face several problems as it proceeds through different phases of its life cycle;
they can, however, still be considered powerful tools in managing the firm successfully in a
competitive landscape. This study is based on the results of surveillance for recognition of the
problems of small businesses in the region of Korca. In this surveillance were included 240
small businesses, constituting 10% of total small businesses in Korca. For data management,
adopted a hybrid analysis combining qualitative and quantitative methods.
Keywords: small business, problems, causes of bankruptcy, climate, region
INTRODUCTION
The small business is a business which usually is created in private property and as
such one operating with a small number of laborers and annual circulation relatively small
sales. The small business is the place where the individual (creator, motivator) uses his own
talents or experiences. In addition the small businesses usually are presented in the individual
form of the dealer, Sh.P.K. (Ltd. Co.) partnership etc. Small business also, can be classified
basing on other criteria such as: sales, profile, participation in market etc.
Furthermore, the small business presents a key factor in the progress of a country. Its
importance is seen in different economic aspects starting from the fulfillment of need for
products and goods, employment which further more brings other effects that influence in
increase of population’s incomes and in the cyclic mode, further increase (growth) and
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development of businesses in general. For this reason there are with great importance the
factors which influence which are motivating or presenting as the instigator for small business
opening, respectively the initiatives that influence for starting of new affair activity.
Some of the characteristics of successful entrepreneurs are:
1) Motivation
Successful entrepreneurs are extremely self-motivated and enthusiastic. Determination to
succeed is vital for the success of any business.
2) Flexibility and innovation
Successful entrepreneurs are creative and have dreams and goals. They are flexible, listen to
their customers and adapt to meet those needs.
3) Risk takers
Successful entrepreneurs are able to determine the level of risk and have the courage to take
risks. They are aware and accept that their decisions may have positive or negative outcomes.
4) Proactive leader
Successful entrepreneurs like challenge, enjoy competing with others, do not wait for the
future with ideal condition to react and they seek out, evaluate and act on professional advice.
5) Planning and organizing
Successful entrepreneurs are good planners and organizers. The business world is too
complex for the sloppy or disorganized to succeed for any length of time.
6) Previous experience
Prior experience in starting a business is one of the top characteristics shared by successful
entrepreneurs. They also have good business sense and make decisions based on a realistic
appraisal of their business and the marketplace.
7) Technical knowledge
Successful entrepreneurs have managerial and technical knowledge of their business. They
know how to manage the business and have the balance of skills required for running the
business.
8) Hard workers
Successful entrepreneurs have a high level of energy and are hardworking people who are
willing to stick with their business.
9) Self-starters
Entrepreneurs are self-motivated people who begin projects on their own.
10) Personal financial resources
The majority of new ventures are still launched on the strength of the entrepreneur’s personal
financial resources.
THE ROLE OF SMALL BUSINESS IN ECONOMY
The small business contributes in employment growth in a higher scale than big
business. It is the vertebral column (spine) of the market economy and economy in transition.
The business produces for the internal market using mainly the national resources.
The displacement from the ex-state big enterprises in smaller enterprises and private
firms increase the numbers of owners with an engagement of a larger responsibility. The
increased number of small businesses brings proper flexibility for the society and economy.
The small business uses and develops especially the internal technology and capacities. The
progress of small business is a key factor in regional development of the country.
In most of the cases the small businesses operate in one of the three following fields:
a. Easy processing and Construction.
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b. Trading (wholesale trade and retail trade)
c. Small firms that operates in services’ sector.
The necessity of the strategic plan for a small business
The performance in the small businesses is important in order to help these enterprises
to fulfill their roles in the economy as a whole. One of these crucial factors is the implications
for the use of strategic management in SMEs. Do SMEs need to develop a strategic plan?
There is considerable debate about application of strategy in small businesses, but the positive
impacts of strategy on a firm’s performance cannot be ignored. Company strategies required
for SMEs to grow and be successful could be based either upon technological or commercial
innovation, or on a focused niche strategy with a differentiated product of services. Even if
implementing these strategies, any growing company with face several problems as it
proceeds through different phases of its life cycle; they can, however, still be considered
powerful tools in managing the firm successfully in a competitive landscape.
THE BUSINESS’ CLIMATE
During the last years the contribution of the private sector is estimated about 80% of
PBB (Internal Gross Product) and in employment at about 67% of total number of the
employees. 99% of the active enterprises are with Albanian capital and lesser than 1% are
with joint capital or entirely alien, in which are employed about 13% of all employees.
The number with state capital is only 0,5% and in them there are employed about 20%
of all of the employees.
According to the records of INSTAT (Institute of Statistics’ Study) the number of
private subjects reached at 77,814 persons, which makes up an increase (growth) of 20%
compared with previous years.
Although with realized progress, it has to be emphasized that the business climate in
Albania still reflects problems which are related with the controlling setting, informality
range, corruption etc.
Albania, during the years of transition has built up a broad frame of laws and
regulations in order to make possible business functioning in a country that is developed
continuously towards an opened and competitive economy.
Prior to mention some problems and issues which has resulted from the practice of
application and impact of these laws, let’s mention in brief the orientations of legislative
developments during this period.
In Albania are ordered by law the sphere of commercial registration, that one for
trading companies, licensing, privatization, competition, state assistance, financing and
insurances, intellectual proprietorship, real estates, bankruptcy, fees and taxes setting,
relationships of work trade, administrative procedures and a rank of other adjustments which
are in working evolving process
In experience to date, on the basis of a rank of results and practices of functioning, the
Albanian government has made possible to reconsider and improve some aspects of this
setting, especially it will reconsider those questions which are related with the application of
MSA agreement.
Also, the Albanian Government in frame of plan for struggle towards informality and
corruption is in the process of a dynamic improvement of this frame, especially in the
function of facilities of administrative barriers, business registration, taxing stratus that after
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all they will grow the scale of credibility of foreign ad native investors, for legal transparency
and honest competition in market.
The government has undertaken a comprehensive regulating reform which makes up a
dynamic all-embracing program to creating a regulating attractive medium for new
investments, native and foreign. This reform is lead from the achievements of European
Union standards, as a promoter of all Albanian institutions in the challenges of economic
integration.
THE PROBLEMS OF SMALL ENTERPRISES
Opening of a new business presents a severe fight of competition; barriers in each
side. The main problems of those businesses are: the high scale of “Mortality”, poor
management, weak financial ratios, non-planning and long-term bureaucratic procedures.
According to market’s investigators, small businesses are especially sensitive towards the
inflation influence, interest’s scale level, capital providing, management setting as well as the
governmental rules.
Barriers and “Mortality”
The experts of problematic issues say that there exist a lot of barriers that are skipped,
where the owners of small enterprises are captured. Experience missing, mistaken location,
money lack, incorrect leading (management) with reserves, excessive engagement of capital
in financial means and un-planning expansion, are a fragment of barriers in which the small
businesses fall down.
“The Mortality” among the small newer enterprises is very high. “The Mortality” scale
is very high in the small enterprises. Their existence is grown with their age; so regardless of
size, that is why according to the economists, the most critical years of small firms, in
principle are the first years. Investigations of the last year of economic institutions have
testified that only 25% of small businesses succeed to stand strongly on their feet during the
first ten years of their foundation. The scale of their existence after five years of their business
foundation is 40%, while in the first year the scale is 81% of new businesses.
Limited Innovations
The recognized characteristics of small businesses are innovations. Thus, the small
enterprises often are source of materials, processes, ideas, services and products, while the big
enterprises hesitate to provide it. The small enterprises are obliged to be innovative in order
to provide the market competition. However, the science, technology and innovation (SHTI),
as the developing factors in competitive economies, based on the knowledge, in our country
are marginalized, and in a smaller value determined by BPV. As a result of this, the
innovative capacity of NMV is very limited.
One of the causes of this, is the sufficient failure of communication between the
universities and economy, while there exist as well as the consciousness’ failure for the
utilization of SHTI for the increase of competition from the sector of small and medium
enterprises. Thus, there isn’t rescued capital for innovative activities of undertakers, don’t
exist financial stimulations and facilities for investment in new technologies and in
innovations, even don’t exist nor the institutions of assistance of NMV in the sphere of
technologies and innovations.
Generators
Today, in world there is the opinion that the development (progress) of small and
medium businesses and the undertaking support can be an excellent absorber in the conditions
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of high unemployment and precisely this sector is one of the boosters that can create new
work-places, because the gigantic corporations already now have reached suboptimal and they
can’t hire new employees.
In our country, there is the opinion that there are a sufficient number of registered
enterprises and undertakers, thus it has to work still in the programs that lead to the direction
(orientation) of generation of small and big enterprises, because they are the fundamental
“engines” of each economy.
THE CAUSES OF BANKRUPTCY
Based on the performed studies, more emphasized is the business type that bankrupt
more often is the small business. The most part of small businesses everywhere in the world
bankrupt within 5 years. Fewer are those businesses which have a continuity of business after
these years.
Many analysts propound the main issues that when a business bankrupts, and among them
will mention:
1. In most cases, the new businesses don’t renovate their offer.
We intend with this, that they continue to offer (supply) to the public the same good, although
the change of technology and computers’ evolution make possible the renovation of taste and
consumers’ demand.
2. The great credibility in that they trade, ignoring the opinion of others.
Most of the businessmen are very optimistic and more or less they don’t want to think if the
opinion of their competitors is good or bad. They believe at the product, they sale that
possesses all the necessary qualities. It is important to follow-up two main lines for not to
leave the business and its clientele to fall down. At first, the adherence of the instincts, and
secondly, moving in a better line than the competitors. (Both of these helps that the business
to make progress in time and to deal goods which are preferable from the actual consumers).
3. The slight of financial position that can be caused to a company in e defined moment.
In a fixed moment can happen that the sales for this company to be reduced and the
businessmen still continue to think that it is a moment crisis. If, it isn’t made a market study,
consumers’ taste and many other as these, it will happen that your clientele will catch (take)
by another your competitor that offers this product, better or cheaper. There are many factors
that influence in clientele reduction and the profits of company. Being that the firm wants to
have the same profit they hike the prices for the reason that the number of the consumers is
reduced in the market beside with their business opening. This is another reason that leads the
firm in the lost of the most part of its clientele, and surely in a total bankruptcy of the firm.
4. Nomination in Leading Position of Incapable Persons to Managing.
The greatest attention when you hire somebody to manage your company must be
concentrated in three main issues:
- This worker wants to make his/her own job.
- He/she knows how to do the job.
- He/she likes to work with you.
In general, the companies which hire capable workers and ready to face every kind of
situation howsoever difficult to be for the company, they don’t face frequently with
bankrupting situations, even in difficult moments they pass successfully these issues.
5. Analyzing of Consumers’ Taste.
It happens in a moment that the clientele to be removed. The first necessary thing is to be
analyzed why your good isn’t liked? What is new in the market? Which are the articles
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(issues) that make the competitor’s good more preferable etc.? Public’s interviewing through
questionnaires on that what they would like more and better to be dealt (marketed), new
product’s test in public and so on.
6. The employment of Individuals who are capable do things that you haven’t chance to
do, don’t know to do, or you have not at all idea how to do. Many of the firms succeed
when they are well-completed.
7. Disagreement with State or Government.
8. Product’s non-preferring.
9. High taxes
10. Bad Management
11. Disagreement among the colleagues and customers.
12. Dishonest competition.
13. Non-evaluation of accounting results
14. Misinterpretation of financial results.
15. Cost’s non-controlling.
16. Imposition by internal control.
17. Very low (cheap) prices of products and services to finding clients or consumers.
18. Ability of marketing and products’ sale.
19. Preliminary business’ insurance non-transportation.
20. Incorrect treatment of employees.
21. Incorrect planning of business
22. Non-looking for a professional or advising assistance when it is necessary.
SECTOR OF SMALL BUSINESSES IN THE REGION OF KORCA
The number of subjects of Small Businesses that practice activity in the city: Korca is
about 2400. In the course of the year 2011 were opened many new businesses, about 300
subjects, but as the consequence of economical crisis that has included Europe and Balkan at
the same time were closed about 250 subjects of small business. A part of the subjects during
the year 2011 have passed the annual circulation over 8.000.000 Lek and they are turned to
Big businesses. During this year are opened a lot of businesses with handicraft propensity
such as stonemason, watch-maker, internet operator, embroidery which have been a-priori
from the Municipality to conserving the handicraft values and traditions in the city.
For these businesses is reduced the tariff of registration up to the level 0 (zero). Based on one
of purposes of the strategic plan of economic development of the city: “The Safety of stability
and growth of local businesses as well as supporting of initiatives for new businesses’
opening”.
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THE CLIMATE OF SMALL BUSINESS IN THE REGION OF KORCA
• The purchasing power in economic aspect has gone to recession, thing that has
influenced in the most part of businesses that is the business.
• The bad influencing of state.
• Competition in subjects that don’t pay fees and taxes.
• It is increased the numbers of the subjects with processing activities especially of
agricultural and animal products in their by-products, multiplying them the value, and
increasing thus the competition of imported products.
• There is a simple regression of foreign businesses as a consequence of the economic
crisis.
• There is a rising trend of transformation of businesses that administering foreign
businesses with Albanian owners especially in the last three years.
• Regarding the fiscal policies and infrastructure there is a an obvious improvement
consolidating the reforms for financial laws that are implementing these two last years
as well as the road infrastructure that reduces the transport cost, continuous supply with
electric power that reduces the administrative cost of the products’ production of these
goods.
• The access of telephony services operators and those of internet that reduce the cost of
communication.
• The banking service is increased with large dimensions and low cost, reducing thus the
payment costs and money management.
• The transport services and product storage is increased either in quality or volume.
• The intensification of experience presumed by European countries.
• Recently, is eliminated also the visas’ cost (business free movement). Business
movement, increase or decrease doesn’t mean that there is a decrease or increase of
sales’ level and services. The financial crisis has brought a demand reduction.
PROBLEMS OF SMALL BUSINESSES IN THE REGION OF KORCA
A disturbing problem carried in years is also the fiscal evasion. There are subjects that
practice activity without paying off the financial obligations towards the state. In order to
avoid the fiscal evasion there are used the following methods:
Verification of documentations kept by the tax-payers which verify sales and purchases
realized for the purpose of business.
Full control in the surrounding of the tax-payer where after the verification of
documentation there are realized polls for circulation measurement, with the aim;
evaluation of circulation realized through chronometer (timing).
At the same time there are used also other sources of information with which the taxpayer
has operated such the records of the treasury office, records on information
exchange etc.
The control in terrain (medium where activity is practiced) for evidencing of the unregistered
subjects.
The control in terrain (medium where activity is practiced) for evidencing of subjects
that haven’t paid off the local fees and tariffs.
In case of violations of procedures of local fiscal obligations determine and apply
sanctions predicted by the laws in force.
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There are considered administrative infraction: non-registration or location nonregistration
of economic activity of the tax-payer or non-payment of tax within term, which
are punished with a fine of 25% of tax’s obligation.
The presentation of false or incomplete data is fined with 10.000 lek. If it isn’t shown
the registration certificate in a visible place is fined with 5.000 lek etc. The tax-payer has to
register every location of his own business. The registration for the first time prior to the taxpayer
has to present:
Court decision for registration.
Personal (Birth) Certificate issued with photo.
Application for registration where it is reflected residing address of tax-payer, type of
activity that will practice as well as the precious address of business location.
Another problem is bad debtors (mortgagers) who are debtors for years and bring a
considerable damage to the cash of the Municipality. To solving this problem it is considered
important the controlling time after time in the terrain examining the respective
documentations. For the repressive measurement taken by the Municipality, blocking banking
account of the subjects this contingent even if in reduction continues to be actual and
disturbing. The problem of dishonest competition of the business remains main problem
discussed time after time by the business association. For this purpose there are organized
meetings referring reports with the participation of business association and Municipality in
order to reduce as much as possible the fiscal evasion.
During the year 2011, the Municipality has put in application (execution) the program
“Stop to Formality”, where every citizen or business can call the respective office in
Municipality for this program and make notification for each subject that doesn’t work in
conformity with law. After that, the fees & taxes inspectors (specialists) begin immediately
verification in terrain in order to enforce this subject to register in conformity with respective
procedures.
THE METHODOLOGY:
This study is based on the results of surveillance for recognition of the problems of
small businesses in the region of Korca. In this surveillance were included 240 small
businesses, constituting 10% of total small businesses in Korca. For data management,
adopted a hybrid analysis combining qualitative and quantitative methods.
THE RESULTS OF QUESTIONNAIRE:
From the businesses taken in investigation in the city Korce, it resulted that 65% of the
businesses will go on to operate with the same product, while 25% think to float other product
in market. (diagram1)
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Diagram 1. The operation with the same (1) or other product (2)
80%
60%
40%
20%
0%
65%
14%
25%
34%
10%
52%
yes
no
maybe
1 2
65% of the businesses are very optimistic, thus they believe in the products they deal and
don’t think that their competitors’ opinion is good or bad. (diagram 2)
Diagram 2. The level of credibility in products
65%
10%
25%
low medium high
From the analysis of questionnaires it is also observed that 90% of the businesses have the
opinion that they have the proper persons that manage and 10% aren’t so much sure. (diagram
3)
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Diagram 3. Evaluation of proper persons in business
maybe
no 10% 0%
0%
yes
90%
The most percentage of businesses (65%) thinks that consumers’ tastes influence very
much in the products’ production that they float in the market. (diagram 4)
Diagram 4. The influence of consumer’s tastes in the products’ production
65%
12%
18%
5%
few more or less nothing more
From the analysis (examination) of the questionnaires it resulted that 63% have had a lot of
disagreements with state, 22% continuously and 5% never. (diagram 5)
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Diagram 5. The level of disagreements with state
70%
60%
50%
40%
30%
20%
10%
0%
63%
22%
10%
5%
never sometime frequently continously
The most percentage of the businesses (65%) taken in investigation thinks that the high taxes
influences too much in the business. (diagram 6)
Diagram 6. The influence of taxes in business
65%
35%
0%
little nothing more
Inflation is one of the macroeconomic factors very much discussed in the business
history. From the results of the questionnaire it resulted that 55% of the businesses, the
inflation rate influences a lot of, while 10% it doesn’t influence at all. (diagram 7)
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Diagram 7. The influence of inflation rate in business
53%
20%
17%
10%
little
more or less
more
nothing
The economic crisis is one of the factors that have a big influence in businesses. That
was the result with 70%. (diagram 8)
Diagram 8. The influence of the economic crisis in business
80%
70%
60%
70%
50%
40%
30%
20%
10%
0%
20%
10%
0%
little more or less more nothing
CONCLUSIONS
The small business is the vertebral column (spine) of trade economy and for the
economies in transition.
The Business climate in Albania reflects still many problems, which are connected
with the formality level, regulating medium, corruption etc.
The main problems such as Barriers and Mortality, limited innovations generators etc.
influence very much in a business.
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Dishonest competition, high taxes, inflation, economic crisis and other factors have
made that many of small businesses in the region of Korca to run to closing.
RECOMMENDATIONS
It has to be devoted a special attention to business climate which actually remains to
be desired.
To eliminating the disagreements with state, the businesses have to respect precisely
all the rules in order not to meet with problems and to provide a good progress of their
firm.
The local government has to reduce as much as possible the economic formality in the
region of Korce.
It has to be focused in the problems they meet and in their solution making as many as
possible investigations in market.
The efficient organization of business in order to make possible successful
transformation of critic moments of a firm.
REFERENCES
1. Albanian legislation
2. Analoui, Farhad & Karami, Azhdar. “Strategic Management in Small and Medium
Enterprises”, 2003.
3. Burger & Helmchen T. “Plural-entrepreneurial activity for a single start-up: A case
study”, Journal of High Technology, Management Research 19, 94–102, 2008.
4. Cepani, Ariana. “Enterprise and management of small business”, 2006.
5. Colin, Barrow. “The Essence of Small Business Management”, 1993.
6. Covin, J. & D, Slevin. “A Conceptual Model of Entrepreneurship, as Firm Behavior”,
Entrepreneurship Theory and Practice, 16(1), 7-25, 1991.
7. Hitt, M. A., Ireland, R. D., Camp, S. M., & Sexton, D. L. “Strategic entrepreneurship:
Integrating entrepreneurial and strategic management perspectives”, 2002.
8. M. Camp, & D. L. Sexton (Eds.). “Strategic entrepreneurship”: Creating a new
mindset: 1–16. Oxford: Blackwell Publishers.
9. Kennedy, Joe. “ The Small Business Owner’s Manual: Everything You Need to Know
to Start Up and Run Your Business”, 2005.
10. Joseph, Ryan & Gail Hiduke. “Small Business: An Entrepreneur's Business Plan”,
2008.
11. Kirzner, I. “Competition and Entrepreneurship”. Chicago: University of Chicago
Press, 1973.
12. Langlois, R.N. “The Entrepreneurial Theory of the Firm and the Theory of the
Entrepreneurial Firm”, Journal of Management Studies, 44(7), 1107–1124, 2007.
13. Moore, Petty. “Small Business Management”, 2004.
14. Schumpeter, J. A. “The Theory of Economic Development”. Cambride: Harvard
University Press. (New York: Oxford University Press, 1961) First published in
German, 1912, 1994.
15. Straus, Steven D. “The Small Business Bible: Everything You Need to Know to
Succeed in Your Small Business”, 2008.
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GENERAL ASPECTS ON PUBLICITY AND ITS EFFECTS.
CREDIT CONSUMERS AND THE CONSUMERS OF EVENTS/MEGA-EVENTS
Gheorghe Carmen Adriana;
“Transilvanya” University Brașov, Romania;
Andrei Ion;
Academy of Economic Studies, Bucharest
ABSTRACT
The current study will demonstrate a correlation between two interesting notions, one
of economic character, the other belonging to law – that of advertising understood as both
commercial and consumer.
As an economic subject whose behavior is aimed towards the satisfaction of needs and
desires, the consumer has a privileged status, while being the target of advertising. When
developing the development strategy and the business plan, entrepreneurs have to consider
the whole range of consumers. The various measures constituted as means of protecting
consumers have been structured in response to the intense development of production. The
consumer needs protectionist policies, although the most efficient protection is the individual
one; even a well informed consumer may become the victim of abuse, so the consumer has the
obligation of informing himself and to reflect before purchasing any product or service.
The legal system has to provide general protection, including in peripheral social and
economic areas. One may notice that there are major legal discrepancies between the
protection granted to credit and events consumers, as, for example, unfair terms are found
only in credit contracts, while the consumer of events is not presented as a distinct category.
Also, the effects of publicity on the latter may also find themselves under the incidence of
these protection measures, since we could bring into discussion the publicity consumer.
Key words: publicity, advertising, consumer, credit, event mega-event
1. INTRODUCTION
At first glance, the notions of advertising, publicity and consumer are rather defined
by economic aspects, compared to notions which are related to juristic theory. Still, both
advertising and consumer are two concepts best defined by law, as the most important effects
generated by these two categories are reflected by their legal consequences, by the legal
responsibility which they generate for the various legal entities taking part in general
economic activities. Also, the above mentioned concepts are found in other disciplines, like
communication, sociology, marketing, consumer law, all of the latter being fields in which
advertising and consumer play a major role in.
Romania, just like the other new European members, saw during its transition period a
process of economic growth, which favored the rapid development of activities like
advertising, lending and event management, though the increase of the inequity generated by
unsustainable economic growth and by the global economic crisis has slowed down the
development of these segments.
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While talking about advertising and publicty, the central element of our analysis, the
main idea of the concepts is related to communication, especially to mass-communication.
We are using this sociological concept of communication because it comprises the existential
basis of advertising, of ads: passing on a message using various channels of communication.
The analysis will also use the concept of individual/consumer behavior, in respect to the
modifications created by messages and by ads, as well as aspects related to judicial practice,
which come to demonstrate that unjustified discrepancies, some of which related to legal
norms, have been created for the areas of interest chosen for our study: the banking system
and the entertainment industry.
2. ADVERTISING, A SOCIOLOGICAL, MARKETING AND JUDICIAL
CONCEPT
As any other concept used by society and, especially, by sociology, the definition of
advertising is relative, depending on the approach of the researcher. We may, therefore, talk
about advertising from the point of view of communication sciences and from the point of
view of marketing, while law defines publicity from a totally different standstill, using
specific legal terminology.
a. The first point of view defines advertising from a wide range of perspectives: as a
social institution which is present in the everyday lives of the individuals, as a force which
shapes mass culture; but also as a merchandise which is the object of supply and demand, so
advertising has a price that, once paid, delivers benefits; advertising is also a form of
persuasive communication which aims to modify the behavior of the receivers, while trying to
convince the latter to buy a certain product, but advertising also represents any form of
communication which promises receivers that a certain product has genuine benefits.
b. Advertising is one of the elements used for the convincing presentation of a product
or of a service to a buyer or user. For many of those involved in the advertising process
(beneficiaries, advertising agents or consumers), advertising represents the main
communication element of the marketing mix. In fact, advertising is the most obvious, hence
easily identifiable, element. Overall, marketing strategy includes potential or real
communication channels used entirely, when discovered, to stimulate sales and consumption.
Even the distribution process can communicate certain brand elements and the same goes for
the price. The fact the price is smaller or bigger compared to the competition’s may represent
a message which also communicates other things to the market. On developed markets,
consumers are free to choose to buy or not to buy a certain product or service. In order to
choose, consumers need to analyze available information, to which they react rationally
and/or emotionally, consciously or unconsciously.
But the information which triggers certain reactions among consumers doesn’t come
exclusively from advertising. In the end, consumers react to the whole marketing mix.
Therefore, advertising is not the only available marketing tool, although it does seem to weigh
heavier than most other aspects of communication. The only function of advertising is to
determine a reaction, in response to communication aired in a space usually paid by the
consumer, frequently and by retailers (indirectly) and sometimes by various categories of
public.
c. In the following paragraphs, we will present the classic definition of publicity, from
the legal point of view, with a general educational purpose, as we won’t use this definition in
our case study. Civil, banking or commercial publicity covers a different area of interest in
law, compared to economy and communication, since it obviously serves other purposes here.
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Not even commercial advertising hasn’t got any relation to the advertising or marketing
strategy to which common language would have us thinking of. Between proving a guarantee
and a means of making third parties aware of essential aspects related to essential social
aspects, law defines publicity as a means of taking care of the interests of all the members of
society, under the ruling of the law. For example, in civil law, publicity may refer to real
estate, meaning a system of public registrations of property units, along with the rights which
their owners and users have. Real estate publicity is characterized by the Real Estate Register.
The same function of the latter is performed on the trade market by the Trade Register and in
banking by the Register of Credit Institutions. Also, in public law, in tax law to be more
precise, communication in the form of publicity is performed by posting an announcement at
the office of the National Fiscal Administration Authority and on the latter’s website saying
that a tax administrative decision has been issued in the name of the tax payer.
Last, but not least, the New Civil Code regulates publicity distinctly from other
institutions of law, under chapter IV, art. 18-24. Therefore, the rights, documents and actions
which refer to the status and capacity of persons, those related to the latter’s assets, as well as
any other legal relations are subjected to publicity only in the contexts specified explicitly by
law. Publicity is performed through the Real Estate Register, the Electronic archive of
Security Interests in Movable Property, the Trade Register as well as through other forms of
publicity specified by law. It is heron stipulated that the fulfillment of the publicity formalities
may be demanded by any person, even though the latter may lack the capacity of exercising
this formality.
Any waiver or restraint of the right to fulfill an publicity formality, as well as any
other penal clause or any other sanction stipulated to prevent the exertion of this right are to
be considered unstipulated. No one may invoke the argument of not knowing the law,
document or action governed by publicity requirements if the publicity formality was fulfilled
in compliance with the law.
The purpose of publicity is to ensure the legal binding effects of the law, contract,
status and of any other legal relations which may fall under the authority of publicity
requirements. Publicity presents the latter’s rank and, if stipulated by the law, it conditions
their legal effects.
While returning to the notion of publicity understood as persuasive communication, we will
use the definition provided by specific law (Law No. 504/2002, the Audiovisual Law), which
talks about any type of message designed to promote, directly or indirectly, the goods,
services or image of a natural or legal entity pursuing an economic activity. The message is
included in a program in return for payment or for similar consideration or for selfpromotional
purposes. This is the only definition which ties the economic, marketing and
legal aspects of advertising.
The Audiovisual Law only mentions certain types of advertising, among which
television advertising, subliminal advertising and virtual advertising (art. 1, points 17, 18 and
25):
- television advertising - means any form of announcement broadcast whether in return for
payment or for similar consideration or broadcast for self-promotional purposes by a public
or private undertaking or natural person in connection with a trade, business, craft or
profession in order to promote the supply of goods or services, including immovable property,
rights and obligations, in return for payment;
- subliminal advertising – any kind of advertising that employs such stimuli that by being too
faint to be perceived consciously, might exert an influence upon the economic behavior of the
public;
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- virtual advertising - broadcasting technique for television advertising which allows image
processing, during broadcast of some events, by replacing images of the advertising on the
panels inside the place where the events unfold, with advertising messages introduced by
broadcasters, or by overlapping new images with such messages in any part of the image
transmitted.
3. THE CONSUMER AND ADVERTISING. EFFECTS
Regulations in this regard can be found in the Consumer Code, Law no. 296/2004,
republished 2008, a normative act describing the consumer as any natural person or group of
natural persons constituted in associations, which is acting for purposes not related to trade,
industrial production, craft or other liberal profession;
Consumers enjoy the following rights: to be protected against risk, to be fully
informed, fair and accurate, on the essential characteristics of any products and services, to
have access to markets, to be compensated in real and proper manner for any damages, to
organize themselves in associations, to refuse to sign contracts which include unfair terms.
Consumers also have the right not to be prohibited by an economic agent to obtain a benefit
expressly provided by law. From this point of view, that of the subject protected by the state,
advertising refers to the obligation of being informed on products and services and advertising
should be decent, fair and developed in the spirit of social responsibility.
We thus see that the above mentioned law analyzes advertising exclusively in terms of
commercial, in accordance with the Audi-visual Law. Our approach will focus on a specific
category of consumers, probably one of the most important ones, namely consumers of
services. This category is targeted by a wide range of marketing strategies developed by
service providers. But before we talk about this category we will cover the most important
effects generated by advertising, in relation to the topics of the current analysis. We won’t
deny that advertising is a real factor affecting social life, that it is a form of investment, that it
uses modern and sophisticated means, psychological and legal concepts based on solid
strategies and concepts and that, nowadays, this field covers various segments, like publicity,
advertising, promotion and marketing, which are presented to the public as a whole, thus
making it difficult to tell them apart.
Advertising sets role-models, establishes attitudes and it generates certain lifestyles.
This leads to the conclusion that the only thing that the consumers of Internet, radio,
television, financial and banking services, music or football, meaning consumer of events,
have in common is that they are exposed to a form of persuasive communication that is
promoted for the acquisition of a service. The economic effects are undeniable and they are
linked to emotion, passion, enthusiasm, dedication, to living, not just to the show. Someone is
sure to profit from these emotional states.
We will move past the legal prohibitions regarding misleading commercial practices
and aggressive commercial practices and those that prejudice human dignity and public
morals, as well as practices which involve discrimination, which threaten religious or political
beliefs, which damage the image, honor, dignity and private lives of individuals, which
exploit superstition, credulity or the fears of people, which prejudice safety or incite to
violence, which encourage conduct that threatens the environment, which support the
promotion of goods or services that are produced or distributed contrary to the law, because
the creators and producers of the commercial, as well as the legal representative of the means
of dissemination will be jointly liable with the advertiser. All of the above contexts are
regulated by law.
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For now, while making the junction between these types of consumers, let us try to
briefly analyze two subcategories:
a. The consumer of credits and/or banking services
b. The consumer of events and/or mega-events
Under the pressures of the European Authorities, the national regulator defined the
first category, that benefiting from banking services, with great precision. Other consumers,
like those attending events (eg.: football, concerts, parades, releases) aren’t described with the
same precision and care. We see this lack precision because concepts like event, mega-event,
organizer of events, mutual obligations are missing from the national legislation. At the same
time, the debtor, the client, the public and the consumers which contract a loan are legally
protected by a set of laws. The explanation lies in the central position which the bank has in
the economic and social life, for its role of distributor and creator of currency is irrefutably
essential to one and all.
On the other hand, we have a definition for credit, but not one for event, we have a
credit contract, but no events contract, we have unfair terms, while according to European and
national legislation, such terms are invoked mainly in relation to lending contracts (especially
to the ones dedicated to consumer credits).
According to article 4 of Law no. 193/2000 on the unfair terms of the contracts closed
between consumers and retailers or services providers, an unfair term is defined as a
contractual term which, unless negotiated individually and contrary to good faith, generates a
significant imbalance of the parties’ rights and obligations, as arising from the contract, to
the consumer’s detriment. A term is considered not to have been negotiated directly with the
consumer if the latter did not have the means to influence it, like in the case of the standard or
pre-formulated contracts or of the general terms of sale applied by retailers on the market of
the product or service in question. The fact that certain aspects of the terms or only one of the
terms has been negotiated directly with the consumer does not rule out the application of this
law for the remainder of the contract, should a global evaluation of the contract prove that
the latter was in fact preset and drafter based on the unilateral will of the retailer. If a
retailer claims that a standard formula has been negotiated directly with the consumer, it is
the first’s duty to bring evidence in this respect.
While looking for legal precedents based on the above mentioned consumer law and
on unfair terms, we may find lawsuits related to the unfair terms of lending contracts, but no
records of any complaint of such type related to the consumers of events. In two cases tried by
civil courts ( a lending contract signed by NVT, as debtor, and SC B R SA - MGNB of G –
Buzau Office, as creditor, and another lending contract signed by petitioners FRA FA with
creditor SC VOLKSBANK ROMANIA SA), the judge admitted the annulment request or the
request of maintaining the initial clauses, while preventing the bank from unilaterally modify
the interest of the credit anymore thought the lifespan of the contract. According to article 4 of
Law no. 193/2000, the bank had the obligation of proving that it had negotiated directly the
term with the debtor, which it failed to do in the two lawsuits. Article 15, paragraph 1, states
that failure to comply with the interdiction stipulated in Article 1, paragraph 3 (retailers are
banned from stipulating unfair terms in the contracts closed with consumers), is a
contravention punishable by fine. We also report that, in order to transpose and to implement
the Consumer Credit Directive (2008/48/EC) issued on April 23, 2008, the Romanian
Government had to issue GEO 50/2010 on consumer credit contracts and the latter became
effective on June 21, 2010 and it was approved by Law no. 288/2010.
Starting with the phase of credit publicity, consumers have to receive information on:
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The credit’s interest (fixed and/or variable), together with information on any other
costs included in the total costs of the credit;
The credit’s total value;
The Annual Effective Interest;
The maturity of the credit contract;
The acquisition price and the value of any premature reimbursements, in the case of a
credit presented in the form of a deferred payment for a specific good or service;
The total value which the debtor will pay and the value of the installments, according
to each case.
This information has to be presented to consumers using a representative example.
As for the consumer of events, finding a definition which would distinct this type of
consumer from the general mass has proved a difficult task. According to the object of the
contract, the event is defined in a different context, which has nothing in common with the
one analyzed by this paper. The Audiovisual Law includes the definition of major importance
event – any event that may be of interest to an important part of the public, that is included in
the list approved by the Government Decision following the National Audiovisual Council
proposal.
An analogy cannot be made between the notion of public event and that of event of a
different nature (cultural, sports, social).
Another major problem is represented by the absence of a contract between the client /
public / consumer and service provider, while the ticket is the title which legitimates the
earned right. There is no written contract in this case, but the rights and obligations deriving
from this agreement are of contractual form. Nevertheless, it is true that consumers of events
receive some attention from specialized authorities that take specific action under the
preoccupation of the context in which the event will take place. We are talking about ECC
UK and ECC Romania.
The UK European Consumer Centre is advising consumers to be responsible during
the London Olympic Games using an example which happened one year ago. In the beginning
of the 2011 summer season, three persons living in Britain were closed for their part in an
online scam involving tickets to the Beijing Games, a scam which affected more than 10,000
persons from across the world. Their company, Xclusive, cashed-in more than 5 million
pounds, though it never delivered any tickets or refunds to the victims.
The Director of the Romanian European Consumer Centre stated that “many are
looking forward to the London Olympics in 2012 as one of the most important sporting events
in their lives. Thousands of people will be disappointed when they won’t fail to get tickets
through official channels and is exactly this fact that rogue traders may thrive on. Many of
the consumers who buy products or services online in the EU do not fully understand their
rights or the rules and regulations with which the retailers from which they purchase goods
have to comply with”.
ECC UK released the slogan of the UK National Consumer Week – “Good Sports
Don’t Fake It”- while urging consumers to stay away from fake websites selling tickets for the
Olympic Games and to understand their rights when shopping online. As a positive aspect, the
Electronic Commerce Directive dictates the minimum rate of information which has to be
provided to the consumers by an online retailer selling its products in Europe: retailer’s name
and physical address and email address. An order confirmation should also be sent to the
consumer before delivery.
The London 2012 Organizing Committee (LOGOC) has taken several measures in
order to help consumers to buy tickets from authorized retailers.
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• The London 2012 official website includes a tool which can be used to check whether a
website is authorized to sell tickets or not. Natural persons from outside the UK should use
the official website to receive the official list of retailers.
• The London 2012 website also has a list of “unauthorized known websites” that only claim
to offer tickets to the 2012 Games.
• The London 2012 official website also includes lists of authorized retailers for natural
persons residing in the UK and in European countries.
We may note that, unlike the consumer of bank credits, who is supposed to be prepare
before signing the contracting, the consumer of events is also an expert or a profane. One can
even imagine a typology of the cultural consumer based on the latter’s motivation and
position towards the cultural act. The top of the list is represented by the informed consumer,
the one who has a satisfying general knowledge and who regularly attends cultural events, in
response to internal needs. Through practice, at the age of school education, the habit has
become a need and cultural needs become a solid argument for being active on the cultural
market. The third category is represented by the uninformed consumer, the one using cultural
products on rare occasions and sometimes out of being snobbish, as such events are
fashionable. Based on his or hers education, preoccupations and economic status, this type of
consumer does not value culture as an everyday priority.
In both situations, the other party of the contract – the bank or the events organizer –
has the obligation to inform, with the obligation of ensuring an equal balance of power among
the parties, starting with the phase of the signing. GEO 21/1992 follows these guidelines,
while its ruling on consumer protection states that the provider has to inform consumers
before the contract is signed, but also afterwards.
Finally, while not aiming to present a thorough analysis of the correlations between
these institutions, but only to suggest possible areas of interdisciplinary research, we see that
the banking professional and the organizer of events, as well as their consumers, share a
common characteristic: publicity. Thus, we can mention the example of another service
provider, the "ZeList Monitor", which is the most comprehensive social media monitoring
tool in Romania, following more than 63,000 blogs, 50,000 Twitter accounts and 1,200 online
media sources, over 2,000 public Facebook groups, over 15,000 public Facebook pages and
the most important forums in the Romanian online media. The tool was used for the analysis
of several events and mega-events (Roxette concert, Bucharest 2011, Scorpions concert,
Bucharest 2011, Bon Jovi concert, Bucharest, July 2011, while the latter can be classified as a
genuine mega real) in terms of publicity and not only, as well as for the analysis of the "BCR
Refinancing SMART "campaign, a campaign which achieved results well above expectations.
The organizers of the latter decided that it was appropriate present the strategy and tools of
the SMART campaign during a dedicated event. The analysis on the most important concerts
hosted by Bucharest in 2011 was based on determining which concerts registered the largest
number of participants, and monitoring expressions such as "Band, Concert", "Band" to
determine the social media activity surrounding these events. On the other hand, based on the
successful advertising campaign promoting a bank, customers were able to refinance and / or
consolidate credits from other banks through a mortgage credit secured by BCR in very
favorable terms. "The volume of refinancing applications generated by the SMART campaign
that was released during the summer 2011 was above our estimates, showing that there is a
massive refinancing interest among customers. The total volume of credits issued through the
campaign exceeded a total of EUR 30 million".
Advertising convinced the two consumer categories to transform the two services
offers (banking and entertainment) into profit.
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E.g. 1: During the analyzed period the expression Roxette concert was outranked by
the key words Scorpions concert (+31.1%) and by the Bon Jovi concert (+72.1%).
E.g. 2: The volume of refinancing applications generated by BCR’s SMART
campaign which was implemented in the summer of 2011 was higher than expected, proving
a massive refinancing interest among clients. The total value of the credits issued during the
campaign exceeded EUR 30 million.
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CONCLUSIONS AND IMPLICATIONS
Through the effects it has on the individual and on social structures, advertising has
become a major factor of influence in social life. Advertising is currently based on research
and it is hence perceived as an investment. Advertising approaches the consumer using
“communication techniques” that are based on well-founded scientific arguments, on a solid
conceptual background and on a strategic approach. The consumer and his or hers rights fall
under the object of advertising, so the economic notion makes one of multiple connections
between the consumer and the object of consumption or between sociology, marketing, law
and economics, in the same connection which falls under the sphere of profit, but also under
the protection of rights and of fundamental obligations.
Unlike the banking business, a segment which is privileged among general
commercial activities, among others through specific regulations related to consumer rights,
advertising is still in a phase in which it speculates the emotions of the consumer. Even
though the two categories of consumers are connected through the notion of legally protected
services, and through that of public - unwittingly, without knowledge, - the responsibility of
the entertainment services provider should be more clearly defined in terms of administrative,
criminal and patrimonial responsibility.
REFERENCES
1. Goddard, A.-“Limbajul Publicitatii”, Editura Polirom, Bucureşti, 2000
2. Nicola, M. – “Publicitate si reclama”, SNSPA, Bucuresti, cursuri on-line
3. Moldovan, M., Miron, D.- “Publicitatea In Afaceri”, Bucuresti, Editura Libra, 1995
4. Muresan, L.- “Drept comunitar. Protectie juridică şi responsabilitate socială”, Editura
Universităţii Transilvania, Braşov, 2008
5. Raileanu Szeles, M. (2012)- “Re-examining the relationship between economic
growth and income inequality in the New Member States”, Quality&Quantity, DOI:
10.1007/s11135-012-9689-0.
6. Thomson, J.- “The Media And Modernity, A Social Theory Of The Media”,
Cambridge, Polity Press, 199528.
7. Todoran, D.- “Psihologia Reclamei”, Bucuresti, Editura Tritonic, 2005
8. http://www.efin.ro/noul_cod_civil_2390/capitolul_4_publicitatea_drepturilor_a_actelo
r_si_a_faptelor_juridice.html
9. http://www.juridice.ro/156271/comunicarea-prin-publicitate-a-actelor-adminstrativefiscale-exceptie-de-neconstitutionalitate-admisa.html
10. http://www.cna.ro/Decizia-nr-220-din-24-februarie.html
11. http://www.evenimentul.ro/articol/comportamentul-consumatorului-de-cultura.html
12. Decizia C.N.A. nr. 220 din 24 februarie 2011 privind Codul de reglementare a
conţinutului audiovizual
13. Legea privind Codul consumului, Legea nr. 296/2004
14. O.G. nr.21/1992 privind protectia consumatorilor
15. Codul civil- Legea nr.287/2009
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REAL ESTATE PUBLICITY
IN THE LIGHT OF THE PROVISIONS OF NEW CIVIL CODE
Cristina Gheorghe
University of Bucharest
ABSTRACT
The necessity for having the General Land Book for Real Estate Publicity, became a
priority because the reconstruction of the private ownership for lands intensified and
diversified the civil rights, conferring the legislator new tasks for correlating the legislation
with practice. An important factor for real estate market development is protecting the real
assets owners and investors with comprehensive legislative measures. The real estates
evolution imposed the creation of a security mechanism for the legal relations related with,
called and acting different in each country. The real estate publicity based upon the General
Land Book Registration evidence system, has the main purpose the inscription in the Land
Book Register for all the legal documents and actions related to the estates from one
administration area and is made by Local Offices..
Key words: real estate publicity, property, registration, land book, land registration
systems, New Civil Code;
1. MOTIVATOR CONSIDERATIONS REGARDING THE NECESSITY OF
INTRODUCING THE NEW CIVIL CODE
The adoption of a new Civil Code in Romania was traced as a necessity yet from the
period of kingdom of king Carol the Second, a period during which otherwise the first works
started, but which couldn't come into effect, because they have been suspended by the
government of general Ion Antonescu. Consequently, until nowadays, the civil law applicable
on the Romanian territory remained the Civil Code from 1864, a French inspiration code,
keeping the archaic flavor of the expressions in those times in full non-conformity with the
daily realities.
Although it represented an large creation, which resisted without being amended but
here and there for 150 years, the Civil Code presented although lacks regarding the regulation
of certain institutions of law, as for example the action for the recovery of possession, family
relationships, and certain issues related to assets, etc. For the coverage of all these lacks and
of the unification of civil law regulations to those of trading law in one single code, upon the
Swiss or Italian model, it has been started the conclusion of the New Civil Code yet from
1997. The inspiration models for the issuance of this work paper were the French civil code,
after the amendment of June 23, 2006, the Civil code of Quebec, the Italian civil code, the
Swiss civil code, but also national projects like the "Catala" project of France or European -
"Unidroit Principles and the European law Principles of Contracts", permanently following, as
a consequence of the fact that Romania is a EU member state, the harmonization of the
provisions of the new code with the European regulations in force.
The necessity of issuance of this new Civil code also results by the employment which
Romania assigned after the affiliation to EU regarding the judicial reform and the fight
against corruption. Even the last intermediary Report of the Commission to the European
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Parliament and Council regarding the progresses concluded by Romania within the
cooperation and inspection Mechanism (Bruxelles, 12.02.2009) stresses the importance for
the judicial system of adoption of the 4 new codes: The Civil code and the Civil procedure
code, the Criminal code and the Criminal procedure code. The new Civil code follows the
regulation of private law reports in one single code - Civil code, consequently having the
following structure:
Preliminary title;
Charter I - About the persons;
Charter II - About the family;
Charter III - About the goods;
Charter IV - About the inheritance and liberalities;
Charter V - About the obligations;
Charter VI - About the extensive prescription, decay and calculation of terms;
Charter VII - Private international law provisions.
The unitary approach of the obligation reports by renouncement to that traditional
division in civil law reports and commercial law reports will have an impact on the business
environment, the differentiation of legal regime applying depending on the quality of
professional, non-professional, respectively, of the obligation legal report subjects. The
issuance of the new code in its whole should have observed the fact that the new regulations
don't be contrary to certain community directives or harden the application of certain
community regulations. However, for the most part, the New Civil Code took over the
existent solutions in the Civil code still in effect, solutions that have proven along time their
durability, and the new regulations have been taken over from the civil codes of other states.
Therefore, this new normative act was justified named "The New Old Civil Code”.
2. REAL ESTATE ADVERTISEMENT IN THE LIGHT OF REGULATIONS
OF THE NEW CIVIL CODE
As we referred in the first chapter of work, up to present, on the Romanian territory, 6
real estate advertisement system have been traced:
a. The advertisement system with a personal character based on the Transcription and
inscription registers, regulated in the Civil code and in the Civil procedure code, a system that
found its applicability in the Old Kingdom;
b. The advertisement system with a real character, based on the land books, where the
registrations have as a rule a constitutive or translative effect of real estate rights, a system
regulated by D.-L. No. 115/1938, and which found their applicability in Transilvania, Banat,
Crişana, Maramureş and Bucovina de Sud (South Bucovina);
c. The advertisement system with an intermediary character, based on the real estate
advertisement books, regulated by Law no. 242/1947with applicability in few localities of the
ex Ilfov county;
d. The advertisement system with an intermediary and temporary character, based on the
real estate evidence books, regulated by Law no. 963/1946, with an applicability in those
localities of Transilvania where the land books have been destroyed, stolen or lost due to the
war;
e. The advertisement system with a real character, based on the land books, but where
the registrations have as a rule the opposition effect towards thirds, a system regulated by Law
no. 7/1996 and which has an applicability at the whole country level;
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f. The advertisement system with a real character, based on the land books, a system
whereby the registrations have as constitutive or translative effect rule of real estate rights.
This system is regulated by the New Civil Code and has applicability at the whole state level;
Currently, although the normative act in force is Law no. 7/1996, the Decision of the
United Sections of the High Court of Cassation and Justice no. XXI from 12 of December,
2005 provides that the "land book actions (in tabular provision and in tabular rectification),
having as object the registration in the land book of certain real estate rights provided by legal
documents, validly concluded before the coming into effect of Cadastre and real estate
advertisement Law no. 7/1996, are governed by the provisions of old law, respectively by D.–
L. no. 115/1938 for the unification of provisions regarding land books”.
Also, by the Decision of United Sections of the High Court of Cassation and Justice
no. LXXXVI (86) from 10 of December, 2007 it was stated that in the statement of acquiring
provisions commenced under the empire of the Law - decree no. 115/1938 and fulfilled after
the entering into effect of Law no. 7/1996, the actions in the ascertainment of acquiring the
property right by prescription in land book regime are governed by the provisions of the old
law, respectively of D.-L. no. 115/1938.
Necessity of adoption of a unitary solution regarding the application field of Law no.
7/1996 devolves from the purpose of this law, namely of establishing the legal base for the
conclusion of general cadastre and establishment of land books on the territory of the whole
country, for the organization of a unitary advertisement system of real estate rights. The
doctrine dispute aimed the application field of Law no. 7/1996 in its whole, but practically,
the non-unitary solutions have been especially expressed in the domain of land book actions.
Besides this opinion divergence, it is sure that the new law takes into account the
unification of Romanian legislation in the real estate advertisement field, so that, in the
interpretation and application process of the transitory norms, the purpose of regulation must
be taken into account. Or, the non-recognition of the applicability of new law in the land
book areas subject to the Law - decree 115/1938 and the further resolution of causes of the
provisions of this decree don't make but to delay the fructification of legislative intercession.
The same situation is also foreseen in the case of the New Civil Code, about which
one specifies in Art. 2664 that will enter into effect on the date that will be established in the
law for its application. In par. (2) of the same article it is provided that within 12 months
from the publishing date of the New Civil Code, the Government will subject to the
Parliament for adoption the law project for its application. However, although the New Civil
Code was published in July 2009, the 12 months term has been already surpassed. Taking
into account the complexity of amendments brought by the New Civil Code, it is very
possible that the legislator to provide different data for the entering into effect of the new
legal norms, but, at least regarding the regulations brought to the land book institution, we
consider that the application law should include clear and non-interpreting decisions, to avoid
this time the confusion and legislative overlaps, established at the time of applying the Law
no. 7/1996.
Analyzing the new legislative frame, one notices that in the New Civil Code, the
binding and un-binding notions have been extended the binding also including the hypothesis
of enlarging a real estate, and the un-binding also including the circumstance of diminishing a
real estate. Therefore, if by Law no. 7/1996 it was provided that the real estate may be
changed by annexations, detachments or by the enlargement or diminishing of its surface, Art.
879 par. (1) of NCC provides that the real estate registered in the land book may be changed
by annexations, if several neighboring real estates are united in one single real estate or if a
part of a real estate is added to another real estate, or, as the case may be, its surface is
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increased. Also, in par. (2) of the same article, one provides that the real estate registered in
the land book is also changed by detachments, if a part of the real estate is detached or its
surface is diminished.
The most part of the regulations provided in law no. 7/1996 have been entirely taken
over in the content of Title VII of Charter III of the New Civil Code, except for the
registration procedure that is explicitly let to be established by special law.
Regarding the principles of land book, they were and are generally the same,
irrespectively of the applied advertisement system. The major difference noticed between the
real estate advertisement system based on Law no. 7/1996 and the real estate advertisement
systems, regulated by the provisions of Law - decree no. 115/1938 and the New Civil Code
result under the aspect of effect of the registrations in the land book. Therefore, while the
registration effect based on Law no. 7/1996 is the one of opposition towards thirds of the
registered real rights, based on the other two normative acts, the main effect of registrations is
usually the constitutive or translative one of real rights.
The system of opposition principles towards third parties of registrations, promoted by
Law no. 7/1996 is a hybrid system that got together on the one hand, the elements of real estate
advertisement system, based on the land book, regulated by the Law - decree no. 115/1938
(holding the evidence of the real rights depending on the real estates), and on the other hand,
elements of the personal advertisement system, a system based on the transcription and
inscription registers regulated by the Civil code and the Civil procedure code (opposability
effect toward third parties of registration in the advertisement register).
According to Art. 480 of Civil code "the property is the right that one enjoys and
benefits of a thing, exclusively and absolutely, but within the limits established by law". Such
a manifestation of the absolute character of the right of property has established in the
specialty literature the expression "erga omnes opposability”. Art. 971 of the Civil code
regarding the time when the acquirement and transmission of the property right took place,
provides that "in the contracts that have as object the translation of property or of another real
right, the property or right is sent by the effect of the agreement of parties and the work rests in the
risk and peril of the acquirer, even when the remission of thing”. By the provisions of this
articles, it results that regarding the transfer of the property right, the Civil code establishes
the consensualism principle, according to which the property right is sent by the simple
consent of parties, without being necessary other formalities. The acquirement of the property
right, in turn, would only be opposed to third parties after the registration in the land book.
Therefore, we may distinguish two moments of transmission of the property right: in the first
moment, the transmission of the property right operates between the parties based on their
agreement, and in the second moment, the transmission of right only produces an effect
towards third parties after the registration of that right. The deficiency of this principle
results by the fact that non-sanction of registration of the right transfer by non-operation of
this transfer until the registration time may generate situations whereby a third party can
accept to buy a real estate if he/she ascertains that in the land book, the person that estranges
the good appears in the land book, even in the circumstances whereby this owner has already
estranged the good to another party that has not registered yet the right obtained, in the land
book. In these circumstances, the constitutive role principle of real rights by registration in
the land book reduces a lot the occurrence of such circumstances. Therefore, the above
mentioned deficiencies are removed by the regulations of the New Civil Code, that is assigned
to the Law - decree solution no. 115/1938, namely it promotes the constitutive or translative
effect of real estate rights of registrations in the land book. In the new regulation, the real
rights are not anymore acquired on the above mentioned two successive stages - once between
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the parties and further towards third parties - but in one single moment, that of registering the
registration request of right in the land book. Consequently, until the registration in the land
book, the legal document between the parties produces effects between them, but not with
respect to the establishment or transmission of real estate rights, but with respect to the
obligations.
The exceptions from this principle are provided at Art. 887 par. (1) of the New Civil
Code, according to which it is possible without registration in the land book, the acquirement of real estate
rights by inheritance, natural accession, forced sale, expropriation or by any other means, expressly
provided by law.
With respect to registrations in the land book, from the perspective of the New Civil
Code, one observes the maintenance of the initial classification, both found in the Law -
decree no. 115/1938, as well in Law no. 7/1996. Therefore, the registrations in the land book
maintain the same triangular structure of registration, temporary registration and designation.
Besides the novelty element brought by the New Civil Code, by returning to the constitutive
effect of registrations, another beneficial amendment in the field of registrations, brought by
the new normative act, consists in the requirement introduced by Art. 888 regarding the
registration conditions, according to which the judgment decision that it is the reason of
registration, it is enough to be definitive, not irrevocable, as it was provided by Law no.
7/1996. We consider that the requirement that the decision is irrevocable did not have any
justification as long as the definitive decisions are executive, and in the circumstances of a
possible change of the existent legal situation on the time of registration, there was the variant
of rectification of the land book.
Another amendment brought by the new normative act aims the registration way of the
registration request. According to Art. 47 par. (1) of Law no. 7/1996, "registration request in
the land book will be submitted in the territory offices of the territory office and will be
accompanied by the original registration or by the certified copy on it, whereby it is
ascertained the document or the legal fact, the registration of which is required.” This fact
means that the request had to be personally submitted at the cadastre office. By the New Civil
Code, at Art. 890, there are still provided several submission ways of registration requests,
namely: personally, by mandatory or public notary, by fax, electronic mail or other means
that insure the transmission of text and confirmation of receipt of the registration request with
all the vouchers. Also, at par. (1) of Art. 890, it is provided that the registrations in the land
book will produce their effects from the date of registration of the requests, but taking into
account the date, time and minute of their registration. Therefore, in the case that there are
several registration requests, the resolution of conflict will be easier to issue, the order of
registrations being interpreted not only depending on the date and time of registration of
request, but even on the minute when the registration request was registered.
Regarding the temporary registration, in acceptation of Law no. 7/1996 the necessity
of issuing it results by the certainty that this operation confers to the interested person in
defending her right of a possible registration made regarding the same right, but by a third
party. Practically, one insures the opposability of the temporarily registered right towards
third parties. Art. 29 par. (2) of Law no. 7/1996 provides that the temporary registration may
be required in the following circumstances:
a. When the real right that is required to be registered is impaired by a suspensive
condition;
b. When required, the registration of a real right based on a judgment decision that did
not remain irrevocable;
c. If a registration right that has been previously temporarily registered is acquired;
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d. If the debtor registered the amounts for which the mortgage or the real estate benefit
was registered;
e. If for the resolution of request, additional registrations, which don't reflect on the fund
of right that is required to be registered and don't establish new ends of request are necessary
Reported to the provisions of Art. 29 par. (1) of Law no. 7/1996, which provides that "the
temporary registration becomes opposable to third parties with the range established by the
registration request, under the condition and in the extent of its justification", Art. 899 par.
(1) of the New Civil Code doesn't provide anymore the opposability effect towards third
parties, but specify that "the temporary registration has as effect the acquirement, change or
extinguishing of a tabular right from the registration date of request, under the condition and
in the extent of its justification".
Also, by Art. 898 of the New Civil Code, the other cases outside those provided by
law are more strictly provided, where the temporary registration in the land book may be
required, namely:
a. If the real right acquired is affected by a suspensive or resolution condition or if it
concerns or charges a future construction; in the case of temporary registration, having as
object a future construction, its justification is made under the lawful conditions;
b. If, in accordance with a decision, which is not yet definitive, the part fallen in
assertions was liable to the transposition, the establishment or extinguishing of a tabular right
or the one that manages the goods of another person was liable to give a mortgage warranty;
c. If the debtor registered the amounts for which the mortgage was registered;
d. If a tabular right temporarily registered is acquired;
e. If both parties only agree for the issuance of a temporary registration.
The last mortgage aims the situation whereby the parties establish the temporary
registration in the land book of a right that, by observance and fulfillment of certain
conditions follow to be consolidated by transformation of temporary registration into
tabulation. Regarding this last hypothesis provided at point 5, there have been remarks and
proposals based on the provisions of legal text, proposing both by ANCPI, and by the
Chamber of Deputies, the removal of this text, ANCPI bringing in the support of removal
proposal the fact that the temporary registration and designations are made in the cases
provided by law and not by the will of parties, and the Chamber of Deputies, motivating by
the fact that the leaving to do so of the parties the transmitted right is tabulated or temporarily
registered is not likely to insure the safety of civil circuit.
Regarding the temporary registration of the real rights affected by a suspensive
condition, Art. 912 of the New Civil Code adds: "the right affected by a suspensive
condition will be cancelled by office, unless the fulfillment of the condition that affects the
right is not proven, within 5 years from registration. So, one will cancel the resolution
condition, if not required, in accordance with it, the cancellation of the right registered under
such a modality, for 10 years from registration”.
The New Civil Code, too, innovates a waiver from nemo plus iuris ad alium transferre
potest quam ipse habet rule, regulating the protection of the acquirer third party in good faith of a
tabular right, based on a legal document with an onerous title or in accordance with a
mortgage contract, but by meeting three cumulative conditions:
a. No action whereby the content of the land book is contested, was registered;
b. By the content of the land book, no cause that justifies its rectification for another
person, results;
c. It did not know, by another way, the discrepancy of the land book content.
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Regarding the designation procedure, this is entirely regulated by the provisions of
the New Civil Code, which mentions that "the rights, facts or other legal reports provided at
Art. 876 par. (2) become opposable to third persons, excluding by designation, unless proven
that these have been known by another way, besides the case when it results by law that the
simple knowledge of them is not enough to supply the lack of advertisement." Because the
designations may be mandatory or only optional, and in certain cases, certain designations
may have the opposability effect towards third parties, and the others just a simply
information character, Art. 902 of the New Civil Code provides by listing the designations
that insure the opposability towards third parties, and Art. 903 lists the cases where the
designations in the land book don't have a simply information character. Despite the
provisions of Art. 40 par. (1) of Law no. 7/1996 whereby one refers to the registration of the
intention to estrange or mortgage a right, in the provisions of Art. 905 and 906 of the New
Civil Code, one directly refers to the designation of the intention to estrange or mortgage a
right, another difference being the extension by the New Civil Code of the term whereby one may lose the effect of
designating the intention to mortgage or estrange a right from 2 months to 3 months.
Another novelty element introduced by Art. 906 of the New Civil Code is the
regulation of designation procedure of pre-contracts and of the option pacts. Therefore, the
promise of concluding a contract, having as object the property right on a real estate or
another right related to it may be noted in the land book, if the promissory is registered in the
land book as holder of the right that makes the object of the promise, and the pre-contract,
under the penalty of rejection of the designation request, provides the term during which the
contract follows to be concluded. It has to be mentioned the fact that the designation may be
made anytime within the term provided in the pre-contract, but not later than 6 months from the
expiry of pre-contract.
In the circumstances whereby the entitled person did not require the law court the
pronouncement of a decision that takes place of a contract, the promise would be cancelled
within 6 months from the passing of the established term for the conclusion of contract or if
meanwhile, the real estate has been definitively adjudged within the forced sale by a third
party that is not kept liable for the promissory's obligations. Also, the de-registration of
designation would be decided by office when within 6 months from the date when the
contract should be concluded, it was not required the registration that made the object of
promise, except for the situation whereby the promissory - buyer issued the designation of
action whereby it required the court the pronouncement of a decision that supplies the
contract. Under the circumstances, but whereby the real estate was adjudicated by a third
person, not related to the obligations of the promissory - seller, definitively, by the way of
forced sale, and the action in front of the court of the promissory - buyer has not definitively
solved, the cancellation of designation in the land book will be decided by office. In this
circumstance, the main effect of designation consists in the insurance of opposability towards
third parties, if there could be designation cases with a simply information effect.
With respect to the land book actions, a first change brought by the New Civil Code
aims the action in tabular provision by the new regulation, requiring always that the acquirer
third party have been of bad faith, independently if the legal document, based on which it was
required with a free or an onerous title. Compared to the regulation, Art. 27 par. (5) explicitly
provided at point b). that the third party has been of bad-faith only in the conditions whereby
he had required the real estate with an onerous title. Also, the new regulation provides that
the action in tabular provision with a special character, provided by Art. 897 is prescribed
within 3 years from the registration request date of the right in its use, except for the case
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where the right to action of the plaintiff against the tabular predecessor has been prescribed
before.
In the circumstance of action in tabular rectification and in the provisions of the New
Civil Code, the action in rectification, under the reserve of prescription of the right to the
action in fund, is un-prescripting both towards the immediate acquirer, as well as the acquirer
third party of bad-faith of the right registered in its use. Regarding the term during which the
action in rectification may be introduced against the third persons that acquired in good faith a
real right by donation or related, despite of Law no. 7/1996 that provides a term of 10 years,
the New Civil Code reduces this term to 5 years. Also, the Art. 909 at par.(3) the final thesis
provides on exception way the term of 1 year in the case that the conclusion, which the
registered that makes the object of action in rectification was ordered, has been communicated
to the entitled person.
For not being any dispute regarding the kind of these terms, at the last paragraph of
Art. 909 it is explicitly provided that the terms of 5, 3 and 1 year, respectively are decay terms.
Regarding the liability institution, even if Law no. 7/1996 does not provide but regulations
regarding the criminal and the administrative liability, considering that with respect to the
infringement civil liability, the following provisions remain applicable: Art. 998, 999 and
1000 par. (3) of the Civil Code, in the New Civil Code, Art. 915 provides special decisions
regarding the infringement civil liability with respect to the land book. Therefore, one
provides that the prejudiced person by a fact committed even by guilt, in maintenance and
management of the land book, he/she would require the obligation, jointly, to the payment of
compensations of the territory cadastre and real estate advertisement office from the place of
real estate and of the person liable for the prejudice this way caused, if the prejudice could not
be removed, entirely or partially, by exercising the attack actions and ways provided by law.
Under these circumstances, the right to action is prescribed within 1 year term, considered
from the day when the prejudiced person knew the impairing fact, but not later than 3 years
from the date when the fact whereby the prejudice was caused. The prescription is suspended
by exercising the attack actions and ways provided by law for the removal of the effects of
infringing fact.
CONCLUSIONS
The new civil actions related with times today, determined the modification of the
Civil Law, trying in this way to make legal relations and private ownership more secure.
Practically, the legislator understood to complete L. No. 7/1996 by meaning that the real
estate publicity based on general land book evidence system, has the main object the
inscription into the Land Book Registry of all legal documents and actions made into a
territorial administration, having the main purpose making or transferring for real estate rights
or opposite. Real estate publicity is made into local offices.
Not just considered simple modification made to the New Civil Law, the updated laws
involve the existing text and content adapting to our continous changing times. Also, the
connection between the Law No. 7/1996 as a special law and Title No. VII from the New
Civil Law must be considered as close specific juridical and institutional interdependence.
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REFERENCE
1. Baias, A. Flavius, Prefaţă la Noul Cod Civil;
2. Stoica, V (2009) " Drept civil. Drepturile reale principale”, Ed. C.H. Beck, Bucharest;
3. Năsaudean, P. (2009) „Publicitatea imobiliară. Cartea funciară. Analiză comparativă a
Legii nr. 7/1996 şi a Decretului-lege nr. 115/1938”, Ed. Hamangiu, Bucureşti;
4. Nicolae, Marian, (2006), Tratat de publicitate imobiliară, vol I si II, Ed. Universul
juridic, Bucuresti;
5. Tăbăraş, M., Constantin, M., (2007) „Consideraţii generale asupra înscrierilor în cartea
funciară din perspectiva Noului Cod Civil”, în Analele Universităţii Titu Maiorescu,
Seria Drept;
6. Codul Civil Român;
7. Noul Cod Civil Român;
8. Decretul-Lege nr. 115/1938 pentru unificarea dispoziţiilor privitoare la cărţile funciare,
publicat în M. Of. Nr. 95 din 27.04.1938;
9. Legea 163/1946 pentru înlocuirea provizorie cu cărţi de evidenţă funciară, a cărţilor
funciare distruse, sustrase sau pierdute (scoasă din evidenţă);
10. Legea nr. 242/1947 pentru transformarea cărţilor funciare în cărţi de publicitate
funciară, abrogată prin Legea nr. 7/1996 privind cadastrul şi publicitatea imobiliară;
2. Legea nr. 7/1996 privind cadastrul şi publicitatea imobilliară, republicată in M. Of. Nr.
201 din 03.03.2006, cu toate modificările şi completările ulterioare;
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THE ROMANIAN UNIVERSITIES IN THE PARADIGM
OF ENTREPRENEURIAL UNIVERSITIES
Radu Herman;
University of Bucharest;
ABSTRACT
The purpose of this short paper is to identify the problems that need to be researched
for the Universities that aim to become Entrepreneurial. In general, the Universities’ limits
are the tough management and the ability to draw private funds, and the Entrepreneurial
Universities try to diminish these shortcomings. Any transformation or reorganization is
much more efficient if it is based on an economic research.
A change of paradigm takes place in the academic world because besides the
traditional research functions and education/teaching, the Universities begin to incorporate
in their strategy elements regarding the community’s economic and social development with
the concept of Entrepreneurial University. Besides the incorporation in the University mission
of some specific elements for the non-profit sector, a competition is created for the services
provided simultaneously, with new implications that suppose an economic analysis in order to
be understood. Thus, there are new activities in the entrepreneurial University and it has to
formulate specific objectives that will aim at the new aspects, facing managerial and
economic implications.
Key words: Entrepreneurial Universities, Community, Non-profit sector,
Management, Work Systems.
1. INTRODUCTION
The Romania’s educational system is influenced by several factors, some with a major
impact that are connected to the country’s educational law, the community’s acquis which has
to be harmonized with the integration in the European Union, the industries’ economic
structure and their dynamics, the University’ management strategy, the ways to finance
activities, the services provided by the competitive organizations on the same fields. In the
academic world it is said that ’’ the researches are not applied’’ and the economists have
instruments to study the implications of the University’s orientation more and more towards
the market, respectively towards the applied researches. The author’s purpose is to explore the
implications of the University adoption of an entrepreneurial view, respectively what kind of
benefits can it obtain when it integrates the economic development as a suplimentary function
with the traditional activities related to research, education and teaching.
2. WHAT IS THE RELATION BETWEEN THE PAPER AND THE ALREADY
EXISTENT SPECIALIZED LITERATURE?
Achim Walter, Michael Auer, Thomas Ritter (2006: 541) show that a spin-off's
organizational tendency and processes that enhance innovation, constructive risk taking, and
proactive ways in dealing with competitors do not enhance growth and do not assure the longterm
survival of the organisation, but the network capabilities moderates the relationship
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between entrepreneurial orientation and organizational performance. Igor Prodan, Mateja
Drnovsek (2010: 332) showed serveral statisticaly signiffiant relationships: entrepreneurial
self-efficacy is positively related to academic-entrepreneurial intentions, academic’s personal
networks are positively related to the entrepreneurial self-efficacy, the extent of perceived role
models is positively related to the intensity of academic-entrepreneurial intentions, the
number of years spent at the academic institution is negatively related to academicentrepreneurial
intentions, the number of patents (applied for/granted) is positively related to
academic-entrepreneurial intentions, the prevalence of applied research (type of research) is
positively related to academic-entrepreneurial intentions, cooperation with the industry is
positively related to the number of patents (applied/granted) and cooperation with the industry
is positively related to applied research (type of research). Martin Obschonka, Rainer K.
Silbereisen, Eva Schmitt-Rodermund (2010: 63) use a cross-sectional sample of 496 German
scientists to investigate a path model for the effects of entrepreneurial personality and found
out that the entrepreneurial personality can be promoted early in life with activities like early
inventions, leadership and commercial activities. There is a link between the ability of a
pearson to be entrepreneur and it’s previous behavioral pattern of activities. Henry Etzkowitz
(1998: 823) show that Universities are currently incorporating economic and social
development as part of their mission and the entrepreneurial university integrates economic
development as an additional function.
3. PAPER CONTENT
The educational services can be analyzed from an economic perspective as other
services, by using the instruments specific to the economist approach. They can be analyzed
as a result of an investment process which has the effects measured through the quantity and
the quality of the educational services provided by the people who need them. That is why the
results of the scientific production can be measured through the performance indicators and as
well as the available alternatives of services can be identified by the consumers of these
services. In general, the managerial aspects are oriented towards the University’s
organizational problems while the economic aspects are concentrated on the competitive
aspects of the market in which they develop their activity. I consider that an integrated view
concerning the Entrepreneurial Universities should explain first of all the aspects related to
the market competitive components in order to identify the variables we refer to, as well as
the organizational elements for the University to be competitive in the given conditions. For
example, if it maintains for a long time more than it is needed the same strategy it could have
a loss in efficiency, if the market conditions are modified and it doesn’t react in time, it can
have a loss of opportunity, and if the internal strategy is not opportunely chosen it will have a
loss in efficiency. The Universities provide services regarding research, teaching and learning,
and as they become entrepreneurial they provide some services requested by the community.
When an organization provides educational services, it concentrates its attention towards the
market, it has to take into consideration the industry’s structure with which it interacts, the
financing opportunities, the orientation towards certain competitive advantages, it is
constraint to study those interest variables that influence its economic decisions if it aims at
performance.
William C. Cummings (2007: 60) identified some work systems showing that some
economies give a great importance to the employment structured by organizational principles,
while others prefer the profesional activities. From his point of view there is an inclination of
certain societies to appreciate the technical- professional education, and of others to have a
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theoretical preparation concentrating on the bachelor degree after finishing the superior
studies. Naturally, there is the question which one is the inclination of the Romanian society
and how the suppliers of these educational services can aim at those segments. William C.
Cummings (2007: 119) shows that between the economies there is a difference in the intensity
of the relation between schools and employers, for example in Japan and Germany the
training takes place at work, firms financing it and in England the training can be at work,
although the state offers great subsidies for practice at work.
Romania is a member of the European Union and it is influenced by the common
policies, existing in this way some institutional structures with which they have to harmonize
when there are taken some important decisions. The Entrepreneurial Universities’ success will
depend on the way they will succeed to draw private financing and in the way they are going
to integrate with success the new function regarding the economic development of the society
next to the classical functions related to research, education and teaching. The purpose of this
whole article is to analyze the modalities through which the Romanian Universities can reach
performance in the paradigm of the Entrepreneurial Universities.
CONCLUSIONS AND IMPLICATIONS
I consider that an integrated view concerning the Entrepreneurial Universities should
explain first of all the aspects related to the market competitive components-in order to
identify the variables we refer to, as well as the internal organization elements for the
University to be competitive in the conditions of the Entrepreneurial Universities’ values
inclusion in the mission.
REFERENCES
1. Achim Walter, Michael Auer, Thomas Ritter, “The impact of network capabilities and
entrepreneurial orientation on university spin-off performance”, Journal of Business
Venturing, Volume 21, Issue 4, July (2006), Pages 541-567,
10.1016/j.jbusvent.2005.02.005.
2. Cummings, William K. Instituții de învățământ, Bucharest: Editura Comunicare.ro,
2007.
3. Henry Etzkowitz, “The norms of entrepreneurial science: cognitive effects of the new
university–industry linkages“, Research Policy, Volume 27, Issue 8, December
(1998), Pages 823-833, 10.1016/S0048-7333(98)00093-6.
4. Igor Prodan, Mateja Drnovsek, “Conceptualizing academic-entrepreneurial intentions:
An empirical test”, Technovation, Volume 30, Issues 5–6, May–June (2010), Pages
332-347, 10.1016/j.technovation.2010.02.002.
5. Martin Obschonka, Rainer K. Silbereisen, Eva Schmitt-Rodermund, “Entrepreneurial
intention as developmental outcome“, Journal of Vocational Behavior, Volume 77,
Issue 1, August (2010), Pages 63-72, 10.1016/j.jvb.2010.02.008.
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EXPLORING THE EFFECTS OF BOOK TRANSLATION IN HISTORY OF
ECONOMICS. EMPIRICAL EVIDENCE FROM A LLP-ERASMUS PROJECT
Radu Herman;
University of Bucharest;
Cornelia Nistor;
University of Bucharest;
ABSTRACT
The purpose of this article is to explore the effects in the long run of translating books
of the history of economics in the population national languages. Through the programme
LLP/Erasmus Multilateral Project called Economics e-Translations into and from European
Languages, An Online Platform” will be available the data on which the research will be
made. Books are a source of knowledge and translating books in the foreign languages of
communication is a way of transferring knowledge. Books are a community good and the
constraint is in the language in which they are available. A way of accelerating the
knowledge diffusion is by translating books in foreign languages in order to allow access for
many users.
Key words: Erassmus Programme, Translations, History of Economics,
Communication, Knowledge Diffusion.
1. INTRODUCTION
It is important to study this problem because books represent a source of knowledge and
translating books in the foreign languages of communication is a way of transfering
knowledge. It is better to have the book translated in the national language in order to improve
the access to it, and the access to knowledge from a certain book is restraint for the population
of the country where is a high percent of mono speakers. If there is a valuable book of the
history of economics which has not been written in an international language or if there are a
few speakers of that international language from a certain country, then there are some
barriers regarding the transfer of knowledge and of the culture integrated in that book. That is
why, as the mono speaker population has access to a translated book of the economy’s history
the barriers are diminished.
2. WHAT IS THE RELATION BETWEEN THE PAPER AND THE ALREADY
EXISTENT SPECIALIZED LITERATURE?
Victor Ginsburgh, Shlomo Weber, Sheila Weyers (2011: 228) argue that books
represent a factor for cultural transmission, but the translation is needed in order to achieve
this purpose. Alexandre Perrin (2006) considers that the process of translation represents a
channel for the circulation of knowledge. Within the translation process, the knowledge in not
only transferred but also a transformation process occurs. Hosni Mostafa El-dali (2011: 29)
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argue that even although “translation studies” existed from a long period of time, only in the
last 50 years it became a discipline in its own right and it is considered a “subdiscipline of
applied linguistics”. Sim Monica Ariana (2011: 153) argues that in a global market place,
translations become more important and need a more serious approach. The choice of
language is a trivial decision when the consumers are monolingual. (Ramon Caminal, 2010:
774)
3. PAPER CONTENT
In the society based on knowledge it is important the creation and the diffusion of
knowledge. If a history of economics book has been written in a language less known, there
is a barrier concerning the culture and the knowledge for the people that don’t know that
language. The economic problem is related to the number of the speakers of a certain
language, and the barriers to enter on a market are connected to the users’ capacity to
understand that material. There is a certain percent of a country’s population which speaks
more languages and understands the international languages. The producer of a certain
material or the limited offer in the case of a history of economics book has the opportunity to
make the material (book, article, media product) in the national language or choose an
international language with the constraint of the competition as the number of users of a
certain language increases.
The access to knowledge from a book is better if it is translated in the national
language. The purpose of the Erasmus programmes is also this component of translating
materials from a language to another one for the countries members of the European Union.
The offer of books of economy’s history is limited, and a way to improve the access to
reading them is by translating in the national language. Globalization improves in this way the
access to knowledge and the specific culture of every country, there is an increase of the
access to culture for the population of every country. The disadvantaged groups are the ones
that speak only one language, and especially the ones that have as a language one that is not
international. There is a difference between the frequency of the books considered important
in the discipline of the history of economics, the authors that published valuable books in a
language that is not international and the authors that published in a language relatively
international. There is discrimination among the speakers of one language in a country and the
ones that speak several languages, relevant for this discussion being how this economy’s
history book has been written in a language less known.
In this frame, the programme LLP/Erasmus Multilateral Project called Economics e-
Translations into and from European Languages, An Online Platform” becomes more and
more efficient as the access to the history of economics books that haven’t been written in the
languge of speakers in a country increases. The aim of this project LLP/Erasmus is to increase
the access to the history of economics book that has been written initially in a different
language from the national one.
The purpose of this article is to make a case study to identify and understand the
implications in the long run of translating books of the history of economics in the
population’s national languages. The programme called Economics e-Translations into and
from European Languages, An Online Platform offers an opportunity for the segment of the
population that speaks only the national language and an opportunity to access knowledge
regarding the history of economics books that have been translated until 1945.
This research aims to explore aspects related to the implication of translating books of
the history of economics having more hypotheses:
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1. There are propagated cultural idiosyncratic elements; the knowledge transfer volume of the
history of economics among the mono speakers of national languages is increasing.
2. New cultural preferences are created as the access to integrated culture in the history of
economics book of the mono speakers of a language in a certain country increases.
3. The error frequency made by the students that study the history of economics in the
countries of the European Union and which have been a part of this programme Erasmus LLP
will be reduced.
CONCLUSIONS AND IMPLICATIONS
The purpose of the project LLP/Erasmus “Economics e-Translations into and from
European Languages, An Online Platform” is to increase the access to the history of
economics books which were initially written in a different language than the national one.
An exploratory research is going to be made in order to identify and understand the
implications of translating the history of economics books in the long run in the national
languages of a country’s population.
This short paper is a part of the dissemination activities for the project LLP /
Erasmus "Economics e-Translations from and into European Languages, An Online Platform"
number 51829/-LLP-2011-IT-ERASMUS-FEXI. An important goal of the project is to
investigate the great impact of the economic texts translations of history of economics and
history of economic thought, taking into account the historical, educational and linguistic
aspects of the translations made in each country participating in the project. The main goal is
to jointly implement an online database containing digitized texts, translations in the national
languages of the main writings of specialized books and articles in economics.
REFERENCES
1. Alexandre Perrin, "Lost in Translation: Why Organizations Should Facilitate
Knowledge Transfer," Post-Print halshs-00082398, HAL., 2006.
2. Hosni Mostafa El-dali, “Towards an understanding of the distinctive nature of
translation studies“, Journal of King Saud University - Languages and Translation,
Volume 23, Issue 1, January 2011, Pages 29-45, 10.1016/j.jksult.2010.01.001.
3. Ramon Caminal, “Markets and linguistic diversity“, Journal of Economic Behavior
&amp; Organization, Volume 76, Issue 3, December 2010, Pages 774-790,
10.1016/j.jebo.2010.09.009.
4. Sim Monica Ariana, "Voice Problems In Translations Of Romanian And English
Economic Texts," Annals of Faculty of Economics, University of Oradea, Faculty of
Economics, vol. 1(1), July 2011, pages 153-159
5. Tamas Cristina, "Linguistic and Cultural Interferences in Translating Economic Texts
by Means of Borrowing Words from the Source Language-Culture," Ovidius
University Annals, Economic Sciences Series, Ovidius University of Constantza,
Faculty of Economic Sciences, vol. 0(1), May 2011, pages 2084-2090
6. Victor Ginsburgh, Shlomo Weber, Sheila Weyers, “The economics of literary
translation: Some theory and evidence”, Poetics, Volume 39, Issue 3, June 2011,
Pages 228-246, 10.1016/j.poetic.2011.04.001.
7. *** Economic e-Translations into and from European Languages Project Portal
accessed 30 april, 2012, http://eet.pixel-online.org/
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TORTS RELATING TO CONSTRUCTION INDUSTRY: NUISANCE
Abdul Aziz Hussin;
School of Housing, Building and Planning,
Universiti Sains Malaysia, 11800, Minden, P. Pinang, Malaysia
Abdel Wahab O. Gebril;
School of Housing, Building and Planning,
Universiti Sains Malaysia, 11800, Minden, P. Pinang, Malaysia
Abdelnaser Omran;
School of Housing, Building and Planning,
Universiti Sains Malaysia, 11800, Minden, P. Pinang, Malaysia
ABSTRACT
Nuisance is the branch of the law of tort concerned with ‘protection of environment’.
Nuisance refers to anything that causes offense, interruption of enjoyment, annoyance, or
possible trouble, damage, or injury. This paper provides a short overview on nuisance and its
relations to the construction industry. The data was obtained based on published articles,
proceeding papers, browsed websites and reports with selecting some case studies and
discussing them. The general conclusion from this paper is that nuisance is one of way for the
individual to secure peaceful from external interference and play an important role to uphold
an individual’s interest in a quiet life.
Keywords: Torts, Construction Industry, Nuisance, an Overview
1. INTRODUCTION
In common a law jurisdiction, a tort is a civil wrong not a criminal wrong. Law of tort
deals with situations where someone is suffering loss or harm due to unfairly behaviour by
another person. In tort, an illegal act is not a necessary to claim in tort as long as the
behaviour of a person causes harm to anyone else. The law of tort allows anyone who is
harmed to recover their loss. The word ‘tort’ is derived from the Latin tortus (twisted) and is
connected with the French tort (wrong). Thus the keynote of the subject lies in wrongdoing
set in a civil, opposed to a criminal: that is to say wrongdoing is actionable at the suit of the
person injured (James and Brown, 1978). Yeats et al. (2005) defined tort as a branch of the
civil law (as opposed to criminal law) based on a claim that the defendant has caused injury or
loss to the claimant by breaking or relevant obligation imposed by the general law. Therefore,
law of tort offers remedies to person who is harmed by the unfairly action of others. A person
who is suffers a tortuous injury is entitle to claim in tort from the person who is responsible to
that legal injuries. Usually, the harmed person is entitle to receive monetary compensation
from the person caused the injuries. Legal injuries in tort are not limited to physical injuries,
but also include emotional, economic, reputational injuries as well as violations of privacy,
property, or constitutional rights (Wikipedia, 2012). The word tort refers to many type of non-
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criminal wrongful conduct done by one person and injuring another, but tort does not include
a breach of contract. The subjects that covered by tort are negligence, trespass to person such
as assault, battery, and false imprisonment, trespass to land, defamation, and nuisance.
However, this report will only focus on nuisance in detail.
2. NUISANCE
The law of nuisance is one branch of the law of tort which purpose is to provide
comfort to persons who have proprietary interests in land and to members of society
generally, through control of environmental conditions. Although a person who has interest in
land is able to do whatever he wishes on his land, his activities however, must not cause
inconvenience or damage to another person who similarly has an interest over his land. Thus
the law of nuisance is concerned with the balancing of competing interests (Talib, 2003). The
aim of law of nuisance is to protect the environment and the material living comfort of the
public generally (Abdullah, 2004). Usually, negligence can cause nuisance. However, it does
not mean that all the nuisance caused by negligence. Nuisance can occur with or without
negligence. There are two types of nuisance, which are public nuisance and private nuisance.
2.1 PUBLIC NUISANCE
Public nuisance arises when there is an interference with public rights such as the
obstruction of public highways or the selling of the contaminated food (Talib, 2003).
Nuisance would be created if, knowing or having the means of knowing its existence, a
person allows it to continue for an unreasonable time or in unreasonable circumstances. So, if
a tree adjoining a highway falls onto the highway without any negligence on part of its owner,
and the tree causes an obstruction to the highway it would be wrong to suppose that a
nuisance is immediately created (Talib, 2003). In addition, public nuisance is also occurs
when the public’s right is violated and sometimes amounts to a criminal offence. For example
in the case of Majlis Perbandaran Pulau Pinang v. Boey Siew Than & Ors [1978] 2 MLJ 156,
it was held that, “it is clear that a nuisance is a public nuisance, if, within its sphere which is
neighbourhood, it materially affect the reasonable comfort and convenience of a class of the
subjects of the State”.
In Attorney-General v. PYA Quarries Ltd, it was stated that public nuisance arises
when an act materially affects the reasonable comfort and convenience of life of a class of the
society. It shows that, to claim public nuisance, it is not necessary that every single member
of the society is affected. However, public nuisance also can be brought by an individual. In
the case of Barber v. Penley [1893] 2 Ch 447, the defendant caused a queue to form thereby
causing access to the plaintiff’s boarding house to be very difficult at times. It was held that
the defendant was guilty of public nuisance. Public nuisance is a crime as well as a tort. A
person who is found guilty of public nuisance may be subject to criminal sanction (Talib,
2003). Therefore, an individual who is affected by public nuisance can claim on tort if they
can prove that they suffer more than others.
2.2 PRIVATE NUISANCE
Private nuisance may be defined as unlawful interference with a person’s use, comfort,
enjoyment, and any interest that a person may have over his land (Talib, 2003). Interference
become unlawful and constitutes a nuisance when it unreasonably interferes with the
plaintiff’s enjoyment of his land. Talib (2003) also mentioned that in action for private
nuisance the plaintiff must prove interference with the enjoyment of his land. Therefore, the
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plaintiff must have an interest in land to be able to sue in private nuisance, unlike a claim
based on public nuisance which does not have any interest over land. The difference between
public nuisance and private nuisance was laid down in the case of Majlis Perbandaran Pulau
Pinang v. Boey Siew Than & Ors [1978] 2 MLJ 156, where it was stated, “...a nuisance is a
public nuisance, within its sphere, which is the neighbourhood, it materially affects the
reasonable comfort and convenience of a class of the subject of the State. A private nuisance
...is one which disturbs the interest of some private individual in the use and enjoyment of his
property by interference with the usual enjoyment of property by causing or permitting the
escape of deleterious substances or things such as smoke, odours, or noise. The difference
between a public and a private nuisance is that, in regard to the former, rights which are
common to all subjects are infringed. Such rights are unconnected with the possession of or
title to immovable property. According to Talib (2003), the elements required to establish
private nuisance are:
i. Substantial interference
The plaintiff must prove that he has suffered damage in order to succeed in his claim.
The tort protects a person from two types of damage or interference which are:
a. Interference with the use, comfort, or enjoyment of land
It is known as amenity nuisance as they result in the feeling of discomfort whereby
one is unable to live peacefully and comfortably on one’s own land arising from the
defendant’s activity. What constitutes substantial interference depends on the facts and
circumstances of the case. A trivial interference does not give rise to nuisance. The complaint
made by the plaintiff must be reasonably justified in the context of the surrounding
circumstances.
In the case Woon Tan Kan (Deceased) & 7 Ors v. Asian Rare Earth Sdn Bhd [1992] 4
CLJ 2299, the plaintiffs are residents of Bukit Merah Village sued the defendants, principally
for an injunction to restrain defendant’s company from operating and continuing to operate its
factory. The plaintiff alleged that the activities produces dangerous radioactive gases and
harmful to the residents. Therefore, the High Court granted a quia timet injunction and held
that the tort of private nuisance was established.
b. Material or physical damage to land or property
Where actual damage to land occurs, the general principle is that it amounts to
substantial interference. However, it is not automatic that actual physical damage is
substantial. It must be established that the ohysical damage is substantial in nature. For
example, in the case Goh Chat Ngee & 3 Ors v. Toh Yan & Anor [1991] CLJ 1163, the
defendant who held a mining license on mining works on his land. Plaintiff whose land
adjacent to the defendant’s land alleged that through their mining activities, the defendant
committed negligence and nuisance. The mining activities constituted an unnatural use of land
as water escaped and flooded plaintiff’s land causing it collapsed and sink, subsequently
causing flooding, erosion, and settlement. The Court held that the defendant was liable in
nuisance for unreasonableness, unlawful, and substantial interference with the use and
enjoyment of his neighbour’s land.
ii. Unreasonableness
The first requirement in establishing nuisance is to prove that the interference is
substantial in nature. In determining what constitutes ‘substantial’ interference, the plaintiff
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must further prove the interference to be unreasonable. The unreasonableness of the
defendant’s activity is the second requirement in establishing nuisance. Generally, far an
action in private nuisance to lie in respect of interference with the plaintiff’s enjoyment of his
land, it has to arise from something emanating from the defendant’s land, such as noise, dirt,
fumes, a noxious smell, vibrations, and suchlike (Talib, 2003).
a. Extra ordinary sensitivity on the plaintiff
Law of nuisance not sympathetic to someone who is extra sensitive, whether to
himself or related to his property. Sensitivity cannot be used as a basis for claiming but once
unreasonableness and substantial interference is established, sensitivity will not deprive the
plaintiff’s right from obtaining remedy. It can be shown in the case Robinson v. Kilvert
[1889] 41 Ch D 88. The defendant was in the business of making paper boxes. The process
involved using hot air. The plaintiff who lived in the floor above the same premises was in the
business in selling special paper, which was sold according to weight. The hot air from the
defendant’s place caused the moisture in the plaintiff’s papers to dry up. The raised
temperature in the plaintiff’s premises did not inconvenience the plaintiff’s workers and it
would not have affected normal paper. The court denied the plaintiff’s claim for
compensation on the ground that ordinary paper would not have been affected by hot air, and
therefore, the plaintiff’s property was extra sensitive.
b. Interference must be continuous
The interference must be something that is continuous or occurs very often, as
continuous activity will constitute substantial interference.
c. Temporary interference and isolated accident
Even interference has to be continuous in order to constitute nuisance, but this factor is
not conclusive and that a temporary interference or an isolated incident may constitute
nuisance. The general principles are:
- More serious the interference, the more likely the court will regard it as unreasonable.
- The length of time and therefore persistence of the interference is taken into
consideration in establishing nuisance.
- Temporary interference may give rise to an actionable nuisance if it causes physical
damage.
- If interference occurs only once, thereby making it an isolated interference, the
principle is that the defendant will only found liable if there is pre-existing dangerous
states of affairs on his premises for which damage to the property is reasonably
foreseeable.
d. Malice
The existence of malice may cause the defendant’s act to be unreasonable. This is not
certainty in all cases and the facts of each case have to be considered. In the case Christie v.
Davey, the plaintiff was a music teacher who conducted music classes at her house. Her
neighbour, the defendant, did not like the sounds from the musical instruments and in turn
shouted, banged at the adjoining walls, and clashed pots and pans whilst the plaintiff was
conducting her classes. The court found that the defendant was malicious in his action and
injunction was granted to the plaintiff. Whichever type of damage is materialized, the plaintiff
must prove that there has been substantial interference.
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3. DEFENCES IN NUISANCE
The defences in nuisance consist of two types which are prescription and statutory
authority. Statutory authority is applicable to both public and private nuisance. In the other
hand, prescription is only applicable to private nuisance.
1) Prescription
A defence of prescription is applicable for private nuisance where a continuous
interference for a long period of time is a good defence. The defendant has to prove that the
interference is actionable nuisance for the whole period and the plaintiff therefore allowed in
the interference to continuously occur. For example, in the case Sturges v. Bridgeman (1879)
11 Ch D 852, the defendant had been carrying on a confectionery business that involved the
use of noisy equipment that created strong vibrations for more than 20 years. The doctor who
owned the adjacent house was unable to use his newly-built consulting room because of the
noise and vibration. It shows that this was an actionable nuisance that was not negated by
prescription because the nuisance only started once the consulting room was built. The time
period commences not from the start of the act in general but from the start of it becoming
nuisance.
2) Statutory authority
If the defendant’s conduct was authorised by statutes, it is likely to provide a defence
against claims of nuisance. Some statutes specifically state that they preclude the possibility
of action for nuisance, for example the Civil Aviation Act 1982 provides that a claim cannot
lie in nuisance or trespass in relation to aircraft flying over land.
4. DAMAGES AND REMEDIES IN NUISANCE
Damage in nuisance cases are of two types which are damage to property and/or
interference to personal comfort. Usually, the remedies for damages in nuisance are including:
i. The cost of reinstatement
ii. Pure economic loss in the form of the fall in the value of land has been held to be
recoverable,
iii. An injunction to prevent nuisance from continuing; and
iv. Monetary compensation.
5. PROBLEM STATEMENT
Abandonment of tortuous responsibility by the contractors and the subcontractors may
lead to the nuisance problem in the construction project such as noise and dust problem to its
surrounding.
6. DISCUSSION
In construction industry, it is important for the developers and contractors to prevent
nuisance from occurring during construction. The common complaints of nuisance from
construction sites which include:
- Dust
- Smoke from burning rubbish
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- Noise and vibration from plant and machinery
- Waste,
- Lack of privacy, and
- Fumes from plant and machinery.
There are few cases which specifically discuss the nuisance in construction industry
especially related to construction site. The discussion regarding law cases of nuisance in
construction are as follows:
6.1 ANDREAE V. SELFRIDGE & CO. LTD. [1938]
The plaintiff was a hotel owner meanwhile the defendants were demolition contractor
who were in the course of demolishing property near the plaintiff’s hotel. The defendants
were held liable for causing an excessive amount of dust and noise (Bradbury, 1978).
6.1.1 Discussion
Some nuisances may be tolerable and acceptable however in this case they had cause
stress and discomfort or inconvenience to plaintiff that adversely affects the health and quality
of life of plaintiff and his customers. Besides that, the plaintiff could suffer damages or loss of
customers due to excessive amount of dust and noise cause by the defendants. Therefore, it is
the responsibility of defendants to avoid nuisance from occurring before any construction
begins. The nuisance can be minimized through proper precaution by developing dust
management plan or noise management plan at planning stage before construction commence.
Besides that it is necessary for the contractor to inform the residents near the construction site
before starting the construction while constantly informing the residents about activities that
will take place and the approximate times of the activity during construction stage.
6.2 HO SIEW CHOONG V. ON-KWARD REALTY SDN BHD & ANOR [2000]
The plaintiff who was the owner of an apartment A-2-5 which situated in a resort
known as Bayu Beach Resort Port Dickson had claimed that the defendants had cut off the
water supply. The first defendant was the developer of the resort while the second defendant
was appointed by the first defendant to manage and maintain the common properties, facilities
and services of the resort which consisted of three blocks. Thus, the plaintiff now requests the
defendants to reconnect the water supply to the apartment and restrained the defendants from
shutting off the water supply to the apartment as long as the plaintiff makes full payments of
his apportioned share of the water charges to the apartment. It was held that the defendants
were liable for causing inconvenience and distress to the plaintiff due to interfering with the
enjoyment of property by cutting off the water supply. The plaintiff was awarded RM1,
000.00 as compensation to the damages that has suffered by plaintiff.
6.2.1 Discussion
Private nuisance is describes as interference with a person’s use or enjoyment of land
or property or some right over, or in connection with it (l.J.,1945). In Hunter v. Canary
Wharf, there are three main forms of private nuisance are been identified which were
encroachment on a neighbour’s land, physical injury to a neighbour’s land and substantial
interference with a neighbour’s quiet enjoyment of his land. In the above case, the plaintiff
has suffered difficulty and discomfort for a certain time due to defendants’ act. It is the
responsibility of the second defendant to inform or give notice prior to the plaintiff before
shutting off the water supply to the apartment. This could provide adequate time for the
plaintiff to find better alternative or solution. Besides that, the first defendant is responsible to
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inform the second defendant that there was occupant living at the apartment in the resort.
Therefore, the second defendant should develop efficient planning and scheduling while
managing and maintaining common properties, facilities and services of the resort before
starting the work. The second defendant should take certain precautions before commence of
the work to prevent inconvenience to the plaintiff and to stop the problem regarding nuisance
continuously from happening.
6.3 UDA HOLDINGS BHD. V. KOPERASI PASARAYA
MALAYSIA BHD. [2007]
In this case, there were three appeals against the decision of the trial judge before the
court. The first appeal was by Urban Development Authority (UDA), whilst the second and
third appeals were from Dewan Bandaraya Kuala Lumpur (DBKL) and the Government of
Malaysia. The respondent was co-operative societies operating a supermarket with customers
mainly from its members consisting of about 6000 individual members and 50 co-operative
societies with the products sold at the supermarket were basically foodstuff and household
goods. The main entrance to the supermarket was a road where 35 parking bays were located.
That road proved to be very convenient to the customers of the respondent’s supermarket for
purposes of loading and unloading passengers and goods to their vehicles. The respondent
claimed damages for public nuisance because the appeals caused a portion of that road to be
closed to all traffic to construct 76 stalls at that road to relocate unlicensed hawkers who had
earlier occupied a piece of land owned by UDA in which UDA intended to construct a multistorey.
The closure of the road was supposedly for two years. However, it was only re-opened
to public after five years. During the period, the respondent’s supermarket business suffered
badly. The appeals (UDA Holdings, DBKL and the Government of Malaysia) were liable
under the cause of action for public nuisance. However, public policy demanded that DBKL
be exempted from liability for pure economic loss. Since UDA was not a public body, the
protection offered to DBKL did not apply to UDA Holdings. UDA Holdings was therefore
liable to the respondent for public nuisance. Meanwhile, the respondent succeeded in its claim
for damages in the sum of RM23, 743,157.00 with interest.
6.3.1 Discussion
In Attorney-General v PYA Quarries Ltd [1957] stated that public nuisance occurs
when a person causes a nuisance which endangers the health, property or comfort of the
public generally or obstructs the public in the exercise of their rights. Public nuisance is a
crime while a private nuisance is only a tort (Rogers, 1994). Based on case above, due to acts
of the three appellants to close the road in a busy commercial area for more than five years
clearly causes the collapse of the supermarket’s business and inconvenience to the respondent,
the customers of the respondent and the users of that road generally. The respondent suffer
huge damage and loss as the supermarket’s business depended completely on the customers
who were used to parking their cars at the parking bays on the road for the purpose of loading
and unloading foodstuff and household goods purchased from the supermarket. Therefore,
UDA, DBKL and the Government of Malaysia are ordered by the court to bear the damages
equally. The UDA Holdings should relocate another place instead of that road for the
construction of 76 stalls at that road for unlicensed hawkers had occupied a piece of land
owned by UDA. Besides that UDA Holdings should plan properly before constructing the
stalls and should take extra precaution to prevent delay in construction of the projects by
appointing competent consultant and contractor, has adequate financial facilities, efficient
planning and scheduling etc.
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6.4 HOARE & CO. V. MCALPHINE [1923]
The defendants were in the process of preparing a building site. During the course of
the work they had to drive a number of piles into the ground. The vibrations caused by this
work damaged an ancient hotel belonging to the plaintiffs situated at the other side of the road
from where the defendants were working. It was held that the defendants were liable under
the principle in Rylands v. Fletcher (Bradbury, 1978).
6.4.1 Discussion
In this case, the defendant will be liable of fault even though there was no actionable
of trespass, nuisance or negligent on the defendant’s part. This is applying under the principle
in Rylands v. Fletcher.
Blackburn J in the court of Exchequer Chamber (1866) stated that "the person who
for his own purpose brings on his lands […] anything likely to do mischief if it escapes, must
keep it at his peril and is prima facie answerable for all the damage which is the natural
consequence of its escape."
Liability under this rule is strict. It is no defence that the thing escaped without the
defendant’s willful act, default or neglect or even that he had no knowledge of its existence.
The only defences available to such an escape would be vis major or to show that it was due
to some fault of the plaintiff (or a third person). The decision in this landmark case created a
new tort. Besides that, pile driving, jack-hammers, explosives and heavy trucks and
equipment can do a tremendous amount of damage to the buildings, homes and residences in
a neighborhood. The noise, the vibrations and the shaking can be extremely frustrating.
Damages from these activities can be mild to severe, from aggravation and emotional distress
to actually compromising the structure and integrity of one's home and possessions.
Therefore, the defendants should take extra precaution before begins the works and develop a
noise management plan for construction noise during planning stage.
CONCLUSION
Nuisance is the branch of the law of tort concerned with ‘protection of environment’.
Nuisance refers to anything that causes offense, interruption of enjoyment, annoyance, or
possible trouble, damage, or injury. Nuisances are divided into private nuisance and public
nuisance. According to Rogers (1994) public nuisance is a crime while private nuisance is
only a tort. Private nuisance focuses around interference with land or property that stems from
neighboring land or property. Public nuisance is a nuisance that takes place in an area that it
creates a nuisance to the general public which includes that interferes with the rights, comfort,
or safety of others, maybe by creating a disturbance in a public area, blocking a public
sidewalk, or performing other behaviors that disturb the welfare of surrounding people in
general and etc. Construction industry could not avoid nuisances. However, it is essential for
the contractor to take extra precaution before commencement of the project in order to
minimize nuisance in construction site. The common complaints of nuisance from
construction sites are dust, smoke from burning rubbish, noise and vibration from plant and
machinery, waste, lack of privacy and fumes from plant and machinery. There are four cases
that have been discussed related to construction industry which are Andreae v. Selfridge &
Co. Ltd. [1938], Ho Siew Choong v. On-Kward Realty Sdn Bhd & Anor [2000], Uda
Holdings Bhd. v. Koperasi Pasaraya Malaysia Bhd. [2007] and Hoare & Co. v. McAlphine
[1923. Often the grounds on which public nuisance arise are very similar to private nuisance.
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The main difference between public nuisance and private nuisance is that for public nuisance
anyone affected can complain whereas private nuisance can only be used to protect private
proprietary interests. In private nuisance the plaintiff had to have an interest in the land
affected while in public nuisance the plaintiff need to have no interest in land may recover for
injury to the person or property. Nuisance is one of way for the individual to secure peaceful
from external interference and play an important role to uphold an individual’s interest in a
quiet life.
REFERENCES
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and Maxwell; 20-34.
2. Francis Moor (2011). Planning for nuisance: A review of the effects of the Planning
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3. Hussin, A. & Abdul Rashid, A. (2000). Aspek Undang-Undang Tort dalam Projek
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5. Rogers, W.V.H. (1994). Winfield and Jolowicz on Tort. Fourteenth edition. London:
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6. Talib, N. (2003). Law of Torts in Malaysia. Petaling Jaya: Sweet & Maxwell.
Abdullah, N.C. (2004). Questions and Answers on Malaysian Courts, Statutes, Cases
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ROLE AND EFFECT OF STOCK EXCHANGE ON THE GROWTH OF
INVESTMENT AND ECONOMIC DEVELOPMENT RESULTING FROM STOCK
MARKET EFFECTS ON BANKING AND MONETARY SYSTEM
Hamid Reza Izadi
Chabahar Maritime University, Iran
Maryam Izadi
Economic Expert - Bank of Industry & Mine, Tehran, Iran
ABSTRACT
About role and effect of stock exchange on the growth of investment and economic
development resulting from stock market effects on banking and monetary system, has been
confessed that these is long term relationship separately and conjoined way. This mutual
relationship between economic growth and stock market development in short term in some
countries is a kind of one-way relationship from stock exchange on the economical growth.
Formation and integration of monetary and finance markets is important in investment flow,
stock market can be used as tool in the formation of these finance markets and economic
development as a result of that. In spite of positive relationship between stock market
development indices and economic growth in the world, because of underdevelopment and
lack of integrated market and correct control of stock financial resources in Iran, effect of this
relationship is less on economic growth and monetary market than banking system granted
credits to private section, but we should pay attention that there is direct relationship between
formation and integration of monetary and finance markets and investments, rate of inflation,
financial development, economic growth that we can increase most of companies and
industries investment by collecting, planning and control of these technical resources.
stock market, financial resources, economic growth
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THE ECONOMIC APPROACH OF HU, AN CAPITAL THEORY AND
EFFECTIVENESS OF EDUCATION
Ioana - Julieta Josan;
University of Bucharest; Ph.D. Student at the National Institute of Economic
Research”Costin C. Kiritescu”
ABSTRACT
The human capital theory is the base of many important concepts of modern
economics and offers one of the main explanations for the differences in pay and earnings by
age and occupation, for unequal incidence of unemployment by professions, contributing also
to politic decisions regarding the allocation of resources for education and qualification in
relation to other factors. The importance attributed to human capital, but also the critics
raised over time to the human capital concept were several reasons enough to submit the
attention on a study upon the analysis of the theories of human capital over time and of
investment in education in terms of its efficiency.
The purpose of this paper is to highlight the contributions made to the human capital
theory from the perspective of economic importance of education starting with the analysis of
the initial human capital model (developed by Becker) and highlighting throughout the paper
the main developments and criticisms that important economy theoreticians brought to the
human capital.
Key words: human capital, education, labor market, investment, efficiency
1. INTRODUCTION
The education and training of human resources lays more than half a century in the
center of interdisciplinary focus of governmental bodies and national and international NGOs.
Research and economics had included as a distinct specialization in the late 50's a new branch
and discipline called education economy. Although the influence that education can have on
human productivity has received and still stressed by classical economists, particularly Adam
Smith, in their works is not found a coherent and detailed analysis to justify their claims. If
we exclude the work and management studies (financial - accounting) of educational
institutions that have developed and have considerable experience in Western countries, the
new economic approach to education includes two major research topics:
- The demand of education analyzed and evaluated by human capital theory;
- The correlation between education, training of labor and economic growth.
Studying these issues has grown and expanded in the 60s, reaching considerable importance
in the 70s. Also, the phenomena of crisis accompanied by increasing budgetary constraints
have produced additional demand for studies and research regarding optimal allocation of
resources for education and searching for more efficient ways of financing it. The growth and
persistence of unemployment have generated a certain priority to the issue of labor education
and continuing education, retraining of workers, influencing directly and indirectly the
demand, content, timing and pragmatism of the formal education. In present, passing through
a new economic crisis, the actuality of this topic remains of major importance because the
human capital theory could be the point of departure for politic decisions on resources
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allocated for education and qualification. Moreover, European Union is the promoter of
human capital development seen as an important factor for creating progress in human
resource growth within the European economy achieving a competitive advantage in
comparison with other economic powers. Other countries, like Japan, have already spent large
sums of money to increase labor qualification and had already managed to become one of the
most important and competitive economies in the world.
Thus, the core of economy education - human capital theory - although it was subject
to both criticism and contradictions as well as to extensions of the scope and content
approaches, remains a topical issue which arouses interest of both theorists and governments
around the world. This paper will analyze the contributions of human capital theory to
economic importance for education - from initial analysis of the human capital model
(developed by Becker) and throughout the paper highlighting the main developments and
criticisms that important economy theoreticians brought to the initial model.
2. LITERATURE REVIEW
The concept of human capital is attributed to Theodore Schultz, theoretical
developments around this concept dates from the 60s and are related connected to the author
contributions above mentioned to which it is added the contribution of Gary Becker and Jacob
Mincer.
However, the core of thinking related to human capital is much older: Jean Bodin said
that “there is no greater wealth than people "and Adam Smith, in Chapter 10 of Book I, “The
Wealth of Nations" shows that" the individual who was educated by a significant expense of
time and work has necessary to perform an activity that will reimburse the cost of his training,
with an ordinary income at least equal to the capital for the same value ". It can be easily
observed that the assimilation of education with an investment and of the individual prepare
with a form of human capital is obvious, but this idea has not been resumed analytically
deeper by Smith or his successors.
Among other references less complex, but significant to economic importance of
education, we can remember Benjamin Franklin who stated that "an investment in knowledge
brings the best profit" or John Stuart Mill who argued that the return to development is rapid
only when the population is allowed to use the same knowledge and skills they had before.
At the early of twentieth century, Irving Fisher developed a theory that considers as
capital any stock resources leading to the birth of future income, paving the way to consider
trained people along with construction of machines, as investments.
The influence of Alfred Marshall - who even thought that in terms of abstract
thinking, human assimilation with a form of capital is fully justified and logical, but supported
by based analyzes applied to this concept, may remain without results because of intangible
training activities - was felt and was even driven to a stagnation of economic theory renewal
of education.
Spectacular increase in the needs of specialists for different professions, generated by
technical and technological developments led also to the restructuring of general knowledge
essential for most jobs; vocational training started increasingly to become and considered as
an investment. Naisbitt affirms that in transition from industrialized economy based on hightech
economy, skilled labor is required for high technology. Qualification to maintain the
operating systems based on high technology has become as important as the qualifications
necessary for their design. Therefore, the issue of investment in human capital today is a
concern for all countries competing for progress and prosperity, but more so, for the countries
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in transition to market economy. Given the general trend of increasing demand for more
educated labor in all industries and highly qualified staff, the investment in human capital is
strategic for any country that seeks to create a knowledge economy. Thus, growth can be seen
in contemporary societies, besides the existence of other traditional factors, as being directly
conditioned by the public education. At the macroeconomic level, in recent decades, no
country has achieved a sustained period of development without having invested substantial
amounts in the labor force and the quantitative evaluation of its contribution to economic
growth and development, the most important role was assigned to the investment in human
capital (Becker).
3. THE HUMAN CAPITAL THEORY AND THE EFFECTIVENESS OF
EDUCATION
3.1. THE INITIAL MODEL OF HUMAN CAPITAL
In the early 60's Gary Becker developed his theory from a model whose key
assumption was that education increases the productivity of its owner. This hypothesis was
completely new in relation to the content of the dominant economic analysis because
education was considered an investment in humans.
The new optic induced new hectic discussions and controversies especially with the Marxist
economists. In relation to the neoclassical theory, Becker's conception was fully compatible as
followers the human capital resumed the hypothesis of compensation in the marginal balance
productivity of factors, bringing into question the mobility regarding the market requirements.
The competition has, at least theoretically, as a result the equalization of price and of
productivity factor in all areas and domains of its use. This means that differences in
productivity and therefore earnings between individuals cannot result in a steady state, but
only in their productive capacities.
Human capital theory argues that it is possible to create and amplify the differences between
individuals by investing in training and education.
From this concept result two major conclusions: first - the theory of the distribution income
and second - choice of the studies, respectively, demand for education.
a) The simple model of earnings arising from human capital theory is as follows:
Ci =f (Qni,Ei) (1)
Where:
Ci = earnings for individual I;
QNi = innate characteristics,”the natural qualities of the individual”;
Ei = education and productive characteristics acquired through the human investment.
Of course in practice there are many other factors that influence individual earnings;
the economy is neither stationary nor mechanical, being constantly subjected to unbalanced
factors. Basically if we analyze the evolution of the income over the past century, we see a
tremendous increase in differences between regions and geographies, countries, industries and
professions, the differences can be highlighted from one country to another and within each
national economy. These differences are much higher than those in education, instruction and
training; Practically, the differences between income - either they are determined on the
national average (GDP per capita) or on the average hourly wage, monthly or yearly - grow,
while the gap in education (average number of school years per individual, the number of
graduates of various forms of education - primary, secondary or higher) is much smaller and
has a decreasing trend.
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The human capital theory seeks to justify the income gap between individuals,
enriching the neoclassical theory of distribution and providing a simple economic explanation
for the variation of individual earnings.
b) As for the second conclusion, concerning the choice of training, education and
demand for education, considering education as an investment will lead to a system of
thought and of action in a more pragmatic way. Each individual will seek to optimize
the return of investment in education or to continue their studies as long as such an
investment rate of return will remain superior to other alternatives. The model of
demand for education begins with a comparison of studies costs with the anticipated
growth additional earnings. Simplified, if we consider that the investment takes a
frame of time, it may be noted:
Where:
C is the cost of studies;
Δyj is the difference between expected net earnings due to investments in education and net
earnings without the investment in education, in the phase j;
r is the rate for return of investment, and n is the number of years (duration) of working life.
In other words it is sufficient to compare the anticipated internal rate of return for one
additional year of studies with alternative investments of the same size to realize if it is
convenient to whether to continue or discontinue the studies; designed in this way, the human
capital model is a theory of education demand.
This model determines a meritocratic system as the most talented individuals are
motivated to get the long-term and/or most difficult studies; the more an individual will have
a higher intellectual level, the education costs will be lower because it will progress more
rapidly than others to achieve the same level of knowledge and performance, accumulating
more human capital at the same time. The return rate in such cases is bigger because the cost
of education is lower and the profits out of the knowledge and human capital accumulated are
higher.
Both the model of earnings and the demand for education have been highly contested.
The debate though resulted in the enrichment of human capital theory.
3.1.1. The main criticisms of the initial theory of human capital
Even if compared with the traditional theory of distribution, the human capital theory
approach was of real progress; practically its explanatory power remained low. If the average
correlation can be observed, sometimes very high, between the level of training, education
and income, it cannot convincingly highlight the dispersion of incomes for individuals that
have the same duration and content of training. The marking differences in earnings are
explained by variables related only to the proportion of 20-50%. The two variables - QN and
E – from the previous relation (1) explain conjugate the differentiation of the gain without
determining how each is due.
Use of intelligence tests (Qj) as objective measure of innate ability to succeed in
school and professionally is challenged by psychologists who claim that Qj evolves with age
and it is correlated with social status and origin.
The theory of separation of human capital from inherent natural qualities developed by
Denison (Denison, 1964) tested by additional variables (father's profession, rank student in
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class to the previous level of education) and other authors have only served to highlight that
as the number of variables count increases, the influence of education tends to decrease.
In addition to operational weaknesses of initial human capital theory there have been
challenged also its hypotheses.
The key hypothesis of the theory - increasing productivity by increasing the level of
education - it was attacked both directly and indirectly (through the organization and function
of the market):
The Filter Theory, which dates from the early '70s, in variations of different authors as
Arrow, Taubman, Wales (Arrow, 1973), argues that education does not add anything to the
productive characteristics of individuals, it contributes only to highlight certain characteristics
- intelligence, perseverance, ability to work, sense of discipline, appreciated by the productive
system.
On the other hand, the Attitudes Theory states that the what productive device is
requiring mass workers is primarily the ability to integrate into the division of labor based on
the sharing of tasks and strong hierarchical control; in other words, it requires to act in
conformity, obedience, acceptance and docility for the group work and control. Secondary
school is organized in the way to develop such attitudes, but on higher levels, its function is
changed to prepare leaders - managers and innovators.
Sociologists, in turn, have developed the Theory of Reproduction; the analysis is
mainly focused on the way the school was used to perpetuate the inequalities to which are
assigned the skills and, respectively, the Theory of inequality of opportunities.
The hypothesis of these approaches sustain that the productive system and education system
evolve each by its own rules. The democratization / generalization of education have nothing
to do with socio-occupational mobility and income equality.
Quite important in recent years are the studies which analyze education and training in
the context of labor market evolution.
Above all, everyone has the natural and acquired characteristics. Between the natural,
the race (skin color), gender and nationality cannot be changed through education.
Competition between individuals for employment and jobs gives great importance to labor
market demand. In this respect, the model of competition for employment proposed by Lester
Thurow (Thurow, 1975) stated for the first time that productivity - is a characteristic of jobs
and not workers - radically contradicting the basic assumption of the theory of human capital;
here, it is also analyzed the distinction between internal and external labor markets looking at
the careers within the company.
The author distinguishes two types of individual adaptation: to the company and to the
organization and its management in workplace (post); in this context it is argued that often
would be more efficient to promote existing employees within the enterprise, rather than
recruit an applicant outside the unit.
Because often it is used the second solution, the training becomes a selection criteria,
even if the training is too general in relation to the specific requirements of a specific job;
individual training is more adaptable and responsive and it’s the only way appreciated that
allows increasing the access market access, use and potential wage improvement.
The link between education and economy, the relations between education - training
and employment, are also analyzed in terms of labor market segmentation (Cain, 1976).
According to this analysis, there isn’t single labor market, but relatively impermeable
markets in relation to each other - the primary market of stable and well paid jobs, divided
into two sub segments:
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the superior segment of jobs requiring capacity for innovation, autonomy and
discretion,
the inferior segment of jobs with medium skilled workers in large companies or
government - market where wages are relatively high and where the trade unions play
an important role in negotiating wage scales and working conditions.
Secondary segment – grouping the jobs paid worse require little skill and a strong
external mobility. In other words, the training level plays a different role on each segment; the
access is determined by other factors.
These approaches have been disproved by empirical research that proved the existence
of an intense mobility between secondary and primary segment of the labor market.
Integrating young people into some kind of market and career is, according to recent research
studies, due to professional progress, and the characteristics of firms and employment policies
sometimes have a larger impact than professional trajectory.
A number of authors, with the institutional approach thinking, are starting from the
idea that labor market policies are structured by companies. Individuals, however, will act
under the impulse of their own constraints and those of the enterprises.
In the pure theory of human capital, the demand for education depends, like any investment,
by comparing costs with benefits. Expected return rate is even higher as the individual has
higher intellectual capacities, as they reduce cost and increase human capital accumulation in
the same range of studies.
We may conclude that the school would have to rule meritocracy, that the most
talented have to pass through the longest and most difficult educational programs, but the
equally talented individuals will pass only the usual educational program etc..
Such a conclusion was disproved by the empirical research and observations. The fact that
subjects with more modest social origin leave school early and tend to choose paths where the
yield of the studies is relatively low, is not necessarily explained by human capital model, the
same is true of geographic disparities in rates of pay.
Understanding the patterns of market education remains a subject not only
insufficient, but also relatively easy to dispute. So, for example, regarding the demand for
education, formal economic logic advances the following hypotheses:
c) Education is a required only for investment purposes; this hypothesis does not meet
even the analysis of education as a "commodity", initially undertaken by human
capital theorists. Schultz, for example, admitted that it can "require" education as an
investment good - in order to increase future earnings by mobilizing resources today -
whether sustainable commodity - to increase future satisfactions (learning to
appreciate the cultural heritage , winning friends) or current commodity, because they
appreciate the advantages and attractions of student life(Schultz, 1963). If so, the
expected return rate could not explain, by itself, the decisions on education;
d) The demand for education does not depend on the offer; the model implicitly assumes
that the offer is either homogeneous or that the applicant "choose" the education
institution, in terms the cost of education and skill the applicant has. However, it is
clear that the offer is not homogeneous, even in centralized systems of public
education and that institutions have a decision in selecting students; on the other hand,
the offer is influencing the demand.
The critics of the "pure" theory of human capital generated by the counter-response efforts by
some authors considered themselves as belonging to the school of this theory.
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3.1.2. The developed Human Capital Theory
Theoretical developments raised from appeals and criticism from different directions
and trends of thought, socio - psychological, legal and political aimed primarily the demand
for education seen as a commodity integrated in overall demand (Eicher and Levy, 1979).
According to this approach, explained upon the example of higher education, when a student
decides to enroll in a university he seeks for benefits and rewards in the immediate future.
It is the eligibility model – where the student’s behavior is analyzed in terms of eligibility of
two markets - which in advanced societies are reserved for a minority - the market "quality of
life" and market ”elite„.
In the latter market are included all present and future consumption goods, which
probably will be accessible if the students get the graduation: wages supplements, status and
luxury goods. Quality of life has no market price; it is the student's leisure, meetings, search
for partners etc. These elements of quality of life are available for those who have entered into
active life and work at full time level. The student will try to maximize the total utility of
three types of goods: the future goods that he will get due passing through university,
commodity products that he can buy during the learning period if he works with remuneration
or through the family support and intangible supplies attached to student life.
There could be assumed that future benefits are dependent on the time allocated to the
learning, and advantages of free time are determined and used to earn the money to improve
the quality of consumption.
If benefits are reduced or uncertain in the future - because of rising unemployment of
graduates or reduced wages during the crisis, and the present benefits are not visibly affected,
it is possible a non reducing demand for education and a greater emphasis on the current
situation (young people will use less time studying and more to benefit from the quality of
student life).
This optic explains in part why the numbers of students is not reduced during the
economic crisis.
For developing countries and especially for Romania, even if for 20 years the
economy is in deep recession in which unemployment has become a steady social and
economic risk and the specialists salaries (particularly in the public sector) are extremely low,
numbers of students is in constant growth.
Motivation demand for higher education seems to be in contradiction with the
domestic labor market; in fact, young people opt for higher education instead of becoming
unemployed after graduation of the high school, relying on future growth, economic recovery
or migration.
It is clear that the alternative of being a student and not unemployed is more attractive,
creating a privileged social status and eliminating, at least temporarily, the risk of
unemployed, marginalized and socially excluded status. Such state will lead to higher costs
for family and even to society, costs which have no definite prospect of recovery.
In case of migration, the costs to society from the public budget will remain a lost
investment. This are the money for rich countries provided for free form poor or emergent
countries.
In Western literature related to the education and the economy it is provided also a
model of arbitrage between efficiency and risk (Mingat and Eicher, 1982). This model
contradicts the theoretical predictions of human capital to equal educational skills, the authors
noted, there is systematic differences in the choice of higher education based on social origin.
Young people with a modest financial status are less frequently enrolled in higher education
system. When they are exercising this option, they choose an”average„ light specialization,
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where they consider they have more chances to graduate. This would explain the
consideration of the risk of failure; in other words, the cost of studies is compared with the
expected return of investment from the education and the risk of not achieving the graduation.
Only reasonable chances of success in a professional pathway will determine enrollment of
students in certain specializations, after an auto selection. The cost of education is higher for
those without the necessary financial resources and would have to resort to loans, the same
cost the same consequences for those who would borrow. It is possible that for some
reimbursement rates the numbers will exceed the expected additional earnings.
3.2. INVESTMENT IN EDUCATION
The study of education as an investment was completed with analyzes of behavior
influence on the individuals. From the cost of education and its laws of evolution, economists
have started to consider the education as an industry producing goods which value is often
extremely difficult to measure. Also, if the initial analyzes were focused on demand, then it
was shifted to conjugation and convergence necessary to offer the research operation of the
educational system as a whole. There was also made a crucial shift from external to the
internal efficiency of education.
Along with the deepening of human capital theory there were developed numerous
researches regarding a new issue, generically called family economy. This branch of
economics, although it is relatively autonomous, contains a number of convergences with the
theory of human capital and particularly with education, as a reference point that influences
the consumption behavior of households. This was an attempt to show that education affects
not only the manufacturer's productivity, but also the intangible productivity and its
consumption. In addition, education is a variable that influences quantity and quality of
human capital; quantitatively differentiating the number of children of families by parental
education level and qualitatively - that better educated families have fewer children, but more
trained. In addition, higher level education of mothers is the most effective way to reduce
fertility and the birth rate, especially in developing overcrowded countries. How education is
never free for the family, parents will limit even more the training that will ensure the more
the family is increasing its number. This approach allowed the continuation and deepening of
investment – integration relations. The costs are borne by parents and the benefits of that
investment will return to their children. In other words, it is a sustainable growth model. On
the other hand, human capital theory is interested in private total costs that have to pay a
person who wants to pursue a higher education institution. Total private costs are classified by
economist G. Becker in two types of costs: direct and indirect. Total costs include direct
private tuition, subsistence expenses, expenses for books and other materials. People entered
in a form of higher education earn less than if they were part of the workforce entirely, as
expected earnings are an indirect cost of schooling. Student’s earnings while in school are
usually lower than if not attending a school because they cannot work as much or as regularly
as an employed person. The difference between what the student might win and what he is
winning while studying is an indirect cost of schooling.
Therefore, the amount depends on the anticipated number of hours spent at school and
the chance of finding a part time job, a job with flexible hours or a seasonal job. Also, Becker
noted that the anticipated amount is influenced by another determinant which consists of:
working conditions, age, race and sex. The indirect costs vary over time and across
demographic groups than the direct costs.
In education, not only the cost is important but also the mode of funding and
resources. In the '60s, rapid economic growth in developed countries provided relatively
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abundant financial resources and better use of them remained a problem that was not a
priority. Gradually, as demand for education tended to grow very quickly, it began to show
pressure on budgets and have brought to the forefront of research the problem unitary costs of
education.
Currently, education systems are funded primarily - sometimes almost total – by the
public power from the public funds, but economic theory does not recommend full public
funding rather than in the case of pure public goods - subject to non exclusion principle. Since
the potential demand for education is higher than the number of places or facilities offered, it
cannot practice the principle of non exclusion and therefore it does not represent a”pure
public good„.
The budget constraints raise the problem of optimal allocation of resources and
funding on the performance of educational services. As in developed countries, the principle
of free primary and secondary education in public institutions is still intangible, economic
research has been focused on higher education financing. With regards to these aspects, there
cannot be ignored the fact that, under the pressure of social demand, the higher education
budget has a rapidly growing trend and quasi - integral public funding of this type of
education represents an income redistribution from poor to rich because at this level the social
inequalities access is particularly evident.
Studies of the education funding often produced descriptive results, comparing
methods used by different countries, the European solutions compared to the U.S. and Japan.
Optimal funding was initially addressed by analyzing the redistributive effects of higher
education. Concomitantly there are studied the problems of efficiency and fairness,
demanding the increase of tuition fees and scholarships reform. It is suggested more often to
adopt the model of funding the student’s education through loans (ex. in United Kingdom).
In developing countries, the size of the financial crisis and internal and external public
debt increased the demand for research on education funding. These studies were conducted
mostly under the financial pulse of the World Bank. These involve the introduction of
reasonable fee for registration, reforming scholarships; create credit market for education,
development of private education, etc.
CONCLUSIONS AND IMPLICATIONS
The paper examined the concept of human capital starting from the initial model of
human capital and highlighted via criticism and subsequent developments the dimensions and
complex meanings attributed to the concept. The human capital theory offers the grounds for
the demand, the cost and the financing of human capital. Thus, the investment in education in
terms of its effectiveness was another important pillar that was developed in this paper. The
problem of optimal allocation of the resources as well as the funding performance educational
services was the first step, and then, once with the manifestation of the economic crisis
effects, the problems of efficiency and equity became key issues in the debate for both
national authorities and the theorists in the field. These involve the introduction of reasonable
fee for registration, reforming scholarships and creation of credit market for education.
Concerns for efficiency and equity represent the main topic if we consider that a poor nation
in human capital (in education) will fail to be competitive in terms of economic growth. The
literature reviews show that there are reasonably strong evidences to show that the acquisition
of human capital requires resources that poor people everywhere have difficulty acquiring.
Because there are limited resources for human capital formation, especially in poor countries,
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ways must be found to enable people to acquire these resources and to use them efficiently in
the production of knowledge and skills.
This approach will be a starting point for other studies in the field of human capital
and economic development, especially for a further investigation approaching the situation of
human capital in Romania.
REFERENCES
1. Kenneth Arrow, Higher education as a filter, in Journal of Public Economics no.2
(1973), 193-216
2. Gary Becker, Capitalul uman. O analiză teoretică și empirică cu referire special la
educație (București: Editura All, 1997)
3. Gary Becker, Comportamentul uman – o abordare economică (București: Editura
ALL, 1994)
4. Brian Becker and Stephan Hills, The Long Run Effect of Job Changes and
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residuel) a la croissance economique (Paris: OCDE, 1964)
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in Revue Economique, vol. 11, nr. 2 (1986), 211-220
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21. Christina Suciu, Investiţia în educaţie (București: Editura Economică, 2000)
22. Paul Taubman and Terence Wales, Higher education Mental Ability and Screening, in
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HOW FLEXICURE ARE NEW EU MEMBER STATES?
Suzana Laporšek;
University of Primorska
Primož Dolenc;
University of Primorska
ABSTRACT
The paper analyses the state of implementation of flexicurity policy components in the
NMS and, by using panel regression analysis, estimates the relationship between flexicurity
policy components (i.e., employment protection legislation, expenditures for active
employment policies, participation in lifelong learning and net replacement rate) and labour
productivity and long-term unemployment. The empirical analysis showed that the labour
markets in the NMS are, on overall, not more rigid than the labour markets in the EU-15,
however problematic remain low expenditure for active labour market policies, education and
social protection and low participation in lifelong learning. NMS must, according to the
results of the panel linear regression, improve their performance in mentioned areas in order
to improve their labour productivity and decrease long-term unemployment.
Keywords: flexicurity, labour market, labour productivity, long-term unemployment,
European Union.
1. INTRODUCTION
The concept of flexicurity promotes the idea of finding the right balance between
labour market flexibility and both employment and social security. It was first employed in
Netherlands in the mid-1990s in the context of labour market reforms; however, today we
often link it to Danish »golden triangle«. The Danish model combines a high degree of
occupational and geographical job mobility due to low employment protection,
comprehensive social security for the unemployed and active labour market programmes
aimed at skill improvement and activation of unemployed (OECD 2004).
As the idea of flexicurity is gaining its importance within the European Union (EU),
this paper aims to study the level of implementation of flexicurity policies among the new EU
Member States (NMS). Furthermore, the paper estimates the association between flexicurity
policy components and real labour productivity and share of long-term unemployment in the
NMS. Namely, according to the European Commission (2007a), flexicurity can provide an
answer to the dilemma on how to maintain and improve competitiveness while reinforcing
European social model.
In order to examine the labour market situation and the level of implementation of
flexicurity policy components in the NMS, we apply simple descriptive statistics. The
relationship between employment protection legislation (EPL), active labour market policies
(ALMPs), lifelong learning (LLL) and net replacement rates (NRR) (i.e., indicators of
flexicurity policy components) and labour productivity and long-term unemployment in the
NMS between 2005 and 2008 is assessed using panel regression analyses. The empirical
analysis showed that the labour market in the NMS is, on average, not more rigid than in the
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EU-15 in terms of employment protection (except collective dismissal procedures),
employment rigidity and NRR. A problem remains low expenditure for ALMPs together with
low participation of adults in LLL. Moreover, panel regression analysis showed that the level
of expenditures for ALMP and participation in LLL positively associate with labour
productivity and negatively with long-term unemployment. On the other hand, high EPL
index lowers labour productivity and long-term unemployment.
The paper continues with an overview of literature on flexicurity and its potential
relations with labour market outcomes and productivity in Section 2. Section 3 presents the
methodology and data, followed by the presentation of results of the empirical analysis in
Section 4. Section 5 concludes and gives policy implications.
2. LITERATURE REVIEW
2.1 THE STRATEGY OF FLEXICURITY IN THE EUROPEAN UNION
The European Commission (2007a) defined flexicurity as an integrated strategy to
enhance, at the same time, flexibility and security in the labour market. The latter should not
be perceived as contradictory, but as complementary and mutually supportive. The rationale
of flexicurity is therefore to increase the adaptability of enterprises and workers in order to
cope with quickly changing economic environment and to reduce labour market
segmentation. The flexicurity approach can be designed and implemented across four policy
components (European Commission 2007a): (i) flexible and reliable contractual
arrangements; (ii) effective ALMPs; (iii) comprehensive LLL strategies; and (iv) modern
social security systems.
Economic analysis confirmed that these four components can be mutually supportive,
and improve employment, at-risk-of-poverty rates, and human capital (European Commission
2007a). However, it should be noted that crucial preconditions for development of flexicurity
approach and making it work are supportive, productive and well-established social dialogue,
mutual trust and highly developed industrial relations. Furthermore, the concept of flexicurity
should be pursued in a wider context of sound macro- and microeconomic policies and
embedded in a wider framework of labour market regulation and employment rights (see
European Expert Group on Flexicurity 2007). At this point it should be also noted that each
Member State has to implement these policies in accordance with its specific situation,
implying that there is no universal form of approach to flexicurity.
In the context of current economic and financial crisis, the Council of the EU (2009)
concluded that flexicurity presents an important tool for managing employment and social
impacts of the crisis and for preparing the EU for the economic upturn. However, the concept
of flexicurity within the EU is today put to the test. Namely, crisis could cause that the EU
Member States would not perceive flexicurity as a solution to their labour market situation,
especially not in the light of increasing unemployment and tightening of government’s
budgets. As stressed by European think tank Bruegel (2009), the European Commission
would have to make an important policy choice: whether actively promote the flexicurity
agenda against the odds or to shift emphasis and attempt to develop a less controversial
agenda based on longer-term challenges such as ageing and migration.
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2.2 Flexicurity, labour productivity and long-term
UNEMPLOYMENT
There is a lack of studies that would focus on the relationship between flexicurity
approach and long-term unemployment and productivity among NMS. One of the recent
studies on the relation between labour market institutions (including tax rate, replacement
rate, level of centralization, employment protection, union density and ALMPs) and
productivity growth in NMS was performed by Anspal and Võrk (2007). The panel regression
analysis, performed on eight NMS in the periods 1995–1999 and 2000–2004, showed that
expenditures for ALMPs, union density and bargaining centralisation have in some
specifications a significant effect on the productivity growth.
On the other hand, a study of OECD (2004) focuses on the relationship between
labour institution variables (EPL index, indices of collective bargaining coverage and
corporatism in the wage bargaining process, unemployment benefit replacement rates, the
expenditure on ALMPs per unemployed person, the tax wedge) and unemployment and longterm
unemployment. The study including 10 OECD countries over the 1985–2002 period
showed that EPL reduces the inflow rate into unemployment and rate of exit from
unemployment and as well increases long-term unemployment. The results also showed that
ALMPs facilitate outflows from unemployment and reduce long-term unemployment,
whereas generosity of unemployment benefits and tax wedge increase the incidence of longterm
unemployment. Similar findings on the effect of various elements of flexicurity on
unemployment performance were gained also by Zhou (2008) and Brown et al. (2009).
3. DATA AND METHODOLOGY
The subsequent empirical analysis is divided in two parts. Firstly, we present the
situation in the NMS in terms of pursuing the flexicurity approach. We focused our
descriptive analysis on all four policy components of flexicurity (i.e., flexible and reliable
contractual arrangements, LLL strategies, ALMPs and social security system) and included
data for 2008, i.e., before the peak of economic and financial crisis. Variables of flexicurity
components were chosen from the list of indicators suitable for studying flexicurity prepared
by the European Commission (2007a). The existence of potential differences in studied
variables between NMS and EU-15 were due to small sample determined by the Mann-
Whitney non-parametric test. Potential correlations between variables were examined using
the Pearson coefficient measure.
In the second part of the analysis, we examined the relationship between chosen
representative variables for each flexicurity component and labour productivity and the share
of long-term unemployed in total unemployment. The associations were assessed by linear
regression with panel-corrected standard errors method, in order to control for
contemporaneously correlated and panel heteroskedastic errors (see Beck and Katz 1995).
The analysis included ten NMS (i.e., all NMS that entered the EU in 2004 or later except
Cyprus and Malta) between 2005 and 2008. We estimated the following panel regression
function:
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where X i,t refers to labour productivity (expressed as EUR per hour worked at PPP) and the
share of long-term unemployed (between 15 and 64 years of age) in total unemployment,
respectively, EPL i,t denotes EPL index (calculated according to Version 1 of OECD
methodology), ALMP i,t are public expenditures for ALMPs (as % of GDP), LLL i,t participation
rate of adults in LLL and NRR i,t net replacement rate for unemployed for over 5 years (and
receiving social assistance). Variable GDPpc i,t accounts for GDP per capita and presents a
control for macroeconomic environment. Parameter ε i,t refers to random error.
The data for empirical analysis were collected from official statistical databases of
OECD (OECD.Stat 2012), World Bank (Doing Bussiness 2012) and Eurostat (2012) and from
the official reports of the European Commission (2007a and b, 2008).
4. RESULTS OF EMPIRICAL ANALYSIS
4.1 LEVEL OF IMPLEMENTATION OF FLEXICURITY POLICY
COMPONENTS
Flexible contractual arrangements
Most of the NMS experienced the processes of economic transition from centrally
planned to market economy, influencing their economic and social development.
Nevertheless, according to the data in Table 1, at the beginning of the 1990s several NMS
were characterized with rather flexible employment protection. The EPL index was the
highest in Slovenia, where in 1990 amounted 4.1, however it significantly decreased to 2.5 in
2008.
In 2008, the employment regulation was at most flexible in Bulgaria, Slovakia and
Hungary, followed by Czech Republic, Estonia and Poland. In comparison to the EU-15
average, the EPL index was higher only in Lithuania, Romania and Slovenia.
Table 1: EPL index in NMS, 2008
OECD methodology a Version 1 Version 3
Country b Change
1990 2008
2008
1990–2008
Bulgaria c : : : 2.0
Czech Republic 1.9 2.0 0.1 2.3
Estonia 1.9 2.1 0.2 2.4
Hungary 1.3 1.7 0.4 2.1
Latvia 1.5 2.1 0.6 2.4
Lithuania 1.9 2.6 0.7 2.6
Poland 1.4 1.9 0.5 2.4
Romania d : : : 2.8
Slovak Republic 1.8 1.4 – 0.4 2.1
Slovenia 4.1 2.5 – 1.6 2.8
EU-15 average 2.8 2.1 0.2 2.5
Notes:
a Version 1 of the OECD methodology calculates total EPL index as an unweighted average of the subindicators
for regular and temporary contracts, whereas Version 3 as a weighted sum of the sub-indicators for
regular and temporary contracts and collective dismissals (for more details see OECD 2011).
b
Data for Cyprus and Malta are not available.
c Data for 2004.
d Data for 2006.
: no data available
Sources: Muravyev 2010; OECD.Stat 2012; Tonin 2009; Vasilica and Mladen 2009; Vodopivec et al. 2007.
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As regards the scope of employment protection expressed by the EPL sub-indices, the
NMS show considerable rigidity in the area of collective dismissal – in 2008, the regulations
of collective dismissal were especially strict in Slovakia, Poland and Estonia, even stricter
were in Bulgaria (data for 2004). The employment protection is the least strict in the area of
temporary contracts, being the most flexible in Slovakia, Czech Republic and Bulgaria.
Comparing to the late 1990s, the changes in EPL among NMS occurred in both
directions. An increase in EPL index was recorded in Hungary (due to restrictions on the
renewal of fixed term contracts in 2003 and on temporary work agencies in 2007) and in
Poland (due to Labour Code amendments in 2003 in the area of fixed-term employment
contracts and employment agencies in 2004). The employment protection has become more
flexible in Slovakia (due to changes in Labour Code in 2003 in the area of collective
dismissal, regular employment and temporary contracts), Estonia and especially in Slovenia
(with the adoption of Employment Regulation Act in 2002 changes occurred in regular
employment protection (shortening of notice periods and reduction in severance pay) and in
collective dismissal (shortening of procedures)).
The World Bank developed another measure of employment legislation flexibility,
i.e., the rigidity of employment index. Among the NMS, the employment regulation is the
least rigid in Czech Republic (in 2006 the government adopted a new labour code that
introduced flexible schedule of working hours and eased the restrictions on dismissal) and
Bulgaria. On the other hand, the employment is most rigid in Slovenia. As can be seen from
Table 2, the regulations of redundancy are less strict in NMS than in EU-15, resulting also in
lower average value of the rigidity of employment index in the NMS.
Country a
Table 2: The rigidity of employment index in NMS, 2008
The rigidity of employment index
components
Difficulty of
hiring index
Rigidity
hours index
of Difficulty
firing index
The
of
rigidity of
employment
index
Slovenia 78 53 30 54
Estonia 33 60 60 51
Romania 67 40 30 46
Latvia 50 40 40 43
Lithuania 33 60 20 38
Poland 11 33 30 25
Cyprus 33 0 40 24
Hungary 0 67 0 22
Slovakia 17 20 30 22
Bulgaria 17 40 0 19
Czech Republic 33 0 0 11
NMS-11 average b 34 38 25 32
EU-15 average 32 40 32 35
Notes: The rigidity of employment index is a simple average of three indices: difficulty of
hiring index, rigidity of hours index and difficulty of firing index. The values of indices are
ranging from 0 to 100, by which higher values
a NMS are sorted in descending order according to the rigidity of employment index.
b Data for Malta are not available.
Sources: Doing Business 2012; own calculation.
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Active labour market policies
Public expenditures for labour market policies are very low across the NMS. On
average, the NMS earmarked only 0.5 % of GDP in 2008 for labour market policies, yet a
major part (56 %) was devoted to passive labour market policies. The average expenditures
for ALMPs amounted 0.22 % of GDP, which was 0.5 percentage points below the EU-15
average (differences between NMS-12 and EU-15 are statistically significant at 95 %
confidence level) and even one percentage point below the countries with the highest
expenditures (Belgium and Denmark). The overview of expenditures for labour market
policies is available in Figure 1.
Figure 1: Public expenditures on employment policies as % of GDP and their structure, 2008
Notes:
NMS are sorted in descending order according to the amount of total public expenditures on
employment policies.
Measures under categories 2–7 (ALMPs) include training, job rotation and job sharing,
employment incentives, supported employment and rehabilitation, direct job creation and
start-up incentives. Categories 8–9 include out-of-work income maintenance and support and
early retirement.
Sources: Eurostat 2012; own calculations.
Among active employment policy measures (i.e., measures under category 1 and
categories 2-7), the NMS, on average, assigned the largest part to public employment services
and administration costs (38.5 %), followed by employment incentives (19.2 %), training
(18.2 %), and direct job creation measures (16.7 %). As can be seen from Table 3, there are
great differences in the structure of expenditures for ALMPs among NMS. For example,
Bulgaria is the only country that assigned the major part of its expenditures (59 %) in 2008
for direct job creation measures. On the other hand, Malta, for example, devoted 77 % of its
expenditures in 2008 for public employment services and administration costs.
Further empirical analysis pointed on positive correlation (Pearson coefficient
amounted 0.451 and it was statistically significant at 95 % confidence level) between
expenditures for ALMPs and employment rate in EU-27 in 2008. This is line with the results
of more complex panel regression analysis by Ederveen and Thissen (2004) performed on 21
European countries between 1960 and 1999, which showed that ALMPs significantly affect
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unemployment: when more money is targeted on the unemployed in the form of one of the
various ALMPs, unemployment decreases.
Table 3: The structure of expenditures for ALMPs across the NMS, 2008, %
Country
Public
services
Trainin
g
Job
rotatio
n and
sharing
Employme
nt
incentives
Supported
employment
,
rehabilitatio
n
Direct
job
creatio
n
Startup
Bulgaria 15.0 11.4 - 12.3 1.7 58.8 1.1
Czech
Republic
52.6 3.2 - 8.7 26.9 7.5 1.2
Estonia 47.2 49.1 - 1.9 0.0 - 1.9
Cyprus 32.8 17.2 - 41.4 6.3 - 2.3
Latvia 37.2 27,9 - 23.3 0,0 7.6 4.7
Lithuani
27.6 30.8 0.3 31.7 2.5 6.3 0.6
a
Hungary 29.0 20.0 - 34.1 - 15.5 1.4
Malta 76.9 10.5 - 9.1 - 1.4 1.4
Poland 19.2 20.2 - 14.2 33.6 3.6 9.4
Romania 32.7 8.8 - 37.2 - 20.4 0.9
Slovenia 43.9 17.2 - 9.6 - 27.8 2.0
Slovakia 47.5 2.2 - 7.2 6.3 18.4 18.4
Notes: - not applicable or real zero or zero by default.
Source: Eurostat 2012; own calculations.
Lifelong learning
The participation rate of adults in LLL (i.e., in education and training programs, which are or
are not in relation to the current or the future job of the participant) is relatively low in NMS
(see Figure 2), especially in comparison to Scandinavian countries, where participation
exceeds 20 % (in Denmark even 30 %).
Figure 2: Participation rate of adults (25-64 years of age) in LLL, 2009, %
Notes: NMS are sorted in descending order according to the participation rate.
Sources: Eurostat 2012; own calculation.
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One of the reasons for such large variations in participation rates in LLL between
countries may be the level of their public expenditure for education. Namely, the analysis
showed that there is a positive correlation between participation rate in LLL and public
expenditures for education in EU-27: Pearson correlation coefficient amounted 0.626 and is
statistically significant at 99% confidence level. Moreover, correlation analysis also showed
that in EU-27 high participation rates in LLL are positively correlated with high employment
rates (Pearson coefficient amounted 0.641 for age group 25-64 at 99 % confidence level in
2009) and negatively correlated with low long-term unemployment (Person coefficient was
0.633 at 99 % confidence level).
Social protection of unemployed
With transition from centrally planned to market economy, the unemployment
increased in majority of the NMS. To alleviate the social problems caused by high
unemployment, majority of the NMS introduced generous unemployment benefits. As a result
of growing fiscal pressures, several countries were not able to sustain the generous benefit
system; therefore they reduced their unemployment insurance replacement rates by the late
1990s (see Dolenc and Vodopivec 2005; Vodopivec et al. 2005; Anspal and Võrk 2007).
In 2008, the NRR (for the first year of unemployment) in the NMS were, on average,
lower than in the EU-15 (NMS average (without Cyprus and Romania) 66.0 %; the EU-15
average 67.7 %), but still comparable. After five years of unemployment, the NRR declined in
most of the NMS, although in some NMS still achieved high levels. On average, single person
(recipient of social assistance), with pre-unemployment wage at the level of 67 % or 100 % of
average earnings, after five years lost 70 % of previous income (in the EU-15, on average,
50 %). The highest NRR were recorded in Malta and Slovenia (above 40 %). On average, the
unemployed in the NMS receive unemployment insurance benefits between 6 and 12 months.
Effects of the move from unemployment to employment are embedded in the
unemployment trap indicator. The average tax burden for a single person without children in
the NMS in 2008 presented 71.6 % of additional earnings at employment. This means that
this person received 0.28 EUR of net income for every EUR of gross earnings. The remaining
0.72 EUR went for taxes, social contributions and reduced social transfers on account of
receiving gross earnings compared to incomes during unemployment. Over the 2001–2008
period, the tax burden at moving from unemployment to employment decreased only in four
NMS, at most in Slovakia (29 percentage points) and in Poland (7 percentage points).
As regards transition to higher paid job, the effect on income is higher. Namely, in
2008, the average low wage trap (measured by the marginal effective tax rate at moving from
33 % to 67 % of average gross earnings for a single person without children) amounted
34.3 % in the NMS (see Table 4). The tax burden was higher in the EU-15, however the
differences were not statistically significant at 95 % confidence level.
Table 4 also reports estimates of the inactivity trap indicator for a single person
without children and with 67 % of average earnings. The average value of inactivity trap in
the NMS amounted 50.5 % in 2007, which is approximately 9 percentage points below the
average of the EU-15 (the differences were not statistically significant at 95 % confidence
level).
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Table 4: Unemployment trap (2008), low wage trap (2008) and inactivity trap (2007)
in NMS, %
Country a Unemploymen Low wage
t trap b trap c Inactivity trap
Bulgaria 80 22 n/a
Czech Republic 68 41 66
Estonia 63 23 41
Hungary 80 39 46
Lithuania 81 27 38
Latvia 85 32 49
Malta 58 19 62
Poland 75 62 56
Slovenia 83 53 63
Slovakia 44 25 28
EU-27 average a 75.0 42.8 56.0
EU-15 average 77.1 48.4 59.7
NMS-10
average a 71.6 34.3 50.5
Notes:
a Data for Cyprus and Romania are not available.
b
Unemployment trap (%) = (1 – ((net income in work – net income out of work)/gross
earnings)) × 100
c
Low wage trap (%) = (1 – (change in net income (from 33 % to 67 %)/change in gross
earnings (from 33 % to 67 %)) × 100
Source: Eurostat 2012; Carone et al. 2009; own calculation.
4.2 ESTIMATIONS OF ASSOCIATION BETWEEN FLEXICURITY POLICY
COMPONENTS, LABOUR PRODUCTIVITY AND LONG-TERM
UNEMPLOYMENT
The labour productivity is steadily increasing in all of the NMS, however it remains
far below the EU-15 values. Namely, in 2009, the average GDP per hour worked in the NMS
presented 51.7 % of corresponding EU-15 value or only 9.6 EUR per hour worked
(differences between the NMS and the EU-15 were statistically significant at 99 % confidence
level). The highest labour productivity compared to the EU-15 average recorded Slovenia
(74.0 % or 18.1 EUR in 2008), followed by Cyprus (70.4 % or 18.3 in 2009), while it was
extremely low in Bulgaria, Romania and Latvia (under 40.0 % of the EU-15 average). After
the accession to the EU in 2004, the difference to the EU-15 labour productivity decreased at
most in Slovakia (for 12.5 percentage points) and Estonia (9 percentage points).
In order to examine the relationship between labour productivity and indicators of four
flexicurity policy components (i.e., employment protection, expenditures for ALMPs,
participation in LLL and NRR for unemployed for over 5 years), we performed panel linear
regression analyses on the sample of ten NMS in the period after the EU accession, i.e.,
between 2005 and 2008. We must keep in mind that the regression analysis has several
limitations due to small number of countries included, short observed period and other
measurement issues (especially problems with good longitudinal series of data on EPL index),
however it gives us a good orientation on the direction of the relationship between variables.
As can be seen from Table 5, ALMPs and participation in LLL programs show a
significant positive association with labour productivity. This may indicate that inclusion in
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ALMPs and LLL enhances workers’ skills and their knowledge, what could be reflected in
higher productivity of workers. On the contrary, the association between employment
protection and labour productivity is significantly negative, implying that lower is the EPL
index (indication of least stringent employment protection) higher is the labour productivity.
Negative relationship can be also observed between labour productivity and the NRR for
unemployment, however it is not statistically significant. The results are in line with the study
prepared by the Anspal and Võrk (2007).
In the second regression analysis, we studied the association between the same above
variables of flexicurity and long-term unemployment. As shown in Table 5, the association is
again the most evident by the ALMPs: the higher are the expenditures for ALMPs, the lower
is the share of long-term unemployed in total employment. This may again indicate that these
programmes, by encouraging investments in skills, prequalification and knowledge, increase
the quality of human capital and therefore facilitate transition to employment and increase the
possibility of re-employment. As regards employment protection, the regression estimate is
negative, implying that the rigid employment legislation could have an adverse effect on
employment opportunities of long-term unemployed, as it reduces willingness of firms to hire
new workers and by that leads to decline in the job turnover.
Table 5: Estimation results of the two linear regression analyses with panel-corrected
standard errors
Explanatory variables
Labour productivity
per hour worked
Dependent variables
Share of long-term
unemployed in total
unemployment
–15.833*
(-4.07)
–25.278*
(-2.61)
–0.370
(–0.38)
–0.004
(–0.03)
0.001
EPL index
–0.892*
(-2.20)
Expenditures for ALMPs (as %
5.244*
of GDP)
(3.41)
Participation rate in LLL, %
0.776*
(5.32)
NRR for unemployed over 5
–0.036
years (with social assistance)
(–1.54)
GDP per capita (in EUR at PPP)
0.001*
(4.18)
(1.06)
Constant
0.685
61.528*
(0.35)
(2.97)
R-square 0.910 0.376
Significance level: 5 %.
Notes: Standard errors in parentheses.
Sources: Eurostat 2012; own calculations.
CONCLUSIONS AND IMPLICATIONS
The concept of flexicurity enjoys increasing attention within the EU, especially as a
tool for implementation of the Lisbon and European Employment Strategy goals. Because of
the increasing importance of the flexicurity within the EU employment agenda, we wanted to
examine, how successful are NMS in implementing the flexicurity idea.
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Although the NMS are still far from reaching the level of labour market flexibility and
security attained by the most successful Scandinavian EU Member States, on overall, their
labour market is not more rigid than in EU-15. Namely, most of the NMS have less strict
employment protection (except in the area of collective dismissal) than is the EU-15 average,
low is also the employment rigidity index. Moreover, NRR for unemployed and indicators of
unemployment (i.e., low wage and inactivity trap) are, on average, even lower than in the EU-
15. One of the most serious problems remains low expenditure on ALMPs, which are
significantly below the average of old Member States. Also low is participation rate of adults
in LLL, probably due to low expenditures for education.
By performing the panel linear regression we estimated the association between
flexicurity policy components indicators and labour productivity and on long-term
unemployment. From the regression estimates it follows that NMS should improve their
performance especially with regard to ALMPs, employment protection and LLL in order to
increase their labour productivity and to decrease the share of long-term unemployed.
On the basis of our findings, we can confirm that balanced flexicurity policies are of a
special importance for further development of labour markets and economies of the NMS.
Most importantly, each of the NMS must shape its own flexicurity pathway that best suits the
specific needs of its labour market, with special attention put on finding the right balance
between the needs of both employees and employers and at the same time assuring
macroeconomic stability. However, this will require increase or shift in government spending
and a change in national mentalities. But probably the development in the area of flexicurity
is endangered by the impacts of current economic/financial crisis.
Findings of this paper present an important contribution to the existing research on the
effect of various labour market institutions on productivity and unemployment. The added
value of the paper, comparing to existing research, is the analysis of compliance to flexicurity
and of the relation between its policy components and labour market outcomes with special
attention being put on the NMS. Nevertheless, the paper still faces several problems, related
to the lack of a uniform definition of flexicurity and, consequently, all-embracing indicator of
flexicurity, effective measure of EPL rigidity, lack of longer time-series data on LLL and
ALMP, etc. With regard to methodology, due to the lack of data our analysis may be exposed
to potential endogeneity or omission of relevant variables problems – consequently, we
cannot adequately define the direction of causality between flexicurity components and
productivity and unemployment, but merely their associations. This paper therefore presents
an introduction to a more comprehensive study that would deal with these issues.
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THE ROLE OF SMALL MEDIUM ENTERPRISES (SME) ON THE NATIONAL
ECONOMY
PROBLEMS AND CHALLENGES OF THEIR DEVELOPMENT
Klaudia Lipi
University “Fan S. Noli” Korce, Albania;
ABSTRACT
The study analyzes trends in development of SMEs and their impact on the national
economy. This study serves as an important instrument for the formulation of the best
government policies in promoting SME development in Albania and in particular in the
region of Korca. The paper deals with the analytical aspects of the problems that business
and financial lending institutions face. The paper treats theoretically the role and importance
of SME sector on the national economy and various financing alternatives for the business.
The main objectives of this study are: a) analysis of the role of SMEs in national
economy, b) presentation of the current situation of SME financing and external financing
resources as barriers to business development, c)identify financial needs of SMEs and their
financial problems, d)review the current situation of lending to small businesses, such as;
how much SMEs are investing during last years, what are the former resources, what are the
difficulties for financing SME from the view of banks or non-banks, which are the sectors of
economy that financial institutes prefer more, e)how many banks and foundations lend and
what is the situation in different sectors such as trade, manufacturing, transport and service
f)the challenges of SMEs development and the prospects of funding to businesses in Albania
and in particular in the region of Korca.
Key words: SME, financing, regional development, loans
1. INTRODUCTION
SMEs are important to almost all economies in the world, but especially to those in
developing countries and, within that broad category, especially to those with major
employment and income distribution challenges.
Small and medium-sized enterprises (SMEs) are a very heterogeneous group of
businesses usually operating in the service, trade, transport, and manufacturing sectors. They
include a wide variety of firms such as village handicraft makers, small machine shops, and
computer software firms that possess a wide range of sophistication and skills. Some are
dynamic, innovative, and growth-oriented while others are satisfied to remain small and
perhaps family owned. SMEs usually operate in the formal sector of the economy and employ
mainly wage-earning workers.
In terms of organizational structure, SMEs are, on average, considerably more
complicated than microenterprise, which involve largely the self-employed, sometimes
accompanied on the job by a few family workers and hence usually having under- five
workers.
The SME sector also plays a key dynamic role in generating growth, especially propoor
growth. Nearly all developing economies have large micro enterprise sectors that, like
the SME sector itself, are highly heterogeneous in many respects--the goods or services
produced the entrepreneurial capacity of the owner, and the potential for growth, etc.
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Many are survivalist in character but others have dynamic potential. In most countries
for which such data are available it appears that most small firms began their lives as
microenterprises and then grew. Thus the SME sector is to a considerable extent the place
where successful micro enterprises wind up, through a process which is at least in part one of
survival and growth of the fittest. This positive selection process will of course be less
prominent if for policy or other reasons it is hard to operate SMEs in a given country.
SMEs tend to use medium-sophistication technology, which is approximately
consistent with the factor endowment ratios in most developing countries. Many firms “grow
into” or “grow out of” the SME size range, with both of these transitions having something
positive to be said for them.
The frequency with which SMEs manifest a capacity to grow fast and to innovate has,
partly as the other side of the same coin, higher failure and exit rates than do large firms.
In part this reflects a “survival of the fittest” process in which firms lacking strong
entrepreneurial skills or simply in bad market niches do not survive. Few estimates have been
made of the sort of deadweight loss associated with firm failure and the extent to which it
lowers the average efficiency in resource utilization of the SME sector as a whole. The issue
is complicated, since sometimes failure is a factor contributing to the longer run development
of entrepreneurial capacity, since some of the physical capital of failing firms is not wasted
but purchased and used by other firms, etc.
Even short of actual exit, many small firms suffer significant shrinkage at certain
points in their lives, with negative implications for the job security of their employees. The
costs of such insecurity are hard to tote up and the difference with large firms is one of
degree.
Getting the most from the SME sector requires better support systems, either from
government or collective action by the SMEs themselves, than those required by larger firms.
This is essentially because some needs of SMEs are in effect public goods while the parallel
needs of larger firms can be effectively handled privately. The implication is that in countries
with governments of limited competence the SME sector will not perform to its real potential.
Considering the developments of global financial markets in recent years, it is done this study,
to present a complete approach of the role that SMEs have in the national economy, the
problems of financing their activities and the challenges of small businesses development
.The paper is a product not only theoretical, but it is based on different website navigation, as
well as ongoing research and studies that are made in Korca region and beyond.
As we mentioned above, small medium enterprises have a significant role in the
national economy. So, the government, the financial and nonfinancial institutions must
support the opportunities of financing the development of SMEs.
In order to provide quality information on current activities of SMEs and those
planned for credit and their attitudes on the opportunities and barriers of lending, it is
designed a questionnaire to several private ventures and financing institutions in the region of
Korca. This study includes the key members in financing small businesses such as the microcredit
institutions and commercial banks. After the detailed analysis that is presented on the
survey, about needs, resources and difficulties in financing the small enterprises, it is found
that 60% of businesses have declared in favor of long-term loans, while the majority of
commercial banks and other financial institutions prefer short-term loans. Furthermore, 44%
of other financial institutions, loans were given to individuals while 41% of bank loans were
given to large businesses. Also by studying the situation in the region of Korca, it resulted on
high rate of interest which must be constantly negotiated among financial institutions and
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borrowers, because it is considered the most difficult key in the application for loans by the
small businesses.
At the end, the study concludes with the results from the research as well as
recommendations for supporting small business development and creation of various facilities
for the reduction of financial problems.
2. LITERATURE REVIEW
It is important to emphasize the importance of small enterprises in our economy.
There has been a great contribution of micro and small enterprises toward the economic
growth. A first step in evaluating this contribution is the correlation between the size of the
SME sector and the economic growth of the country. However, this approach is static and
does not account for the dynamic evolution of industries. Therefore, for most policy
interventions, the size of the SME sector is treated as a secondary interest. However, with
greater interest is considered the questions on whether the business environment supports
dynamism among SMEs, by facilitating creation of new ones and growth of them, in order to
contribute on economic growth. In previous researches, one of the key areas of SME research
is that of Ayyagari and Maksimovic, who identified that lack on understanding the small
firms have a niche and play a dynamic role such in a significant proportion of big businesses
in the importance of their contribution toward the growth of the industry. The authors used a
sample of 100 countries and 27 industries in the manufacturing sector, in order to examine the
growth rates of different industries across countries with different levels of institutional
development and doing business environment. Beck et al. (2006) measure an industry’s
composition of small firms relative to large firms by looking at the share of employment in
firms with less than 20 employees in the United States. Thus, they identified each industry’s
“technological” firm size in a relatively frictionless market, such as the US, and assumed that
the technological firm size of each industry should be constant across countries. These studies
found that industries naturally composed of small firms for technological reasons grow faster
than large firm industries in economies with better doing business environments. This
suggested that a good business environment boosts the growth of small firm dominated
industries more than large-firm dominated industries. Also, Ayyagari and Maksimovic looked
at a detailed breakdown of the different business environment characteristics. They found that
the less onerous regulation have a large impact on small firm growth by following the listed
characteristics, such as: starting and closing a business, dealing with licenses, employee hiring
and firing decisions, exporting and importing of goods, paying taxes, protecting investors and
obtaining credit etc. So, the result was that a good business environment has a
disproportionately large impact on the growth of small firm dominated.
Also, based on the above studies, other studies are conducted in Albania from business
organizations in collaboration with the International Labour Organization (ILO). ILO and
Albania Business Organization conducted some research, in order to identify the problems
and the barriers faced by SMEs, by finding solutions to their further improvement.
The study aimed the collection and analyses of data, problems and obstacles
encountered for the efficient development of the Albanian entrepreneurship, which hamper
the growth of competitiveness of the Albanian economy. The study is designed to identify /
build appropriate indicators to measure the perceptions of business to these factors.
Moreover, the study addresses the internal factors of government and business, by
looking to the impact that companies have brought to the effectiveness of legal and
administrative barriers toward the lack of reforms for developing the economy. The data are
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collected by using a selected methodology approved by the ILO, hence through interviews
with stakeholders. Private sector development is considered as the main factor of economic
growth. The trend of industrial development and production of small and medium enterprises
(SMEs) is of the utmost importance. Based on this approach, the designed questionnaire is
used as a guide for further continuation of providing an overall assessment of the industrial
sector and services, including the manufacturing sector in Albania and making
recommendations for stakeholders to improve their business performance.
3.THE IMPORTANCE OF SME SECTOR ON THE NATIONAL ECONOMY
During the years of transition, SMEs have played a very important role in the
economy so the Albanian government has always pay attention to their development as a
catalyst for rapid increases in domestic production and employment. Strong and dynamic
development of private sector is considered a priority of the government since in the
beginning of economic reforms. SMEs are important to the local economy as they constitute
the majority of businesses in Albania. Thus government policies are focused on SMEs by
developing the private sector. Also SMEs sector is the most viable sector of the economy.
In terms of employment, the SME sector covers about 58% of employment in the
private sector Most of employees are in the trade sector, followed by the service sector and
industrial one. "Micro "enterprises are 92% of total number of business and they give the
main contribute to employment of 34%.
Many times SMEs are seen as a source of innovation at the aggregate level because
they are flexible, dynamic and sensitive to changes in demand in comparison to larger
companies.
By taking in consideration the political and economic conditions of Albania, SMEs are
not only dominant in the economy but they have the ability to be a dynamic force in the
country's economic development. SMEs specifically contribute as an integral part of
economic structure as they are suppliers of the major enterprises and contribute to foreign
competition of these firms.
3.1 THE ECONOMIC SITUATION OF SMALL BUSINESSES AND THE
PROBLEMS ASSOCIATED WITH LENDING
Development of the SME sector is considered the most effective key for economies in
transition, which generates sustainable growth, employment and poverty reduction. During
the last three years, Albania has experienced a 6% increase on SME sector and certainly it has
an important contribution on this process. The contribution of the SMEs sector is estimated at
64% of gross domestic product (GDP) and 66% of employment in the private sector. SME
sector has known a constant increase during the transition period.
According to their size, about 91.95% of total enterprises have 1-4 employees. The
main part of them, 62 percent have only the owner. While small businesses (5-20 employees)
make up about 4.26% of the enterprises, 3.04% are medium enterprises (21-80 employees)
and only 0.75% of enterprises have more than 80 employees, but their contribution to
employment is very significant, about 42%.Regarding geographical distribution of businesses
in Albania ,about 50% of active enterprises are concentrated in the districts of Tirana, Durres
by employing 57% of employees of private sector about 69% of enterprises with foreign
capital are concentrated in the prefecture of Tirana, about 5% in Korca, about 5% in Shkodra
and 3% in Vlore. The sector of trade and service which covers about 73.5% of businesses,
there are employed 45.2% of private sector employees.
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Furthermore in the Region of Korca, we have particularly:
Table 1 Number of active entities in Korca Region 2009-2011
Years
2009 7403
2010 8133
Number of entities
2011 7252
Source: Regional Directorate of Taxation
In Korca region the enterprises with 1-4 employees occupy 94% of total enterprises,
2.8% of active enterprises are with 5-20 employees, while medium enterprises with 21-80
employees count only 2.6% of active enterprises in the region of Korca.
According to data of table 2, the number of entities with turnover below 8 million
ALL are 7252 subjects. Also, we note that the sectors with greatest number and weight are
trade and services followed by transport and production sector. The number of businesses is
increased significantly from year to year, which reflects the growth of private
entrepreneurship and business management skills. According to the data obtained from the
National Registration Center (NRC),there has been an increase on the number of businesses
registered in the first half of 2010 from 48% to 51% (compared to 2009). By considering the
above fact, we would say that business expansion will directly reflect the need for finance
sources besides the capital of owner, which continues to be the main source for businesses
and even medium ones.
Table 2 Distribution of businesses by sector of the economy in the region of Korca
Entities with turnover
below 8 million
(December 2011)
The percentage
of active entities
Production Sector 11 798
Building Sector 1 73
Transport Sector 14 1015
Trade Sector
-Retail market
-Wholesale market
37 2683
Number of active entities
201
2482
Service Sector 37 2683
-Maintenance sector
79
-Services
1481
-professions
246
-Craftsmen
874
-other …
2
Total 100 7252
Source: Directorate of Taxation, Korce
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3.2 PROBLEMS RELATED TO FINANCIAL INSTITUTIONS AND SMES IN
THE FRAMEWORK OF FUNDING
3.2.1 THE FINANCIAL PROBLEMS IDENTIFIED BY SMEs
Although the level of SME financing has increased, it is still insufficient to promote a
rapid development of economy. In order to improve the climate of SME financing, some
measures have been taken during the recent years mainly to the introduction of credit
guarantee schemes for SMEs. The guarantee funds in Albania have been applied by several
special projects (USAID) by supporting small businesses. Nevertheless the guarantee funds
have been limited to support the financing of certain areas and categories of SMEs, excluding
the majority of SMEs.
The main problems identified by small businesses include:
1-Facing difficulties, to obtain loans from the banking sector and credit costs are
estimated as relatively high.
2-Banks conditions are not favorable and the collateral specifically requested
fluctuates at the level 120% -150%.
3-The loan interest is also seen as a problem by businesses as they assess higher rates
and in those cases when a loan is required for investment in machinery and equipment, for a
medium term period.
4-New businesses have little chance to take loans from financial institutions. Almost
no bank that operates in Korca district provides credit for new businesses as they set as a
condition for a business to have an activity for about one year, before asking for credit
consequently a business should have an experience in the market and should be successful.
5-Albanian business continues to suffer from "no proper taxation system, created by
the infrastructure challenges, government inefficiencies and tense political situation and a
general attitude toward a not reliable judicial system and finally a black economy where 75%
of transactions are carried out of financial system in order to avoid investigation by the state.
Moreover one of the current problems affecting the small businesses is the global crisis,
through less opportunities and development.
6-Another problem has to do with the culture and the traditionalism of Albanian
owners. About 65% of them are not willing to share ownership of their business among other
stockholders because they want to take their own decisions, managing the work processes of
financing by themselves.
7-Many businesses have chosen not to use other financial instruments because of their
malfunction. Bank loan is seen the best way compared to other alternatives because other
alternatives have many gaps and uncertainties for the relevant legislation (financial leasing).
8-Another reason that businesses have declared is the lack of other opportunities for
them to make the right choice. An expansion of financial instruments in the Albanian
financial market would create another climate, where businesses may choose the proper
instruments that fits better to their requirements.
3.2.2 THE DEMAND FOR LOANS AND THE PROBLEMS OF FINANCING
Lending is known as one of the most important activities of banks.
• A critical issue faced by the banks is the execution of the collateral on mortgages, if the
borrower is not repaying the loan. So the borrower must have a greater attention towards the
assessment of the pledged assets.
• Businesses that have no stable income, or have frequent changes in the level of income,
represent difficulties on the loan payoff.
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•Also difficulties represent and the businesses that do not provide a full picture of their
financial position, or the information available for verification is not complete. Thus this fact
is one of the primary factors that affect the decisions of banks to lend or not, since there exists
a transparent relationship among the borrowers and the bank. So the principle of client
credibility is broken and it creates no possibility for fund financing.
• The real estate assets remain the most preferred form as a guarantee for loans provided by
banking institutions. However many businesses do not meet the requirements for the amount
of collateral required by the bank. Especially SMEs have difficulties on benefiting the
required amount of funds because of the lack of collateral.
• Sometimes many businesses apply for loans even if they do not have the certain purpose, on
how to use the borrowed funds. In these cases the banks do not want to invest in unfeasible
projects and not real ones, because the financing projects can be very risky. Financial
institutions express interest only on projects of profitable companies, because in this way
companies can recover the investment and the interest payments.
• More over it has been a request for funds from unlicensed businesses. This category of
business proves that our country still has businesses that operate informally, but also testifies
the needs for financial resources by young entrepreneurs.
However we must emphasize the fact that none of the banks that operate in Korca district
could support the new ventures in terms of supporting their financial terms since the
beginning of the activity.
4. A DETAILED ANALYSIS OF NEEDS, RESOURCES AND DIFFICULTIES
IN FINANCING THE BUSINESS
In the survey were provided detailed and qualitative information about the sources of
financing the SME-s the problems which they faced the financing alternatives that financial
institutions offer etc. The table below shows the results of the main issues dealt in the survey
conducted.
* In terms of securing funding sources for starting a business the responses showed that 58%
of respondents have started their activities only with personal savings (see tab.3), about 25%
of businesses have received prior by relatives, a small part of them (7%) have been unable to
obtain loans from the micro credit institutions and a very small percentage (only 5%) have
taken loans from banks.
Table 3 Initial financing resources for SMEs
Funding resources
Sectors
Production Transport Trade Service Total
% % % % %
Personal savings 45 70 55 61 58
Money from relatives 27 20 30 22 25
Short-term bank loans 0 0 0 0 0
Long-term bank loans 27 0 0 0 5
Funds from financial institutions 0 0 5 17 7
Money in the informal market 0 10 10 0 5
TOTAL 100 100 100 100 100
Source: Questionnaire
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We saw a lack of support from banks toward new businesses.
Meanwhile, new transport businesses have started with personal savings (70%) and also longterm
loans are used mainly from the production sector and not at all by the
service sector.
*Another issue is the annual invested amount that these businesses have made in the last three
years and the results show that businesses from the production sector about 36% invested
from 1,000,000 to 5,000,000 ALL. Businesses from the transport sector about 70% of them
invested from 0 to 200,000 ALL and the other sectors have invested from 200,000 to 500,000
ALL.
The investment from the trade sector varies from 200,000 to 500,000 ALL (about 30%
of businesses) and 25% of them invested from 500,000 to 1,000,000 ALL. Businesses from
the service sector made more investments in amounts from 0 to 200,000 ALL (about 33% of
businesses), however a considerable part of them have made investments in amounts from one
million to five million ALL, about 22% of them, which are conducted by the small enterprises
(55%) and the “micro” enterprises(25%).
Furthermore 78% of enterprises surveyed, invested in total from 0 ALL to 1,000,000
ALL. These invested amounts reflect in reality the real needs of businesses for their
development.
Businesses were asked whether they would turn to bank to take a loan for further
financing their activities, many of them responded positively.
About 73% of the interviewers from the production sector responded positively to the
question if they would turn to a bank when they will carry out other investments. The
remaining of 27% did not think to apply in a bank when they carry out further investments.
This is because they believe that loans are very expensive (see Fig.2). 80% of businesses from
the transport sector responded positively to the question for accepting bank loans. Some of
them said that they have applied to other micro financial institutions and 20% of them did not
think to apply for bank loans (see Fig.3).
In the trade sector, about 70% of businesses, agreed to refer banks in the future. About
25% of them disagreed to turn to bank loans and a inconsiderable part of them did not answer
if the they will address or not toward a bank in the future (see Fig.4).The majority part of
service sector, about 67% of them, agreed to take the loan from the bank. The remaining 33%
did not want to turn to bank loans (see fig.5).
As conclusion, the main part of total businesses surveyed, about 71 %,have the
opinion that in the near future will see the banks as a mean of financing their activities while
27% of businesses do not think that the banks are good alternatives for investment. Sectors
that support more the thought of taking loan from the bank are those of trade and services,
without sidelining the two other sectors of the economy.
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Fig .1 Investments made from SMEs in the last 3 years
Source: Survey run by businesses
Fig .2 Preference of production sector for bank loans in their future investments
Fig.3Preference of transport sector for using bank loans in their future investments
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Fig.4Preference of trade sector for using bank loans in their future investment
Fig.5 Preference of service sector for using bank loans in their future investment
*The survey resulted that the majority of businesses think that if they will be financed with
bank loans, their financial situation, will be improved more. With this opinion agreed almost
59% of respondents. A small part, over 14%, felt that the financial situation will improve
much after taking the loan. Another part, 20% of them, show up their opinion that the
financial situation will not change or has not changed after receiving the loan. About 7% felt
that obtaining a loan may aggravate the financial situation of their business.
Fig .6Change of financial situation after using the loan
*By seeing the results we can understand that from three types of loans that banks offer ,about
60% of transport sector businesses have declared that they prefer loans more than one year
while 64% of respondents from the production sector prefer long-term loans ,while service
sector and trade sector, respectively 61% and 55%, prefer long-term loans too. Long-term
loans are easier for creditors to settle out, because they have longer time to pay back the
borrowed money.
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Fig.7. The preferred loans by businesses
Source: Questionnaire
* Table 4 shows that the majority of businesses are not regular credit customer in banks for
their necessary funding. About 63% of businesses surveyed are not regular customers and
only 37% of them are considered as regular customers of the banks. Although all of them say
that they can strengthen their relationships with the banks and can turn into regular customers
too. This indicates that the customers are increasing the credibility toward banking
institutions.
Table 4 Regularity of businesses attendance at banks
Sectors
Regular customer Production Transport Trade Service Total
YES 27% 40% 40% 39% 37%
NO 73% 60% 60% 61% 63%
TOTAL 100% 100% 100% 100% 100%
Source: Questionnaire
Considering the field of credit, there are a number of barriers which affect the access
to credit by businesses such as:
-High interest rates
-Long and bureaucratic procedure of loan processing
-Small amount of loans, insufficient for business needs
-Businesses have sufficient revenues to meet their increased activity
-Businesses can provide funds easily with low cost in the informal market
These barriers reduce significantly the amount of credit from banks or from other
financial
institutions.
Each of the barriers in the survey, received a rating from 1-5 by each respondent,
given 1 to that point which business considered as the most important one and 5 for the less
important point in obtaining a loan. The results obtained from the survey are presented in
table 5.Referring to the estimates, these obstacles are ranked according to this importance:
1. High interest rates
2. Business provides sufficient revenues to meet the increased activity in the future, by not
asking for loans
3. Long and bureaucratic procedures in the loan process
4. Providing funds and with low cost in the informal market
5. Small amount of loans, insufficient for their needs
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Table 5 Assessment of barriers to obtain loans in order of importance
LOAN BARRIERS
VALUATION
(valuation in time) 1 2 3 4 5
1.High interest rates 73% 14% 10% 3% 0%
2.Long and bureaucratic procedures 8% 31% 36% 22% 3%
3.Small amount of loans ,insufficient for business needs 0% 15% 17% 20% 48%
4.Businesses have sufficient revenues to meet their increased activity 15% 29% 22% 19% 15%
5. Provides funds easily in informal market 3% 12% 15% 36% 34%
TOTAL 100% 100% 100% 100% 100%
Source: Questionnaire
* On the focus of credit extension by financial institutions, the total responses of the survey,
consisted on the tendency of credit extended by banks, which differs from that accorded by
the financial foundations (see Table 6). Respectively were taken the following detailed results
by sector borrowed money to the bank and non- bank financial institutions.
Table 6 Loans extended by banks and foundations
CREDIT OF CREDIT
CREDITED SECTORS BANKS
FOUNDATION
INDIVIDUALS 14% 44%
FAMILIES 19% 30%
SMALL BUSINESSES 26% 26%
LARGE BUSINESSES 41% 0%
TOTAL 100% 100%
Source: Survey run by financial institutions
OF
Loans extended by banks are in greater amount toward big businesses than toward
small ones. Credit allocated by foundations, or otherwise called non-bank credit institutions,
most of the voice for business credit extended is toward small businesses compared to big
ones. This is because these institutions are specialized for granting microcredit and the main
part of credit is given for consumers and families.
4.1 DEVELOPMENT PROSPECTS AND FINANCIAL SUPPORT
ACTIVITIES FOR SMES IN THE REGION OF KORCA
Studying the financial situation in Korca, results that the banking sector is expected to
provide a greater grassroots support to young businesses. Mainly, service sector and trade
sector are tending to finance their businesses in the future with microcredit. Long-term credits
will remain the most preferred by businesses. Also, small businesses are expected to frequent
banks more, in accordance with their expansion.
The main obstacle for taking loans with "high interest rates" and "long bureaucratic
procedures" will be the main focus of the funding policies of the foundations and banks,
toward the reduction of them.
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Despite expectations for future support of new businesses and those in development,
big businesses and existing ones remain the preferred for non-banking sector, because they
carry a lower credit risk.
CONCLUSIONS AND IMPLICATIONS
•Many times SMEs are seen as a source of innovation at the aggregate level because they are
flexible, dynamic and sensitive to changes in demand in comparison to larger companies.
•SMEs sector is the most viable sector of the economy.
•Preference for short-term loan, come as a result of low level of risk and a better credited
monitoring possibility for a better loan.
• Activities such as trade and services have been the most favorite ones for credit.
•New businesses or small ones that do not offer sufficient guarantees to banks, only find
funding opportunities to microfinance institutions.
•Funding of SMEs is it sad to be one of the main obstacles of growth and development.
Economic stability is essential on improving the access of SMEs’ financing and on the
creation of a friendly business environment. From the survey, we can conclude that, the
improvement of business’s financing needs: (i) the increase of credit level, (ii) the reduction
of credit cost, (iii) the strengthening of cooperation between businesses and financial
institutions. High transaction costs are one of the most important barriers for their
development, so the reduction of these costs would encourage the expansion of SMEs and in
particular the expansion of micro enterprises.
• There are problems related to the execution of mortgages from the enforcement authorities,
who make difficult the lending process.
• The existence of the informal market. The money collected from the smuggling and
trafficking of various investment resources, reduce somewhat the demand for credit.
• The tense political climate in the country reflected uncertainty and pessimism to SMEs for
their performance in the future.
• Interest rates for new investors are much higher than for those that have an experience or are
larger, because small investors are considered with high risk.
• In addition to banks’ expansion of micro-credit schemes and non-bank financial institutions
is another development that has led to an increase for lending to small businesses.
•Strengthening the governmental institutions to local levels for supporting the businesses will
create better relations between state and business.
• Banks should reduce the interest rates, in order to attract more clients .Through low interest
rate will be influenced the reduction of the borrowing cost in the economy and this will bring
an increase in the volume of credit expansion.
• Introduction of an informative campaign for banks and businesses, for various options
available as a pledge, such as the "inventory" which is not practiced much.
•Legal solution through the creation and operation of the Administrative Court, which would
entail the removal of barriers identified by businesses as barriers in additional costs to
business.
•More generally, it may be that small firms will play a larger role in technological advance in
the context of the information revolution and the rising role of services than was earlier the
case under the dominance of manufacturing.
• It is necessary to support the activities for creation of components between local banks and
financial organizations, government / donators and foreign banks for the establishment of
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credit lines for SME borrowings and especially for manufacturing enterprises, agriculture and
agro-industrial, tourism etc.
• Monitoring the development of SMEs. Since SMEs are the most viable sector in the
economy, it should be efforts toward their development and creation of various facilities, such
as incentives in the tax system.
REFERENCES
1. Ayyagari,M., and Maksimovic,V, “Industry Growth, Firm Size, and the Business
Environment,” USAID Micro REPORT,2008
2. Beck, T.,Demirgüç-Kunt, A. and R. Levine, 2005, “SMEs, Growth and Poverty,”
NBER Working Paper 11224.
3. Berger, A.N, and De Young, R., "Problem Loans and Cost Efficiency in Commercial
Banks” (1997)
4. Burns,P., “Entrepreneurship and small business”,(2001) "Economic Bulletin "Bank of
Albania, last modified, November 2011, http://www.bankofalbania.org “Economy and
transition", Economic Bulletin, April-June, 2010 http://www.albic.net
5. Lukacs,E., “The economic role of SMEs in world economy, especially in
Europe”,(Europian Integration Studies, University of Miskolc),2005,3-12 Regional
Directorate of Taxes Korce, Albania
6. "Register of economic enterprises" last modified October 2011,
http://www.instat.org.al
7. Sigliz,J.E and Weiss,A, "Credit Rationing with Collateral",(1985)
8. “Study on barriers to market Albania Business contribution to an enabling
environment for small business stimulus ", http://www.biznesalbania.org.al/?p=429
9. “The public presence of the governor of the Bank of Albania”Bank of Albania,
January-December 2009”
10. “The importance of SMEs in the economy”,
http://www.itdweb.org/smeconference/documents/:2-6
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POWER LAW AND SCALING ANALYSIS OF THE BUCHAREST
STOCK EXCHANGE
Eliza Olivia Lungu;
Academy of Economic Studies; Bucharest
ABSTRACT
In this short paper I analyze the cumulative probability density function (CDF) and
the scaling properties of the Bucharest Stock Exchange (BVB). The data used for this
investigation are the closing prices and volumes for all the first and second tier shares from
their first listing day until 31.05.2011. I am particularly interested to see if power law is fit for
BSE. My findings are that on average power law is not a good approximation for the
volatility CDF and it might be a good one for the volume CDF. But when I take into account
the industrial sectors of the shares, the results present a different reality.
Key words: econophysics, stock market, scaling analysis, power law.
In this article I investigate the distributions of two well studied financial variables:
return and volume. Even thou researches of this type have been done on most of the financial
markets none have been conducted on the Bucharest Stock Exchange (BVB). I intend to fill
this gap and test if it can be empirically proved that the price and volume fluctuations of the
Romanian shares, present power law distributions. Studies done on several markets, reported
that returns and volumes follow power law distributions, with exponents 3 for returns and 3/2
for volumes.
The Bucharest Stock Exchange (BVB) is a medium Central East European (CEE)
stock market, with a total market capitalization of EUR 11 bn. and an average daily equity
turnover in 2011 of EUR 10 m. According to FTSE Global Equity Index Series it is classiffed
as frontier market, near Argentina, Bulgaria, Cyprus, Estonia, Malta, Slovenia etc. Frontier
markets are defined as small, less liquid, `emerging` emerging markets. Financing through the
capital market is poorly used by the companies registered in Romania, under 1%, while the
European mean is around 40% and in USA it reaches 70%.
For this study I considered all the 1st and 2nd tires, trade continously from their issue
date until 31.05.2011. In total I consider 22 I tier shares and 23 II tier shares, from different
industrial sectors (financial, services, pharmaceuticals prodducts etc.), with a wide range of
market capitalization and average daily volume.
In order to evaluate the shares price and volume dynamics, I employ two basic
measures: (1) the magnitude of the price change, volatility v and (2) the volume variation Q.
The return R (closing/closing) is expressed as the logarithmic change in the successive daily
closing prices.
Because the database contains different types of shares, to make the results
comparable, I normalize the price fluctuations (returns) by the second moments:
The volatility is defined as the absolute value of the return:
(2)
The volume is also normalized, by the first moments this time, because it has an
infinite standard deviation:
(1)
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I analyze the fat tails of the volatilities and volumes as power laws, described by the
probability density p(x):
dx (4)
where X is the observed normalized value of the volatility or volume, C a normalization
constant and α the power law exponent. The cumulative distribution function for the
continous case is
(5)
Using the maximum likelihood method, I estimate the exponet α according to (6) for
the empirical data and evaluate the robustness of the estimation using Kolmogorov-Smornov
statistic. If the p-value is greater than 0.1 then the power law hypothesis is accepted.
(6)
A summary of the rough results shows that almost 27% of the volatility series follow a
power law, while more than 60% of the volumes series are fitted by a power law. The
volatilities tails do not seem to follow a power law, but it seem to be a good approximation
for the volumes. Further I calculate the average exponent for the volatility and volume, in the
case of each tier (Figure 1 and 2).
(3)
Figure 13 The cumulative distribution function P(x) of daily volatility for the 1 st and 2 nd tiers,
for which p>0.1. The distribution functions decay with different scaling exponents between
4.4 and 2.5
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Figure 14 The cumulative distribution function P(x) of daily volume for the 1 st and 2 nd tiers,
for which p>0.1. The distribution functions decay with different scaling exponents between
3.9 and 1.6
If we take into account the lifetime of the share, in days, we notice that value of the
exponent decrease with time. Looking at the economic activity of the issuer company, we
notice that the best represented sector (as number of shareson BVB) is the financial service
activities, except insurance and pension funding.
Table 1 Mean power law exponent for volatility and volume, by economic sector
Economic sector (no. of shares)
Mining and quarrying (2) 3.67 2.88
Manufacturing (24) 3.19 2.26
Electricity, gas and water supply (2) 4.30 2.89
Construction (2) 2.51 2.38
Wholesale and retail trade; repair of motor vehicles, motorcycles and - 2.51
personal and household goods (1)
Hotels and restaurants (2) - 2.46
Transport, storage and communication (3) - 2.44
Financial intermediation (9) 3.24 3.23
REFERENCES
1. A. Clauset, C.R. Shalizi, M.E.J. Newman, “Power-law distributions in empirical data”
SIAM Review 51(4), 661-703 (2009);
2. R.N. Mantegna and H.E. Stanley, An Introduction to Econophysics: Correlations and
Complexity in Finance, Cambridge University Press, Cambridge (1999)
3. X. Gabaix, P. Gopikrishnan, V. Plerou and H.E. Stanley, A unified econophysics
explanation for the power law exponents of stock market activity, Physica A 382
(2007), pp. 81–88
4. M. Mitzenmacher, “The Future of Power Law Research”, Internet Mathematics Vol. 2
No.4 (2005) pp. 525 –534;
5. Meyers, R.A. (2009), Encyclopedia of Complexity and Systems Science, Springer;
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TARIFF EFFECT ON SMUGGLING IN THE IRANIAN ECONOMY
Majid Maddah
Faculty of Economic and Management,
Semnan University - Iran
ABSTRACT
Tariff and trade restrictions encourage individuals to commit in informal trade as
smuggling. This paper provides some evidence of smuggling of goods into Iran, and
investigates the relationship between tariff rate and smuggling, defined as difference between
Iran’s reported imports from its major trading partners and reported exports by trading
partners to Iran. The results indicate that smuggling is sensitive to tariff rates, so that
elasticity of smuggling to tariff is 0.64. Indeed smuggling has more sensitive to goods that are
subject to more tariffs. For such goods elasticity of smuggling is 1.22. Thus high tariff rates
can cause increase in committing informal trade.
Key words: Trade discrepancy, Smuggling, Tariff rate, Iran
JEL classification: E26, H26.
INTRODUCTION
Smuggling (i.e., informal trade) is a significant phenomenon in different countries. In
smuggling, clandestine trade of goods is performed by individual to avoid legal taxation or
duties on goods. Furthermore, some restrictions against import goods cause individuals
commit in illegal transactions. For example, import of alcoholic beverages and drugs are
prohibited in Iran and thus any transactions of such goods are considered as smuggling. A
large part of literature related to smuggling allocates to investigation of smuggling effects.
Bhagwati and Hansen (1973) earlier investigated the welfare effects of smuggling on
economy based on the standard international trade model. Their analysis extended by
Bhagwati and Srinivasan (1973), Johnson (1974), Norton (1988), Thursby et al. (1991) later
years. In some studies, the causes of smuggling have been investigated. The goal of
smuggling is tax avoidance; thus we expect that more tax on import goods leads to more
smuggling. In fact, tax on import increases costs of formal import of goods and decreases
profit from trade for individuals, all of which lead to more illegal transactions, because illegal
import of goods guarantees more profit in comparison with legal import. Empirical studies
show that there is positive relationship between smuggling and tax rates.
Bhagwati (1964) points out that tax evasion can be one explanation for trade
discrepancies between recorded export and import in a country’s trading data. Later,
Bhagwati (1974) documented discrepancy in trading data by comparing of Turkey’s recorded
imports from her trading partner with corresponding exports. Norton (1988) and Phylaktis
(1991) demonstrated direct effect of tax rate on committing in illegal trade. Pajoyan and
Maddah (2005) presented one theoretical model for smuggling and concluded that tariff rate
on import goods is one of the effective factors on smuggling to inside; they found positive
relationship between tariff rate and smuggling in Iran experimentally. In another study,
Farzanegan (2009) found the same result; he calculated mis-invoicing of import and export
between Iran and its trading partners for estimation of smuggling time series in Iran.
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Technique of foreign trade data comparison has been used by Fisman and Wei (2004) to
investigate the link between the tax rate (tariff plus VAT rate) and the tax evasion in China’s
imports. In this study, tax evasion was defined as the difference between Hong Kong’s
recorded exports to China and China’s recorded imports from Hong Kong. They found that
there is a positive relationship between tax rate and tax evasion. Javorcik and Narciso (2008)
showed that a positive and significant relationship is between tax evasion in Germanys’
imports from its 10 trading partners to corresponding imports’ tariffs. Such relationship is
stronger for differentiated products than homogeneous products.
Above results show that more tax rate is associated with more tax evasion; tax evasion
happens when goods import into a country clandestinely that we consider it as smuggling. In
this paper, first, I present sizes of import smuggling in Iranian economy on data and
documents. Then, using Bhagwati’s method (1974), I measure Iran’s foreign trade data
discrepancies to its most important trading partners that is a suitable proxy for import
smuggling in Iran. Finally, I will investigate the relationship between tariff rate and import
smuggling.
SIZES OF IMPORT SMUGGLING IN IRANIAN ECONOMY
Smuggling in Iranian economy is very prevalent. There are different reasons for
committing illegal transactions. High intervention and heavy shadow of government on
economic, Para-state organizations 1 , official obstacles against import, high tariffs on import
goods, Para-government body of economic sectors such as foreign trade, have provided
profitability conditions for smuggling into the country. Statistics show that tariff rate is very
much in Iran in comparison with other countries of W.T.O members. The average of tariff
rate is 26 percent in Iran but in U.S.A, Saudi Arabia, & European Union is 3.5, 5.2, and 5.6
percent respectively 2 . Moreover, importers have to spend a lot of time for getting an import
license. They have to get import license or permit from at least 15 offices, organizations or
ministries 3 . Standard Institute looks at import goods between 15 – 20 days to decided whether
goods are standard or not. 4 These conditions increase costs of formal import into the country
and motivate individuals to commit in informal import as smuggling. We can divide the
import smuggling in Iran into two groups. First group includes goods that their importation
into the country is strictly prohibited such as alcoholic beverages 5 , drugs and gamble
equipment based on religions or legal grounds. Second group of smuggling goods relate to
goods that can be imported into the country as legal or illegal but high tariff causes
smuggling. Based on the rule of combating with goods and exchange, smuggling, keeping,
transportation and selling of prohibited goods count smuggling and is subject to punitive
punishments such as pecuniary penalty and seizure of properties. Table 1 presents the main
detected import smuggling in Iran in 2009.
Table1. The main detected import smuggling in Iran, 2009
1 - Some goods are smuggled through piers and pathways that are getting out of control of government. For
example, in inquire of Iran parliament about smuggling of tea, it has been reported that illegal piers perform
important role in smuggling of tea into country. (http://www.mardomsalari.com/template/naws.aspx?NID=12062
(in Persian, Access: 19.25.00).
2 -http://www. Donya-e-eqtesad.com/Default_view.asp?@=192857 (in Persian, Access: 19.30.00).
3 -Report of Iran custom house, Number 1.
4 - http://www.donya-e-eqtesad.com/Default_view.asp?%40=118968 (in Persian, Access: 19.30.00).
5 - On reports of Combating Goods and Exchange Smuggling Central Staff, $ 68628980 alcoholic beverages are
detected in 2009.
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Name of good Value ($)
car 15324960
mobile 112388150
Mechanic machinery and other 8277530
related components
bag and shoe 7422755
rice 4349930
food good 3715320
electrical machinery 3022780
toiletries 2661034
Accessory 2522122
Household appliances 2435720
Live animals 2227520
Textile (such as costume, cloths…) 59584772
Wood 1945188
Satellite TV and related apparatus 1833550
Computer and related apparatus
Other goods
1488695
13264600
total 242464626
Source: Report of combating Goods and Exchange Central Staff.
Table.1 data shows that smuggling in Iran has much variety and contains different
types of goods such as cloth, mobile, car, toiletries, and live animals. Moreover, it shows the
share of textile is more than other goods. The value of total detections is $ 242464626 it is
only a part of smuggling in Iran because some reports indicate that 10% of total smuggling is
detected in Iran 6 .
SMUGGLING AND IMPORT TARIFFS IN IRAN
Tariff is one of the factors influencing on smuggling. More tariffs increase cost of
formal import and encourage business people to commit informal import (i.e. smuggling). For
analyzing the relationship between smuggling and tariff rates, we need to have amount of
smuggling. Using Bhagwati’s method, trading data discrepancies of Iran and her trading
partners (UAE, Germany, China, Korea, France, Switzerland, Italy, UK, India, Turkey, Japan,
and Russia 7 ) can be used as technique of measuring the smuggling. In fact, when Iran’s
reported import from her trading partners is lesser than partner’s reported export in various
types of goods, we can conclude that part of Iran’s import hasn’t been reported. Unreported
import appears as under-invoicing or clandestine in order to avoid tax.
Data
All of research trading data are obtained from Word Trade Solution (WITS) database.
This data contain the value of reported export to Iran by its trading partner and reported
import by Iran with related tariff (contain duty and other taxes on import goods). The data are
at HS- 2 digit level that has been divided to 99 categories. In 94 categories, reported value of
export by Iran’s trading partner is more than reported value of import from trading partner by
6 - Report of combating Goods and Exchange Central Staff, 2009.
7 -About 74% of Iran’s total trade has been allocated to these 12 countries in 2008.
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Iran; it shows import smuggling into Iran, although, there can be other reasons for such
condition. Information in 5 categories is incomplete. Thus information related to 89 categories
is the basis of analysis of the relationship between smuggling and tariff rates in Iran. Table.2
presents descriptive statistics related to research in 2008.
Table.2 Descriptive statistics
Value of Value of Value of gap- Tariff rate (%)
exports($) imports($) Smuggling-($)
Mean 1727956 438337.2 1289619 29.64
S.D 5081363 1295560 3965937 21.92
Min 1565.7 130.2 1060.5 4
Max 36875626 8498479 28377147 100
observations 89 89 89 89
Empirical analysis
In order to have empirical study of the relationship between tariff rates and smuggling
in Iran, I have considered one simple model in which smuggling is defined as a function of
the tariff rate. That is,
and
Smuggling= Ln (export )
c
- Ln(import
c
) ( LnTariff )
Where exp ortc
refers to reported export of good c to Iran by Iran’s trading partners,
import refers to reported import of good c (at the HS-2 digit level) from her trading
partners by Iran.
c
Tariff
c
is tariff rate of good c that is imposed on imported goods by Iran.
We expect that >0. In fact increasing in tariff rate of imported goods leads to more
difference between reported export and import, indicating smuggling of goods into Iran,
because more tariffs increases cost of formal import. In this condition, business people will be
motivated to smuggle goods into the country. Table.3 presents results from estimation of the
model. From this table, direct relationship between smuggling and tariff rates confirm in 89
categories; sensitively of smuggling to tariff rates is 0.64.
Tabal.3 Smuggling and Tariff Rate
Regression
Model Model Model
(1) (2) (3)
Constant -0.18 -2.31 1.09
(-0.44) (-1.59) (1.92)
Tariff rate 0.64 - -
(5.08)
Tariff rate (Over median) - 1.22 -
(3.17)
Tariff rate (Under median) - 0.12
(0.54)
Observation 89 45 44
2
R 0.23 0.189 0.007
Note. – T statistics are in parentheses.
c
c
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That means if the tariff rate increases by one percentage, the smuggling (difference
between reported exports and imports) increases by 0.64 percent. In fact, elasticity of
smuggling to tariff rate is 0.64. On this result, we expect that more smuggling is accompanied
by more tariff rate and smuggling occurs in case of goods on which more import tariffs are
imposed, because smugglers will get more profit through illegal trade (i.e. smuggling).This
postulate confirms by estimation of model (2) that only contains observations that have been
imposed on their import tariff rates of over median. Results from estimation shows that the
effect of tariff rate on smuggling of goods with high tariff is stronger than total of goods. For
these goods, elasticity of trading difference to tariff rate is 1.22. It shows if the tariff rate
increase by one percentage, the smuggling increases by 1.22 percent. Thus we can claim that
more tariff rate leads to more smuggling. Although positive effect of low tariff on smuggling
of goods isn’t confirmed in this research, but we can postulate high tariff is one of the factors
that influence on committing informal market and good smuggling in Iran generally, and in
case of goods with high tariff rate, in particular.
RESULTS
Factors such as Para-government structure, trading restrictions and high tariffs on
imported goods have been associated with increase costs of formal import in Iran’s economy.
In fact, such factors encourage people to commit illegal transactions of goods as smuggling
into the country. Data related to the main detected import smuggling show that smuggling is
very widespread in Iran and contains several types of goods. The total detected import
smuggling is $ 242464626 in 2009 that is only part of total of smuggling in Iran. High tariff is
one of the factors that increase benefits from smuggling. This subject has been confirmed in
literature. In this paper, I have found positive and significant relationship between tariff rate
and smuggling, defined as the difference between reported imports by Iran and reported
export by her trading partners at the HS-2 digit level. Such result is stronger for goods with
high tariff than to total goods. Results from estimation of models show that elasticity of
smuggling to the tariff rates is 0.64 and 1.22 for total goods and goods with high tariff rate,
respectively. That means that more tariffs leads to more trading difference or smuggling. In
other words, high tariffs encourage traders commit more smuggling, because smuggling is
exempt from tariff. These findings can justify part of the great volume of smuggling in Iran.
REFERENCES
1. Bhagwati, J. N. and Hansen, B. (1973) A theoretical analysis of smuggling, Quarterly
Journal of Economics, 87, 172-87.
2. Bhagwati, J. (1974) On the under-invoicing of imports. In Illegal Transactions in
International Trade, 138-47. Amsterdam: North-Holland.
3. Bhagwati, J. N. and Srinivasan, T. N. (1973) Smuggling and trade policy, Journal of
Public Economics, 2, 377-89.
4. Farzanegan, M.R. (2009) Illegal Trade in the Iranian Economy: Evidence from a
Structural Model, European Journal of Political Economy, 25: 489-507.
5. Fisman, R. and Wei, S-J. (2004) Tax Rate and Tax Evasion: Evidence from “Missing
Import” in China, Journal of Political of Economy, 112(2): 471-496.
6. Javorcik, B.S. and Narciso, G. (2008) Differentiated products and evasion of import
tariffs, Journal of International Economics, 76, 208-222.
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7. Johnson, H.G.(1974) Notes on the economic theory of smuggling, in: J.N. Bhagwati
(ed.), Illegal Transactions in International Trade, 39-46. Amsterdam: North-Holland.
8. Mishra, P. and Subramanian, A. and Topalova, P. (2008) Tariffs, Enforcement and
Customs Evasion: Evidence from India, Journal of Public Economics, 92, 1907-25.
9. Norton, D. A. G. (1988) on the economic theory of smuggling, Economica, 55, 107-
118.
10. Pajoyan, J. and Maddah, M. (2005) Economic review of smuggling in Iran,
Pajoheshnameh Eghtesadi, 6, 43-70.
11. Phylaktis, K. (1991) The black market for dollars in Chile, Journal of Development
Economics, 37: 155-172.
12. Thursby, M. and Jensen, R. and Thursby, J. (1991) Smuggling, camouflaging, and
market structure, Quarterly Journal of Economics, 106: 789-813.
13. WITS, World Integrate Trade Solution, World Bank.
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DESIGNING CENTRE FOR LEADERSHIP OF THE UNIVERSITY OF
BUCHAREST (CL-UB)
Marinescu Paul;
University of Bucharest;
ABSTRACT
The following paper aims to present the way in which a system architecture will be
built and implemented within the University of Bucharest. The purpose of this project is to
create a Centre for Leadership in the academic environment which will combine theoretical
knowledge with the business market necessities.
Another objective of the Centre is identifying and serving both internal and external
stakeholders. (6, p. 14). CL-UB focuses on developing the leadership capacity of individuals,
improving their skills and knowledge in this domain. Another goal is to work closely with and
for the community, providing valuable services.
Key words: centre, leadership, project, benchmarking, synergy, risk management.
INTRODUCTION
The existing specialised literature in the field of project management and leadership
will provide information regarding specific instruments, so as to offer new aspects in the
development stage of the Centre and especially in the work itself. One of the system’s
purposes is not only to use information in these fields but also to provide useful results from
its own research.
Considering the fact that there are similar Centres in the World, we aim to design a
competitive Centre, one which will integrate key success factors which will then be adapted to
our conditions, so that this system can work on an optimal level. In this particular situation,
the benchmarking process will be a vital part; by identifying solutions we will conduct an
analysis of similar Centres in other countries in order to become aware of their efficient
components that can be adapted to the system which we will create (6, p. 168).
Developing a communication strategy will define a communication plan which will
unfold parallel to the on-going activities regarding the completion of the project. This
communication plan must meet market requests so that it will establish necessary partnerships
for the training of leadership specialists in the fields of business, public institutions, academic
and political environment.
It is required for the Centre to involve the main players within the business market in
order to grant scholarships, sponsorships, internships and provide know-how. Integrating
students in the work market especially in the CL-UB’s partner organizations is mandatory,
eventually defining the academic evolution of students through projects completed within
partnerships.
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CONTEXT ANALYSIS
The evolution of Romanian society and economy demands the creation of this Centre
taking into consideration that in other European systems there are similar Centres which
achieve concrete and coherent results. In Romania, there hasn’t been a major concern
regarding the development of a true leadership Centre before 1990. It is a well-known fact
that certain initiatives of the then centralised economy have defined a type of training for
future organization leaders, however the educational components offered limited competences
and insight. Each and every organization will be more effective if their leaders will empower
those who are in the organizational structure as a motivator. “An organization is more
efficient if it relies on the principle of joint power rather than on the principle of power over
others”(8).
Whilst making this project, we will use specific tools pertaining to management
project which will on the one hand sustain the development of the Centre and on the other the
permanent monitoring, control and evaluation of the undergoing activities. We will use the
following tools in time management which are applied in project management: Work
Breakdown Structure (WBS), Gantt Diagram, Precedence Diagram Method (PDM), Critical
Path Method (CPM) (6, p. 51). We will also take into consideration other elements that are
specific to project management: budget (6, p. 73), communication strategies and project
meetings, estimations, monitoring (6, p. 129) and project management software. Whilst
completing the project but also in the further development of the Centre we will use specific
instruments in relation to the decision making process: lists, decision trees, Cause-effect
diagrams, evaluation matrix (6, p. 46).
Of utmost importance will be the information concerning the method by which we
will establish the team which will create the project (6, p. 83) but also of the team which will
continue coordinating the CL-UB’s activities.
The present article is a short paper after which the targeted elements will be further
discussed in a future paper presenting the opportunities and obstacles of launching such a
Centre in the socio-economical premise of a recently integrated country in the European
Union. When we will plan the above mentioned instruments, we must consider their temporal
placement (in sequence or in parallel); the cost evaluation of these activities and their planned
timeframe will enhance the chances of success. (5)
When facing the question: “can I learn it, how do I do it, and how can I use it to
advance my career?” (7), the Centre plans to approach the reality challenges in two ways: the
first one regards theoretical knowledge at its finest and the second one implies creating
situations in which high-experienced leadership practitioners challenge students to think what
they must do in different scenarios, how to act in order to succeed in a fair-play manner. Each
participant in this course will discover in their own experience future sequences from roleplay,
case studies, from the theories they will learn in the Centre, so as for them to be able to
find solutions to problems which may appear in their current activity.
The situation analysis provides in most cases solutions regarding means through
which we can enhance our own activities. CL-UB plans to find these solutions for all
stakeholders. This means that we hope to find enhancements of tomorrow’s realities through
today’s virtuality (in the Centre’s activity we will define in many situations the rapport
between what is virtual and what is real as a way of going from potential to actual
manifestation. Thus, we achieve synergy. CL-UB research can offer results which can become
milestones in specialised literature.
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Designing the Centre implies taking risks, also meaning that “we have to take into
consideration elements of uncertainty” (6, p. 106). “The particularization of activities
represents an opportunity to identify risks” (6, p. 107). Risk means taking responsibility for
the unknown. The Centre for Leadership plans to anticipate the future so that the unknown
could be deciphered. The research methods used will offer the possibility to choose the best
option for defining the future. The risk in designing, but also in the running of CL-UB
implies taking responsibility, effective use of knowledge and anticipation.
The first step is for the Centre to offer top, middle and executive management
instruction for the employees of the University of Bucharest and also specialised programs for
the students of this University.
On a broader spectrum, we plan to create a network-type structure that will extend
throughout Romania, taking into account the fact that there are 41 counties which may serve
as network hubs. The development of an educational system in the field of leadership may
take place in this national network and it will address to undergraduate, academic and
postgraduate education, as well as other socio-professional categories.
This CL-UB development project imposes the creation of a communicational system
on an internal level (taking into account that we are also foreshadowing a network), but also
on an external one. The quality of information which will be shared through communication
channels and the consistency of feedback will be able to contribute to the success of CL-UB
activities; “communicating the right information to the right people helps assure project
success” (4).
Periodically, the CL-UB will host an international conference on the topic of
leadership, in the attendance of professors, researchers, entrepreneurs, consultants, politicians,
students, etc. At the conference, there will be debates over the latest results in the field and
further leadership development directions will be suggested. We are looking to piece together
an interdisciplinary research group within the University, consisting of economists,
psychologists, sociologists and mathematicians (when a leadership model is needed from a
mathematical point of view) (6, p. 124). The group can analyse individual and organizational
behaviour as well as it can configure group dynamics.
The liaison of this organization will be represented by a value system that we plan to
define and implement from the perspective of three vectors: to know, to do and to be. The first
one is related to information, the second refers to action and the third is about mentality.
Knowledge and action should guide us towards the latter.
Organizational diversity will become a resource within this system because previous
experiences have shown that each man holds a potential that can be brought to light in a
group. The more varied the group from the point of view of experience, culture and
knowledge, the more creative the solutions, eventually leading to better results. The
similarities between the members of the association offer the possibility of emphasizing the
potential for diversity: “facts generate feelings and feelings generate commitments” (9).
This Centre will also concern itself with the environmental problems that become challenges
for every manager in relation to the increasingly scarce resources. Thus, the Centre’s
preoccupations will consist of partnerships based on win-win situations, having as final
purpose the shift of both group mentality and leaders.
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CONCLUSIONS
The Centre pushes forward the idea of life-long learning towards the Romanian
society.
Starting from the principle that each of us can “transform oneself from a good
manager into an extraordinary leader” (2), we suggest the analysis of successful managers’
traits as well as leaders’ qualities in this system. In the rapport between cause and effect we
will establish the means through which the qualities of a manager can trigger a successful
leader’s manner of acting. The transformation of a manager into a true leader implies the
transcendence from the manifestation of efficiency towards acting effectively (from doing
things right to doing the right thing). It is obvious that in our analysis we will take into
consideration the observations of theoreticians and practitioners who stated that leaders
usually have born traits.
This Centre plans to define very straight-forward ways of training leaders, taking into
account that generally, people do not possess enough information concerning the evolution of
society. “People demand guidance” and a specialised school in the field of leadership will be
the one providing it (3).
The Centre of Leadership must adapt to any given real situation, so that it can provide
the contexts for students to use their own experiences and theoretical knowledge in order for
them to handle “a relentless succession of challenges”.
CL-UB activity will be based on specific objectives and performance criteria which will be
permanently evaluated, because “a leader’s primary task is to get results” (1).
REFERENCES
1. Goleman, Daniel, Leadership that gets results, Harvard business review (March 01,
2000), Prod. #: R00204-PDF-ENG
http://hbr.org/product/leadership-that-gets-results/an/R00204-PDF-
ENG?Ntt=leadership%2520project%2520management
2. Goleman, Daniel; Drucker, Peter F., Kotter, John P.; Heifetz, Ronald A.; Laurie,
Donald L.; Goffee, Robert; Jones, Gareth; Bennis,Warren G.; Thomas, Robert J.;
Collins, Jim; Rooke, David; Torbert, William R.; George, William W.; McLean, Peter
Andrew N.; Mayer, Diana; Ancona, Deborah; Malone, Thomas W.; Orlikowski, Wanda
J. and Senge, Peter M.. HBR's 10 Must Reads on Leadership (with featured article
"What Makes an Effective Executive"), Harvard Business Press Books (June 07, 2010),
Prod. #: 12546-PDF-ENG http://hbr.org/product/hbr-s-10-must-reads-on-leadershipwith-featured-ar/an/12546-PDF-ENG?Ntt=center%2520of%2520leadership
3. Heifetz, Ronald; Grashow, Alexander and Linsky, Marty, Leadership in a (Permanent)
Crisis, Harvard Business Review (July, 2009)
http://hbr.org/2009/07/leadership-in-a-permanent-crisis/ar/1
4. Heldman, Kim, Project Management Jump Start, (USA: Sybex, 2003), 33.
5. Kerzner, Harold, Project Management, (Bucharest: Codecs Publishing House, 2010),
821.
6. Marinescu, Paul, Project Management, (Bucharest: University Publishing House,
2007), 14, 168, 51, 73, 129, 46, 83, 106, 107, 124.
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7. Mills, D. Quinn and Winkler, Carole A. Leadership Forum: Building Great Careers,
Harvard Business Review (April 02, 2007), Prod. #: 307708-VID-ENG
http://hbr.org/product/leadership-forum-building-great-careers/an/307708-VID-
ENG?Ntt=center+of+leadership&Nao=10
8. Owen, Hilarie; Hodgson, Vicky and Gazzard, Nigel, Leadership Manual: A Practical
Guide for Efficient Leadership, (Bucharest: Codecs Publishing House, 2006), 205.
9. Silard, Anthony, Total Leadership: A practical guide to transforming your life vision
into action (Bucharest, Curtea Veche Publishing House, 2010), l0.
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CURRENT ISSUES AND THEIR CHALLENGES IN AUDITING THE PRIVATE
PENSSION FUNDS IN ROMANIA
Matei Simona;
Academy of Economic Studies; Bucharest
ABSTRACT
The present paper has the purpose to introduce the readers in the pension funds
industry and to raise the awareness on the importance of financial external audit of pension
funds. Nowadays, the Romanian accounting legislation is continuously updating and
changing, being closer and closer to International Financial Reporting Standards. Therefore,
the auditors have the professional responsibility and due care to be continuously informed
and to align their audit procedures to changes in the industry. The research objectives are to
evidence the challenges of an external auditor in performing the testing procedures for
investments, in both the planning and substantive phase of an audit fieldwork.
In Romania, the novelty and complexity of this field is still in its regulatory status,
both in terms of the Supervisory Commission and the Private Pensions Supervisory
Commission (CSSPP), and the CAFR. In Romania, at present, there is no work paper to have
done the unification of the two areas, audit and private pension funds. I want the current work
paper to be the first study about the role and importance of the external audit of a private
pension funds.
value.
Key words: pension fund, external audit, audit strategy, substantive procedures, fair
1. INTRODUCTION
The matters covered in the present paper are the challenges faced by an external
auditor in auditing the investments of a private pension fund and also the importance of the
external audit of such entities in the current society.
The studied matter is important due to the fact that private pension funds are a new
generation of financial institutions in Romania, having at the same time a strategic importance
for individuals that invested their contributions at the fund. Basically, the external auditor has
to obtain reasonable assurance that the people’s money are safe and are not exposed to high
investments risks.
In order to answer at the matter described above, I will focus therefore on the three
main risks associated currently with the pension fund industry. These are the fair value
measurement of investments, the changing regulatory environment and probably the most
important, the valuation of financial instruments. All the matters will be presented from an
external audit point of view, as follows: the audit risks derived from each consideration, the
proposed audit strategy for each risk and the related substantive procedures for each strategy.
The fair value measurement is a current issue in Romania due to harmonization process with
International Accounting Standards of the main industries and the main audit consideration
associated is to understand the fund’s methodology for determining fair value. Other
important challenge that affects the audit strategy is the changing regulatory environment. The
audit risks connected with the current issue identified above are mainly related to IT systems
and compliance. Currently, CSSPP issued a new valuation law, already published in the
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Official Gazette. Therefore, the new main challenge for the external auditor will be to
auditing the valuation of investments.
In Romania, at present, there is no work paper to have done a unification of the two
fields, a study of procedures of an external audit of a private pension fund.
However, there were written several papers related to the audit of the investments of
an investment fund, which is closer to the investments of a pension fund.
2. LITERATURE REVIEW
Private pension funds are a new generation of financial institutions that have emerged
from the unprecedented development of social security systems, development spent amid
globalization and institutionalization. They appeared in order to serve as a means of hedging
risk that appear on the labor market but also in financial markets - banking, monetary and
capital. And internationally, the audit of private pension funds is not a relatively new field for
practitioners.
In Great Britain, The Auditing Practices Board (APB) issued in March 2007, Rule of
Practice No. 15, The Audit of Occupational Pension Schemes in the UK. This rule is a guide
for implementing international standards of auditing (ISA) in private pension funds, as they
are regulated in the Great Britain. There are also many specialized audit firms on private
pension funds, and their publications, based on experienced gained. An example would be
“Accounting for Pension Schemes” study published in 2003 by the audit firm “Ash Shaws -
Specialists Auditors Pension Schemes” in Great Britain.
In Romania, the novelty and complexity of this field is still in its regulatory status,
both in terms of the Supervisory Commission and the Private Pensions Supervisory
Commission (CSSPP), and the CAFR. There is a requirement under Law no. 204/2006 on
voluntary pensions, that the financial statements of an FPAP to be audited by natural or legal
persons active members of the Chamber of Auditors of Romania. Under this aspect, there was
signed a protocol between CSSPP and CAFR for cooperation to ensure the proper
organization and functioning of audit activity in the field of private pensions. Currently in
Romania, the CAFR authorized to conduct financial audits of private pension funds only four
firms: Deloitte Audit SRL, KPMG Assurance Ltd., PwC and E&Y Audit. In Romania, at
present, there is no work paper to have done a unification of the two fields, a study of
objectives and procedures of an external audit of a private pension fund.
3. PAPER CONTENT
“An individual's retirement is sacred. Remember the uproar when it became clear that
most Enron employees' retirement had been wiped out? Our profession provides the public
with a sense of security about their retirement.” (Miller ,Alex, CPA, Under scrutiny: are
pension plans being audited properly?, California CPA, 2004). Private Pension Fund audits
must be performed in accordance with professional standards and guidance and cover the full
scope of audit procedures, not just an audit of the investment assets.
However, industry considerations play a significant role in a fund’s financial
condition, results of operations, cash flows and ability to continue as a going concern. The
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auditors have to design the audit strategy to be responsive to such considerations. The current
industry considerations in Romania include but are not limited to:
• Fair value measurements
• Changing regulatory environment
• Valuation of financial instruments
The fair value measurement is a current issue in Romania due to harmonization process with
International Accounting Standards of the main industries: banking industry starting 2012 and
soon will follow investments funds. The audit risks associated with the fair value
measurement identified in the current economic environment will be described and analyzed
from an audit strategy perspective in the following paragraphs.
Inaccurate valuation can undermine effective asset allocation for the participants in
private pension fund, as well as risk management and performance reporting for each private
pension fund. Furthermore, an erroneous net asset value is used as a basis for investor
activities, tax reporting, secondary market transactions and fee calculations. Also, an
incomplete approach to valuation can expose a pension fund to significant reputational and
legal risks and hurt their marketing and sales efforts.
The main audit consideration for the risks identified above are to understand the
fund’s methodology for determining fair value, particularly for complex or illiquid securities
and whether the methodology appears to remains appropriate and in accordance to national
legislation. (The Cost and Management, July -August, 2008 A CASE STUDY ON
PENSION FUND:AUDIT PROCEDURES AND COMPLIANCE - Mst. Nusrat Sahrmin,
Syed Abdulla Al Mamun, James Bakul Sharkar)
The auditor must also understand the nature of external prices obtained from brokers
and pricing services. Most of the pension funds extract quotation from ARENA, the trading
platform of Bucharest Stock Exchange, for equities quoted in Romania, or from Reuters or
other external sources. Also, the auditor should also consider items valued using internal-only
models and how assumptions and results were corroborated. The last item mentioned required
however the need of work from valuation experts in financial instruments, which are
unfortunately expensive and time consuming for an audit engagement. Therefore, this is an
important challenge for the auditor.
Other important challenge that affects the audit strategy is the changing regulatory
environment. The audit risks connected with the current issue identified above are mainly
related to IT systems and compliance.
The first risk is the lack of systems and infrastructure to meet the new or most
probably the increased reporting requirements. The increase or even additional regulatory
exposure for ongoing monitoring and compliance, corroborated with the situation when the
dimension of the pension fund may be inadequate to absorb increased costs for compliance
procedures, systems, personnel and training is also a significant risk associated. As a result,
regulatory findings may not be acted upon, compliance violations may not be appropriately
elevated or the resolutions adequately documented, therefore even the going concern might be
affected.
The audit consideration should be focused upon the impact of the compliance function
on the overall control environment and, why not, on the turnover of the compliance personnel.
The attention should be also focused on the fund’s response and attitude to reporting or
identified issues following the CSSPP or ANAF controls.
On the other hand, the auditor should by updated with changing regulatory
environment and, most important, capable to assess the impact of the new regulations on the
fund’s policies and procedures.
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Currently, CSSPP issued a new valuation law, already published in the Official
Gazette. The main changes that will come into place are:
- New risk profiles according to RWA models
- New valuation methods will be adopted from some assets classes. Bonds will be
marked to market but the measure will be implemented sometime in the future, but
derivatives will be marked to market starting with the publishing of the new law.
- New assets classes: private equity investments and private equity funds, ETFs (listed
fund units), commodities, and funds of commodities.
- More derivatives will be eligible for pension funds to hedge, therefore more hedging
alternatives in futures, forwards, swaps and options (over the counter or regulated
markets).
- The new investments will increase the opportunity, or threat, for managing foreign
exchange risk, interest rate and market risk, depending of the competence of the
investment department of each fund.
Therefore, the main challenge for the external auditor will be to auditing the valuation
of investments.
In the next part of the paper I will present the main substantive procedures needed to
be performed to audit the valuation of financial investments under the new CSSPP
requirements:
First, the external auditor should use the knowledge obtained in understanding the
investment portfolio and performing valuation of various classes of investments in designing
and evaluating the substantive procedures.
Auditor evaluates the sufficiency and appropriateness of the audit evidence obtained
as part of concluding whether the entity’s valuation of its investments is reasonable.
Sufficiency is the measure of the quantity of audit evidence, whereas appropriateness is the
measure of the quality of audit evidence. The quantity of audit evidence needed is affected by
the risk of misstatement (the greater the risk, the more audit evidence is likely to be required)
and also by the quality of such audit evidence (the higher the quality of audit evidence, the
less audit evidence that may be required). Accordingly, the sufficiency and appropriateness of
audit evidence are interrelated and both are important to the audit conclusions.
A private pension fund will be soon allowed to invest in a wide range of
investments—exchange-traded equity securities, fixed income securities (corporate bonds,
asset-backed securities) and alternative investments (private equity funds, hedge funds, etc.).
The considerations for auditing the valuation of investments discussed in this work paper
focus predominantly on a broad range of fixed income investments. Exchange-traded
securities typically pose few valuation issues since the markets are typically active with daily
trading activity and price transparency. (Alex Miller, CPA, “Under scrutiny: are pension plans
being audited properly?” , California CPA, 2004)
It is common practice for entities to obtain daily or monthly valuation information
from third-party pricing sources and brokers and to use that information as the principal
support for the fair value of exchange-traded securities and many classes of fixed income
investments. Pricing service providers (i.e., Interactive Data Corporation (IDC), Thomson
Reuters (Reuters) and others) are engaged in providing pricing data to market participants and
are not market makers or counterparties.
The valuation information provided by pricing service providers for most fixed
income investments generally is developed using matrix pricing which utilizes market
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observable inputs, such as recent trades for the specific investment or recent trades for similar,
but not identical, investments. However, some valuation information, including information
from brokers, may be developed using proprietary models, and the inputs to the valuation for
these classes of investments by third party pricing sources may not be readily transparent or
obtainable. Although third-party pricing sources are not specialists, we need to perform
additional audit procedures to determine whether such information may be used as
corroborating evidence.
When management uses (or we obtain) valuation information from pricing sources, we
need to recognize the risk that pricing information for fixed income investments may vary
materially among pricing sources due to differing views about the transactions used as
proxies, the adjustments made to these transactions, key assumptions (e.g., credit risk),
differences in valuation methods, or errors in the preparation of the information. We need to
perform procedures to evaluate the valuation information provided, whether using valuation
information from the entity’s source or from our source. We also recognize that the risk of
such differences is greater for investments with higher estimation uncertainty.
The audit procedures to obtain corroborating evidence for classes of investments that
we determine present lower estimation uncertainty generally will focus on obtaining valuation
information from a third party pricing source (generally sources different than those used by
management if management’s process utilizes a third party pricing source) and determining
whether the pricing information obtained from a different third party source corroborates our
expectation that fair value estimates for such investments is consistent and falls within a
reasonable range.
The audit procedures to obtain sufficient audit evidence will generally be more
extensive for classes of investments that we determine exhibit higher estimation uncertainty
and where we anticipate a greater degree of variability in estimates of fair value. .(Practice
Note 15, The Audit Of Occupational Pension Schemes in the United Kingdom, Financial
Reporting Council Limited 2011 ). In such cases, we perform other procedures to address the
higher estimation uncertainty and gather sufficient evidence to determine that the valuations
are reasonable. While we obtain pricing information from third party pricing sources for these
classes of investments, we are mindful that the associated higher estimation uncertainty and
inability to develop sufficiently precise price expectations would require that we obtain
additional audit evidence. We therefore perform other substantive audit procedures that
include all or some of the following steps:
(1) Testing the valuation of an investment using trading history information (for the
specific investment or comparable investments) on a sample basis during the audit period,
(2) Testing the methods and assumptions used by management to develop its own fair
value measurement, or the methods and assumptions used by its pricing source, on a sample
basis, and across the various classes of investments, to understand and evaluate the
reasonableness of those methods and assumptions,
(3) When we are unable to test the methods and assumptions used by management or
its pricing source, testing on a sample basis, and across various classes of transactions, the
third party pricing source (e.g., Reuters) we use to support the values recorded by
management to understand and evaluate the reasonableness of the methods and assumptions
used by the pricing source.
Performing substantive procedures
After auditor have determined the extent of substantive testing, can apply one or more
of the following substantive audit procedures to each investment in the sample:
Test using trading information (including subsequent purchase and sale activity):
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We can evaluate observable transactions during the period under audit, as well as during the
period up to the report release date, for evidence that the prices provided by the pricing source
for certain classes of investments reasonably reflect market participant views at the
measurement date.(Practice Note 15, The Audit Of Occupational Pension Schemes in the
United Kingdom, Financial Reporting Council Limited 2011 )
We also consider the evidence management may have obtained through its normal
control procedures that are relevant to this testing. For example, by re-performing the
procedures management performed, we may be able to use evidence management obtained
from back testing or independent valuation of particular securities during the audit period to
assess the reasonableness of the valuation information for particular securities in the sample.
For example, market conditions may change during the audit period, causing the volume of
observable transactions to significantly decrease, resulting in transactions only being
observable early in the audit period. In such cases, the observed transactions, in and of
themselves, may not provide sufficient audit evidence about the reliability of valuations
provided by the pricing source.
If, based on these procedures, we find that the observed transaction prices fall in a
narrow range we may conclude that the observed transactions corroborate the values provided
by the independent pricing source. Further, if the price from the pricing source corroborates
the entity’s recorded amount at the measurement date, we may conclude that we have
obtained sufficient audit evidence regarding the entity’s recorded fair value.
If the transactions being tested represent observed transaction prices for similar, but
not identical, securities, we consider whether the security is sufficiently comparable and
provides appropriate evidence to support the valuation information for the particular sample
item.
If there are large unexplainable variances between the prices provided by the pricing
source, and the observed transaction prices, we perform additional procedures on that class of
investments (such as evaluating methods and assumptions) in order to obtain sufficient audit
evidence relating to that class of investments.
4. CONCLUSIONS AND IMPLICATIONS
Gaining a thorough understanding of the composition of a pension fund investment
portfolio is important to executing the audit strategy outlined above. This understanding
informs the views of estimation uncertainty and the risk of material misstatement in the
valuation of the portfolio. This understanding also influences the design of the audit strategy
and the expectations about observed variability in valuation among market participants. The
audit strategy for testing the fair value of investments needs to be responsive to the
assessment of estimation uncertainty. Generally, the audit procedures will be more extensive
for classes of investment that we determine present higher estimation uncertainty, and will
include procedures beyond gathering valuation information from another source.
The main outcomes might be used in practice by the audit professionals. I consider that the
audit considerations analyzed above and the suggested procedures, both related to strategy
and substantive procedures might help all the stakeholders of a pension fund to better
understand the role and responsibility of an external audit. In other simpler words, the more
people understand what auditors do, the more comfortable they'll feel about having them
around.
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There is also plenty of room for further researches and debates, and also from the perspective
of an IFRS conversion of Romanian pension funds and the implications of such a transition to
the individuals’ contribution accounts.
REFERENCES
1. Bertrand Malsch, Yves Gendron, Mythical representations of trust in auditors and the
preservation of social order in the financial community “Critical Perspectives on
Accounting 20 (2009) 735–750” ISI
2. Carmichael, D.R., O. Ray Whittington and Lynford Graham. Accountants' Handbook,
Volume Two: Special Industries and Special Topics, Eleventh Edition. John Wiley &
Sons, London, 2007
3. Danescu, Tatiana, Drd. Ovidiu Spatacean „Auditarea procedurilor specifice de control
intern al societatilor de investitii finaciare” articol revista Audit Financiar, nr. 10/2007 –
CNCSIS categoria B+
4. Danescu, Tatiana, Drd. Ovidiu Spatacean, Obiective si riscuri si auditarea plasamentelor
de capital revista Audit Financiar, nr. 8/2007 CNCSIS categoria B+
5. Miller ,Alex, CPA, Under scrutiny: are pension plans being audited properly?, California
CPA, 2004
6. Power, Michael, The Audit Society, Rituals of Verification, Editura Oxford University
Press, 1997
7. **** Practice Note 15, The Audit Of Occupational Pension Schemes in the United
Kingdom, Financial Reporting Council Limited 2011
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LEVERAGE AND OWNERSHIP:
AN EMPIRICAL ANALYSIS FOR ROMANIAN SME’S
Antonio Mínguez-Vera
University of Murcia /Spain
Nicoleta Vasilcovschi
"Andrei Saguna" University Constanta /Romania
ABSTRACT
This objective of this paper is to present a proposal of research to analyzes the
relationship between ownership structure and indebtedness as corporate governance
mechanisms for a sample of Romanian Small and Medium Enterprises (SME’s). We will
expected a negative effect of several measures of ownership structure (percentage of shares
owns by the main shareholder, the herfindalh index and the Cubbin-Leech index) on debt
ratio. Besides, the presence of an individual as main shareholder may has a positive effect on
debt while the presence of a corporation as main shareholder can presents a negative
repercussion.
Key words: SME´s, Ownership, debt ratio, agency theory, System GMM
methodology.
Since the work of Berle and Means (1932), economists have been interested in the
effects of separation between ownership and control of corporate enterprises. The different
objectives of the investors, who provide the financing, and the firm managers and directors,
who run the company, generate issues known as agency problems. Corporate governance
research examines the mechanisms investors use to control companies in order to minimize
these problems.
The most studied mechanisms have been the ownership structure (Schleifer and
Vishny, 1997) and the indebtedness (Jensen, 1986). Ownership structure allows shareholders
to look out for their interests directly and investors would be more interested in overseeing
management decisions. On the other hand, higher levels of debt reduce the discretion of
managers and therefore the agency conflicts.
Recently, researchers have investigated whether debt and ownership structure are
alternative control mechanisms and whether the management seek a trade off between them in
order to mitigate the agency conflicts inside the firm (Driffiel et al. 2006).
The majority of previous studies are focused on listed firms. This proposal tries to study the
relationship between ownership structure (measured by the ownership concentration, the
grade of control and the type of the main shareholder) and capital structure for a sample of
Romanian SME’s.
There are several differences between listed firms and SME’s. Listed firms usually
present a more dispersed ownership, the separation between ownership and control is higher,
they have better access to share and bond markets to get founds, they are more influenced by
the external control mechanisms and the depend less of the credit market.
The SME’s ownership and control may have an important influence on the financing
decisions. The decision – making is concentrated in few persons with an unlimited
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responsibility and with a high identification with the firm. These circumstances can increase
the asymmetric information between owner-managers and creditors and they can provoke
opportunist behaviors by the entrepreneurs. Therefore, in SME´s, the negative relationship
between debt and ownership structure can be caused for the agency conflicts between owner
and creditors but not for the agency relation between manager – owners and not manager –
owners.
To carry out this study we contemplate the follow variables:
The dependent variable will be the debt ratio calculated as total debt to total assets and
it is a proxy for access to debt financing for each firm.
The concentration of shareholdings will be calculated in several ways. First is the
percentage of capital owned by the major shareholder.
Another indication uses the Herfindahl index, Herfindahl (1950), calculated as the sum
of the square of the shareholder ownership of equity capital,
percentage of shares held by shareholder i.
H
N
2
P i
i1
, where
Pi
is the
The Cubbin-Leech (1983) index, will be used as a measurement of the degree of firm
control. It indicates the probability of the main shareholder controlling the firm depending on
degree of ownership and dispersion of the ownership of the other shareholders. This index
predicates a major ownership block that votes strategically, while the rest of the shareholders
either vote against or in favor of the main shareholder or vote in random coalitions; each
option has a probability of 0.5.
Thus, for a firm with N shareholders, with percentages of possession,
P
1
,...,PN
, where
N
P i 1
P i
P i 1, and i1
, the votes controlled by a main shareholder or coalition, S, formed
by n shareholders, would be P(n). The votes of the remaining shareholders i (qi), where i = n
+ 1,…, N, would amount to qi = Pi or q = 0 with the same probability. Therefore, the vote of
2
shareholder i will be a random variable with mean
P i
/ 2
and variance
P i
/ 2
.
The votes of the primary coalition, taking this into account, will be given by the expression
q(
S)
P(
n)
N
q i
i n 1
, which is a random variable with mean
( n)
P
2
P( n)
1
P(
n)
2 P(
n)
2 i
1
2
, and variance
( n)
4
, where
in1
.
The probability that the major coalition can obtain a majority is determined by the expression:
1 P(
n)
1
1
2 2 2 P(
n)
( n)
Pr q(
S)
1
2
2
(1)
2
n
n
2
2
N
2
where P(n) represents the votes of the major shareholder or coalition and
sum of the votes of the remaining shareholders.
2
(n)
the squared
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(n)
If the expression of the Herfindahl index, H, is substituted in , the equation
n
2 H P n 2
n
P n
is gotten. Finally, substituting
n
2
H P n
in n
2
, the degree of control is
defined as 2
.
Applying the central limit theorem, this index should follow a standard normal distribution,
taking values between 0.5 and 1.0. Thus, the closer the value is to 1.0, the greater the
probability that the major shareholder or a major group of shareholders will control the
company.
To measure the type of main shareholder, two binary variables will be used, COR and
IND, take values of one when the main shareholder is a corporation (COR) or an individual
(IND), and zero otherwise.
Finally, a number of control variables will be considered. Specifically, the firm size, the age
of the firm, the intangible ratio, the debt cost, the return on assets, the growth opportunities
and the Z Altman index.
Following theory, several models will be used to capture the relationship between
shareholder ownership and the debt of the firm. The first one includes the stockholding of the
main shareholder, as follows:
DEBT
it
0
1OWN1it
n
OTHER
j
jit
j2
(2)
where OTHER refers to the control variables, and t i, and it are the time effects,
unobserved heterogeneity, and the error term, respectively.
The second model includes, as an alternative measure of concentration, the Herfindahl
index:
DEBT
it
H
0
1
it
n
OTHER
j
jit
j2
(3)
The other variables are the same as those specified in equation (2).
To examine the influence of the degree of control and firm debt, the following
expression is used:
DEBT
it
ALPHA
0
1
it
n
OTHER
j
t
jit
t
i
t
i
it
i
it
j2
(4)
Two models will be used to analyze the influence of the major shareholder on the debt
of the firm. In the first model, the independent variable is the dummy that takes the value of
one when the main investor is a corporation, COR, as in the expression:
DEBT
it
COR
0
1
it
n
OTHER
j
jit
j2
(5)
The second model includes the IND variable, indicating an individual as the major
investor. The expression is:
DEBT
it
IND
0
1
it
n
j2
OTHER
j
jit
t
t
i
i
it
it
it
(6)
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In order to control for individual heterogeneity (highlighted by Himmelberg et al.,
1999, among others), panel data methodology will be employed to estimate these five models
by introducing an individual effect, i. In addition, time dummy variables are considered in
the model to control for the macroeconomic effect on the dependent variables. The System
Generalized Method of Moments (GMM) proposed by Blundell and Bond (1997) is applied.
This methodology solves the problem of endogenity arising when the right-hand side
variables could be determined simultaneously with the dependent variable and it allows
control of the individual effect.
REFERENCES
1. Berle, A. A., and G. C. Means, The modern corporation and private property (New
York: Macmillan, 1932).
2. Blundell, R., and S. Bond, “Initial conditions and Moment Conditions in Dynamic
Panel Data Models,” Journal of Econometrics 87 (1997): 115-143.
3. Cubbin, J. and D. Leech, “The effect of shareholding dispersion on the degree on
control in British companies: theory and measurement”, Economic Journal 93 (1983):
35-69.
4. Driffield, N., V. Mahambare and S. Pal, 2006. "How Does Ownership Structure Affect
Capital Structure and Firm Performance? Recent Evidence from East Asia,"
Economics and Finance Discussion Papers 06-23, Economics and Finance Section,
School of Social Sciences, Brunel University.
5. Herfindahl, O. C., “Concentration in the U.S. steel industry,” (PhD. Diss., Columbia
University, 1950).
6. Himmelberg, C. P., Hubbard, R. G. and D. Palia, ”Understanding the determinants of
managerial ownership and the link between ownership and performance,” Journal of
Financial Economics 53 (1999): 353-384.
7. Jensen, M. C., “Agency cost of free cash flow, corporate finance and takeovers,”
American Economic Review 76 (1986): 323-329.
8. Observatory of European SME’s, SME’s in Europe 2003 (Brussels: European
Comission, No. 7, 1932).
9. Shleifer, A. and R. W. Vishny, “A Survey of Corporate Governance,” The Journal of
Finance 52 (1997): 737-783.
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A CHALLENGE FOR THE MARKETING STRATEGY – PRODUCTS IN THE
ELECTRONIC COMMERCE ENVIRONMENT
Delia Sorana Varvara Mityko
Universitatea Alexandru Ioan Cuza
ABSTRACT
The Internet has proved to be a life savior for many businesses in a time where
consumers demand at least some sort of online presence from the companies. Both retailers
and consumers use the electronic commerce platform as a way of conducting day to day
business and completing transactions. Electronic commerce has been a major milestone in
the ongoing process of expanding beyond the traditional physical store. Regardless of the
time and space dimensions, consumers have been shopping online and their behavior has
been the subject of analysis for researchers and marketers. Hence, it might come as a
surprise that although the first product classification model has been developed in the 1920s,
there is still little standardization among the classification models and the vast number of
models the literature provided to the present day makes it challenging for firms to comply
with a standard and to align it to their marketing strategy. Therefore this paper aims at
showing just how important such a standardized model would be and how it can impact not
only customer perception, but also a firm’s competitive advantage. A short overview of the
literature research highlights how many models researchers have developed in the last eight
decades.
Key words: Electronic Commerce, Product Classification, Product Classification
Models, Marketing Strategy, Electronic Marketplaces.
1. INTRODUCTION
The fact that the Internet’s potential is not to be underestimated has been clear for
more than two decades. However, only the recent years have truly shown the diversity of
activities that the Internet can perform and the vast areas that it can be applied to, be it
Business to Business, Business to Consumer, Consumer to Consumer or even Business to
Government commerce. The online transactions have increased exponentially, but this is just
the tip of the iceberg. It merely gave a glimpse at what was lying underneath – the power of
the Internet as an e-commerce platform and its implications.
While one cannot state that a clear shift from the traditional offline stores towards the
online shops has taken place, more and more consumers have become interested in the value
add that e-commerce is able to offer and have started to regard e-commerce as a day to day
shopping platform.
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However, even if the online retailing has partly lost the novelty aspect and consumers
are familiar with the process, questions as the following remain to be answered by both online
shoppers and retailers: Why are certain products being predominantly sold online than others?
Does it mean there are certain characteristics which make these products more suitable for
online selling? How can a company explore in advance just how successful a certain product
will on the internet platform? Does the new platform or form of distribution channel impact
significantly the firm’s marketing strategy and if yes, how?
While many companies have hurried down the path of e-commerce, there are very few
that are likely to profit on the Web (de Figueiredo 2000, 41). Does this happen because they
market every product, regardless of its characteristics, or is it because they are selling the
wrong ones online? There is an acute need for a set of guidelines to help determine which
kinds of products are e-commerce suitable to avoid encountering difficulties and which are
best to be kept on the shelves of the traditional stores. The retailer needs to adjust its
marketing strategy in order to avoid a negative impact of a potential channel conflict. Ideally
the online platform should be an additional channel and means for a firm to increase its
revenue and gain market share, not cannibalize the existing traditional stores’ sales.
Aiming at providing some answers to the above mentioned questions, this study is
structured in three parts. Part I addresses the product classification challenges a potential
online retailer is being faced with, provided the multitude of classification models. It delivers
a short overview of the existing models, analyzing a few in detail. These models will then be
further addressed in Part III of the paper. Part II is focused on highlighting why product
classification is so important and constitutes a vital element of the marketing mix of every
company’s marketing strategy. Part III is analyzing how the marketing strategy can benefit (or
not) from product classification by taking a look at the models discussed in Part I.
By consolidating the already existing classification models, this paper shows just how
important product categorization is and what impact it has on a company’s marketing
strategy.
It has to be mentioned that this paper discusses the product categorization on a more
abstract, paradigm level. It does not consider the categories that several retailers on the web
use to categorize their products, such as “clothes”, “electronics”, “books”. The paper takes the
top down approach, by suggesting that the scientific community decide on a unified and
standardized classification model, which can afterwards be used to group specific product
types. Moreover this paper’s scope is concentrating on the notion of product, not on the
“marketing” perspective, by which a product is offered as a core benefit, basic product,
expected product, augmented product and ultimately potential product (Kotler 1997).
2. LITERATURE REVIEW
There is in general a scarcity of models or frameworks for evaluating e-commerce
success (Molla and Licker 2001, 131) and no published empirical studies examined consumer
behavior in a solely virtual shopping environment (Tan 1999, 164). Moreover, the literature
that focuses on end-users is vaster than the one on products or product types suitable for e-
retailing. In fact, most studies take the end-user approach with the consequence that there has
been research done in the domains of online consumer behavior, consumer decision-making
or consumer intentions (Keen et al. 2004, 685).
While it is understood that firms marketing their products online or offline have to
take the factors that influence consumers’ buying decisions into account, these intentions
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merely reflect the consumer behavior. They do not reflect the attitude that the user has
towards a certain product sold online, but just the attitude towards the product or the brand,
independently of the marketers’ initial choice of distribution channel.
Little published research investigating the impact of product type purchase on
consumers’ Internet shopping preferences exists. Furthermore, the questions of why
consumers prefer to buy certain types of products online and why they are reluctant towards
other types have not been sufficiently addressed (Girard et al. 2002, 2).
If the literature research done by the author showed that up to 2006 more articles were
dissecting the issues of product-related e-commerce adoption issues from the seller’s
perspective, the researchers decided after 2006 to invest more time in finding out what the
adoption issues from the buyer’s perspective are, i.e. trust, privacy or retailer’s reputation.
The author noticed in the literature research that the angle has shifted from the seller on to the
consumer. While it is true that the drivers behind the success of e-commerce are the
individual buyer and the ability of internet retailing to fulfill his/her needs, attention must be
paid in the exact same amount as before to the seller’s side, and to the innovations which can
bring customer satisfaction to higher levels or increase the positive shopping experience.
When it comes to product categorization models, the literature provides a vast array of
choice. From what the author could see in the literature review conducted, there are several
models, which use the same ground principles, but do not deliver the same result(s).
Depending on the object of analysis, a different model is being used or an existing one is
being extended to incorporate the research object therefore producing a new categorization
model. While some models in the current literature focus on the classification from the
consumers’ perspective, which will lend products specific attributes, others group products
based on the products’ attributes, which in return raise a certain reaction from the consumers.
The literature review performed by the author for this paper has revealed 18 different streams
of product classification from a total of 48 researchers. Figure 1 presents these researchers,
ordered chronologically. The models differ from each other in the way the product and its
attributes are being perceived.
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Phau&Poon, Kiang&Chi, Thirumalai, Mccabe&Nowlis, de
Figueiredo, Kaplan&Sawhney, Tractinsky&Lowengart,
Bouwamn&van de Wijngaert, Li et al., Li&Gery,
Poon&Joseph, Burke, Kotler, Goldkuhl&Roestlinger,
Chaudhury, Constantinides, Harris
Holton
American Marketing
Association
Edward&Richard
Mayer et al.
Kotler
Darby&Karni
Nelson
Holbrook&Howard
Aspinwall
Miracle
Krugman
Enis&Roering
Fine
Levitt
Lovelock
Murphy&Enis
Wright
Goersch
Kotler
Klatzky et al.
Klein
Peterson et al.
Hyman&Sharma
Novak
Lal&Sarvary
Sindhav&Balazs
Copeland
1920s 1940s 1950s 1960s 1970s 1980s 1990s 2000s
Figure 1 Classification Models over the past eight decades
What is interesting to observe is the fact that even the “older” models, which were
clearly meant for the products being sold in the traditional store, can be applied and reused for
classifying goods and services meant for the e-commerce platform.
The next subchapters present some selected classification models from the existing
classification literature.
2.1. CONVENIENCE, SHOPPING AND SPECIALTY GOODS
One of the first classification models was introduced by Copeland in 1923, with the
convenience, shopping and specialty goods, model also being used by Edward and Richard in
1971 and Thirumalai in 2005 in their respective studies. This model continues to be endorsed
by both the American Marketing Association and the UK Chartered Institute of Marketing.
Holton extended in 1958 this model along two dimensions, namely the ratio of cost of search
to gain from search and the volume of demand for the supply of a certain good.
In 1971 Mayer et al. have stated that the goods can be convenience store-convenience,
convenience store-shopping, convenience store-specialty, shopping store-shopping or
specialty store-specialty goods.
Adopting the four-product category classification from Holbrook and Howard, Enis
and Roering (1980) proposed a product taxonomy from the marketer’s and buyer’s
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perspective. They proposed a synthesis on two dimensions of consumer behaviour (expected
effort and perceived risk) and two congruent dimensions of marketer behaviour (product
differentiation and marketing mix differentiation).
Murphy and Enis add another product type to the existing ones in 1986. Four
categories of products - convenience, preference, shopping, and specialty - are defined in
terms of the buyer's evaluation of the price, which is closely related on the one hand to the
involvement type the consumer feels towards the product and with the wider scope of the
marketing strategy available to the marketer, on the other hand.
In 2000 Li and Gery develop an additional product type, namely the unsought ones
defining them as those products which consumers do not know about or do not purchase until
the need arises.
2.2. THE SEARCH EXPERIENCE CREDENCE GOODS
One of the most prominent models of classifying products – as we will see in the next
chapter – is the so called Search Experience Credence paradigm. The first distinction has been
made by Nelson in 1970, namely between search and experience products. For clarification
purposes, it needs to be mentioned that search products are those products for which
consumers can obtain complete information before purchase, and experience products are
those products which consumers can evaluate only during or after purchase (Brush and Artz
1999, Hsieh et al. 2005). The credence dimension is introduced in 1973 by Darby and Karni.
Norton and Norton further distinguished in 1988 between durable and non-durable experience
goods. Wright in 1995 stated that there is no good characterized initially as a search,
experience and credence. All goods have a combination of search, experience and credence
attributes, according to what benefits the consumers find important. It is the customer
perception that implies the nature of a product, i.e. what for a customer is an experience
product, for another can be a search good.
Liebermann and Flint-Goor add to Nelson’s model in 1996 by distinguishing between
goods and services. Services can only be experience or credence, whereas goods can either be
search, non-durable or durable experience. Likewise, Klein extends in 1998 the search
experience credence model by differentiating between two types of experience products.
Although the three categories of products resulting from these paradigms are similar to the
classification schemes of Darby and Karni and Liebermann and Flint-Goor, Klein’s definition
for the characteristics of each product class differs from a cost perspective and creates a
process through which an experience good can be transformed into a search good. The
difference in Klein’s classification scheme is that the sampling costs are included in the
categorization. Usually when the search for goods is expensive, the product is categorized as
being an experience product. Therefore a car is classified in Klein’s model as search good,
although a large part of the other characteristics would qualify it as experience (Klein 1998,
196).
2.3. THE GENERIC, EXPECTED, AUGMENTED AND POTENTIAL
PRODUCTS
Levitt has developed a product differentiation model that opens a new perspective as
to what a product is. This model defines a product on four different levels: the generic
product, the expected product, the augmented product and the potential product. The generic
product is according to Levitt the product itself. The expected product includes the aspects
that relate to delivery, terms, and support. While they do not constitute the product itself, the
product couldn’t be sold without them. The augmented product refers to Levitt's notion of
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adding something to improve or modify the product for a particular customer. It could be the
synonym of customization. Finally, the potential product is "everything that might be done" to
attract, hold and bind the customer to the product, thus creating the brand loyalty feeling.
Moreover it creates the need in the customer’s mind to request a new product, and this way
the retailer has its own research and development department in its consumers, without
actually having to invest in one.
2.4. PETERSON ET AL. CLASSIFICATION DIMENSIONS
In 1997 Peterson et al. provide a completely different perspective at classifying
products. The same dimensions have been used by Phau and Poon in 2000 and Kiang and Chi
in 2001 in their studies. The cost (low/high) and the frequency of purchase
(frequent/infrequent), the value proposition (tangible and physical versus intangible and
service related) and the degree of differentiation can be used to not only classify the products,
but also determine their electronic commerce suitability.
Using the dimension of purchase frequency Burke classifies in 2002 the product types
by analyzing the difference in the shopping attributes. The products can be infrequently
purchased durable goods, frequently purchased non-durable goods or entertainment/apparel
products.
2.5. COMMODITY AND LOOK AND FEEL GOOD PRODUCTS
Starting from his statement „On the Web goods are not equal“ (de Figueiredo 2000,
42) de Figueiredo developed a product classification scheme arguing that products possess
different attributes and different levels of the same attributes. His “Dot-Com Retail
Continuum” lists on one end of the spectrum the commodity products, for products where
quality can easily be assessed, articulated, presented and perceived. On the other end there are
the “Look and Feel” goods with variable quality, for which the decisive element is the
individual consumer’s perception, not the product’s characteristics or the available
information. In between the author also defines quasi-commodity and “Look and Feel” goods.
3. IMPORTANCE OF PRODUCT CLASSIFICATION
The process of learning can be simplified by creating a mind map, by creating
relations between two concepts, by establishing reference points or by ordering notions using
either a self development or existing classification scheme. This applies to the buying process
as well, more so than ever in the case of the online purchase process. Sawhney remarkably
noticed that one applies the boundaries as a scaffolding to construct one’s mental models.
This is the reason why categorising products is so important in the virtual world where the
buyer cannot immediately relate to the product the way he/she does in a traditional store. By
building categorisation schemes and models, the customer can easily order the product in
his/her mind and will relate that specific product type to previous shopping experiences,
therefore increasing his/her sense of comfort when clicking the “buy” button in an online
store.
The importance of classifying products has also been identified by Vijayasarathy
(2003). According to his study, the category that a product falls into is likely to determine
how successfully it can be sold in an e-commerce environment.
The suitability of the Internet for marketing products is largely dependant on the
characteristics of the goods or services being sold (Phau and Poon 2000, 104). Therefore, it is
necessary to consider and analyze these specificities when researching for the impact of e-
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commerce. It was found that the classification of different types of goods and services
significantly influences the consumer’s choice between Internet and retail store purchasing
and his actual shopping behaviour (Phau and Poon 2000, 102; Farag et al. 2007, 140). The
analysis can be facilitated by matching a certain product and its attributes against product
class characteristics and by incorporating it into a product classification scheme (Peterson et
al. 1997, 334). It is important to have available a classification system since the product type
has significant moderating effects on how the consumers perceive risk in their online purchase
process.
Many studies have investigated what classification model – or better yet what product
types are more suitable to be sold online – is better suited to categorize products in the
electronic commerce environment. However, this task proves to be challenging from the very
start, as the web itself and the electronic commerce environment which the Web is enabling
can impact not only the product, but also the way the consumers perceive it, their attitude
towards it and their purchase decision making process.
The question arises why no standard is being used in product typology models. As the
typology criteria are not fixed, it can prove challenging for firms to choose among the
multitude of models available. Reasons for this could be the following:
Technology is constantly evolving, bringing about changes. Therefore, a standard – if
one existed – would have to constantly be adjusted, deeming the initial purpose of the
standardisation futile.
Online buyers become more and more confident with the act of purchasing products
online, rending some categorization criteria less important or even irrelevant.
Offline buyers’ requirements change, bringing about changes to the existing products
or raising the need for new products altogether, products whose attributes have not been
considered in the existing criteria.
Acute need of
product
classification
Reduced need for
classification
Reduced number of products
(small assortment)
Large number of
products (assortment)
Figure 2 Product Classification Need
An increasing number of customers feels the need to have customized products, which
makes the categorizing exercise – if not futile from the start – a recurring job, which might
increase a company’s costs and inefficiency.
Some researchers might argue that no there is no need for a standard categorization of
the product – be it from a consumer perspective, cost based or led by product characteristics –
for companies to know if they have a chance at succeeding in the electronic commerce
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environment. This might only be the case in very rare circumstances, such as when the retailer
is only marketing/selling a single product. The need for product categorization is increasing
linear with the number of products or the size of the product assortment, as show in Figure 2.
There have been numerous studies done on consumer preference, consumer perception or
consumer purchasing decision making process focusing on single products, or product
families, i.e. face care products, cars, or travel reservations. However, unless a company can
match one to one their products to the ones where studies have shown that consumers prefer
buying those products on the internet, that company stands little chance evaluating their
success rate in this new distribution channel they are about to embark.
The taxonomy of the products is crucial since a change in consumer behavior is to be
observed when consumers are dealing with specific types of products. The information search
can be more extensive, the perceived risk can differ from one product category to another and
consumers present a different weighted importance of the factors influencing the purchase, i.e.
price, transport or after sales service.
The product classification model is of importance at the beginning of the transaction,
for both the retailer – the company selling a product – and the consumer. If both manage to
classify a product, both the selling and the buying process would be made easier and the
transaction would take place faster and in a more efficient manner: consumers would be able
to faster and more easily order and classify the product in their minds and take decisions
based on previous experiences made with that particular class of product or with products
belonging to the same class; retailers would be able to forecast the success of such a product
category before even entering the electronic commerce platform and thus would be able to
decide whether they want to go ahead and invest money in advertising the products or use the
internet as a distribution channel.
The importance of classifying products has been recognized by not only the
companies looking for guidance in choosing the appropriate distribution channel for their
products, but by the scientific community as well.
4. IMPACT OF PRODUCT CATEGORIZATION ON MARKETING
STRATEGY
A company can use product classification for a better definition of the product
differentiation, which is required for a sound marketing strategy. If a company is to
understand how to better align its product categorization methodology or culture to its
marketing strategy, it has first to understand the concept of category management. Category
management is not by any means a new concept, nor is it particular solely to the electronic
commerce environment. Instead, it is a concept which is applied to both retailers and supplier
and in which the range of products purchased by a business organisation (from a supplier) or
sold by a retailer is subdivided into groups of similar or related products; these groups are
known as product categories.
Category management made its debut in North America in the 1980's and marked a
change in relationships between retailers and suppliers from the traditional competitive mode
to a more collaborative approach. A study conducted by AC Nielsen in 2004 showed that 89%
of the manufacturing companies and 98% of the retailing businesses see category
management as the most critical challenge they are facing.
The question now arises how the marketing strategy fits into this context. Some could
argue that if the marketing strategy is to be successful, no degree of categorization – fit or
unfit – will spoil it. However, if the retailer did classify its products, should the same
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marketing strategy be applied to every category, or should the strategy differ depending on the
product class. Moreover, should a firm deploy the same strategy to the two distribution
channels, duplicating each activity in the specific channel or should a firm design for each
channel a specific strategy and set accordingly the short term or long term goals? When
deciding on the investment amount, should both channels be considered equally important in
terms of infrastructure (IT in the case of online and store-infrastructure in the case of the
traditional retailing); R & D (website layout, secure environment, warehouses, transport
efficiency); Advertising campaigns (ads on the internet could potentially produce less cost
than print media). Before deciding to even choose the internet as a distribution platform, how
does a firm calculate its odds in succeeding in the new environment? The answers to all these
questions could be a simple one, namely choosing the right product classification model for
its products, implementing it and then designing a tailored marketing strategy for each
category and/or distribution channel, keeping in mind that the overall strategy of the company
is to be followed and is not being contradicted by the sub-strategies. Moreover, what about
the potential channel conflict which arises should a company decide to use both types of
distribution?
One of the ingredients in the marketing mix is the product. Some researchers claim
that this is the first most important ingredient. Therefore it is not hard to see why a faulty
product categorization might impact in a strong negative way the chances of success of an
otherwise promising marketing strategy. The classification and the strategy are intertwined, as
depending on whether a certain product category is successful in the electronic commerce
environment, the marketing mix ingredient “place” (or distribution channel) might be
different. This is also the fate of the “promotion” ingredient.
The marketing strategy can be developed either to fit all the products that the retailer
sells, independent of the distribution channel, or it can be tailored to the specific product type.
There can also be a marketing strategy for the specific distribution channel. Should the
company choose to have a marketing strategy for each product type, it has to carefully
analyze what products are suitable for selling online and which are not.
Numerous authors have argued that a useful way to evaluate the potential of the
Internet as a marketing channel is through the search/experience classification paradigm (Alba
et al. 1997, Klein 1998, Rosa and Malter 2003). Even if one – for the sake of argument –
ignores the other numerous product categorization models that the literature offers and
concentrates solely on the search/experience paradigm, the problem continues to resurface.
The most pragmatic classification model, which can be applied to production independent of
the distribution channel – and which has been used even before the rise of the electronic
commerce – is Nelson’s (1970) and Klein’s (1998) model, the so called SEC (search,
experience, credence) paradigm. The advantage of this model is at the same time its
disadvantage, as it does not go deeper into details for digital products. However, it can be
used as a starting point in the classification journey.
Traditionally, the search/experience distinction is based on the extent to which
consumers can evaluate goods or their attributes prior to purchase (Nelson 1970). However,
given that information search costs differ across channels, a search good or attribute through
one channel may be an experience good or attribute through another channel. For example,
the smell of flowers can be assessed prior to purchase in a bricks-and-mortar, but not an
online, florist shop. The latter only offers visual aids with disclaimers from the vendor that the
purchased good may be different in appearance when delivered and the pictures are for
orientation purposes only. Consequently, using this paradigm in channel-related research
(e.g., in an effort to match goods to channels) can present problems. However, in an effort to
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minimize potential situational effects of factors such as the channel through which the good is
being sold, one could take a slightly different view of the search/experience distinction.
Specifically, one could base classification on the extent to which consumers feel they need to
directly experience goods to evaluate quality. The greater the need to use one's senses to
evaluate a good, the more experience qualities the good possesses. The more one feels that
secondary information will allow for adequate evaluation of the good – such as internet
information search - , the more search qualities the good possesses. Therefore a good becomes
a bundle of attributes, and the marketer considers the classification at the good, rather than
attribute, level. Because most goods possess search and experience attributes, it is useful to
consider the difference between perceived experience and search qualities. The larger
(smaller) this difference, the more (less) experience qualities a good possesses relative to
search qualities.
However, when analyzing the Search Experience Credence paradigm we have to ask
ourselves how stable it is. Should we decide to choose a classification model as a standard for
categorizing products in the electronic commerce environment, we have to ensure it is not
only sustainable and applicable to the majority of the industries (while being aware that there
are some products belonging to certain industries and manufacturers which will always
constitute the exception to the rule and will necessitate specific attention and classification),
but also stable. Klein has argued that the Web can transform experience products into search
products (Klein 1998). So what does that say about the SEC paradigm? Some could argue that
this goes to show the instability of this paradigm. And if a retailer does choose it as a basis for
the classification of his products, then the risk that products may shift and migrate from one
product type to another has to be acknowledged.
But what could be the implications for this migration? Many studies and researchers
have dedicated papers to review and analyze this potential shift in product categories, and
Nakayama et al.’s is one of them (Nakayama et al. 2010). Their study aims at examining the
statement in three ways: firstly, it assesses the background of Klein’s proposition considering
the evolution of the internet since 2000. Secondly, the study runs a comparison of past papers
measuring the extent of search, experience and credence characteristics. And thirdly, an
exploratory survey has been run to investigate is commonly purchased products have shifted
from one type to another in relation to past studies. This potential shift could impact a
company’s marketing strategy, in case the retailer is tailoring the marketing strategy to
product types. Therefore since a product classification model is a vital element in the
marketing mix, it needs to be a standard used by the majority of retailers in the majority of
industries and it needs to be stable, reliable, sustainable and user-friendly, be it on the
customer or on the retailer side.
If we were to highlight the advantages and disadvantages of the few classification
models presented in the previous chapter, it would have to be said that de Figueiredo’s model
makes from the very beginning a clear distinction between the products which require
additional senses (“feel” and “look”), senses which are not available in the electronic
environment. Therefore it is of imperative importance for a retailer to order the products in
such a way as to investigate if electronic commerce classifies as a valid distribution channel.
On the other hand de Figueiredo’s model is too vague and high level. It provides an aid for a
first sub segmentation, but leaves much to be desired when a retailer has to tailor or design a
marketing strategy for the “commodity products”, “quasi-commodity products”, “look and
feel goods” or “look and feel goods with variable quality” categories. In addition, in the past
decade the technology advancement in the electronic commerce area have been booming,
allowing retailers to create a more convincing presence and giving them the tools needed to
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bring their customers closer. Therefore, the “look and feel” category should be renamed and
defined in a new way, differentiating among those products which not only require touching,
but involve other senses as well.
Figure 3 aims at positioning the segmentation models illustrated in the previous
chapter, by depicting the scope and the distribution channel specificity. It is interesting to
notice that the models which take the electronic commerce platform into consideration in their
models have been developed after 2000, so after researchers and marketers alike have realized
the potential of this platform.
General
scope
Kiang and Chi (2001)
Nelson
(1974)
Klein (1998)
Li and Gery (2000)
De Figueiredo (2000)
Defined
scope
Tractinsky and Lowengart
(2007)
Peterson et al. (1997)
E-commerce specific
Distribution Channel
independent
Figure 3 A mapping of selected classification models
Li and Gery’s (2000), de Figueiredo’s (2000) and Nelson’s (1974) aim in the same
direction, classifying based on a general scope, which allows the use of the model
independent of the distribution channel. At the other end of the spectrum Kiang and Chi
(2001) and Tracktinsky and Lowengart (2007) concentrate more on incorporating the e-
commerce dimension of products’ attributes. The latter even includes the “hedonic” versus
“utilitarian” dimension into the model, creating a bridge between the product attributes and
the customer. While the models on the right hand side can be used for any type of distribution
channel, the e-commerce specific models try to incorporate the specific attributes that the web
presents, attributes which can be considered a blessing or a pitfall, should the retailer not take
them into consideration when developing the marketing strategy for the individual product or
product class.
A standardized, unified model would have to be positioned in the middle, at the
intersection of the “scope” and “distribution channel specificity” areas. For a general,
uniform, company wide product classification, using a model which is situated to the far left
or the far right would pose a certain danger – unless the company only intends to be active in
one particular distribution channel, either the internet or the traditional physical store. Last but
not least, the retailer should never forget the consumer when categorizing its products. Even if
future research should develop and implement a standardized classification model, retailers
must not forget that the model would serve to better reach out to the customer, to better
respond to his/her requirements and to facilitate his/her understanding and to create that
lasting bond between buyer and seller, also known as brand loyalty.
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CONCLUSIONS AND IMPLICATIONS
The conducted literature research has revealed that there have been many articles
publishing findings which concentrate more on the consumer and his shopping behaviour in
both off- and online shopping environments and less which analyze the product itself and its
behaviour in the e-commerce medium, although the perspective shift has started.
The hopes for the Internet to replace the traditional stores with the rise of e-commerce
have been high. Experience has shown however, that e-retailing should not be regarded as a
complete substitute for the physical store, but as a complement, supporting the firms’ sales.
Therefore, the marketers should cease thinking of e-commerce as the new and only way of
doing business, or finding way to replace the physical stores altogether. Instead they should
look for synergies between on- and offline shops, for efficiencies in delivering or serving the
customer base, for methods of growing that base and for ways in which the Internet would not
replace the traditional marketing, but would help sustain the current business model. And the
instrument to achieve all this is a sound marketing strategy incorporating all the elements of a
successful marketing mix.
On the positive side, the current scientific research shows an increase in the degree of
granularity of the topics. If in the beginning of the e-commerce era, researchers were more
interested in finding out how e-commerce functions and impacts consumers as a whole, the
angle has shifted from a birds eye perspective to a more specific view, that of either specific
consumers’ cultures, countries or industries.
What this paper revealed is that a standardized and unified product classification
model is needed with clear directions of categorizing a product and incorporating those
directions into the marketing strategy. This in return will lead to determining the buying
behavior for the different product types.
In the traditional physical store products – belonging or not to the same category –
have the ability to transmit, uninfluenced by other factors, more or less the same messages. It
is the advertising, the location of the store, the presentation, the competition which comes into
play to steal the show for a certain brand. In the electronic commerce environment, however,
all products start from the same point and what differentiates them is on the one hand their
online selling suitability, the risk their purchase brings to the customer and the product type
on the other. And it is this suitability, the product attributes and the product types which
influence not only the distribution channel a retailer chooses, but it also dictates the overall
marketing strategy. Therefore, the success of a product online does not only depend on the
customer, but on the retailer as well, since the customers perceive the image of the product
that the retailer creates for them with all the elements of the marketing mix. The researchers
have been concentrating on the individual consumer and his/her shopping behaviour, be it onor
offline. What needs to catch the researchers’ interest in the buying behaviour for the
different product types. It is important for a firm to know how its consumers perceive a
marketed product in order for the firm to choose the appropriate marketing channel.
Failure to categorize products, on the one hand, can create frustration on both
consumer and retailer side, and failure to assess how that particular category is being
perceived by the consumer, on the other hand, can result in loss of market share or worse, in
loss of brand reputation.
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THE PRESENCE AND THE INFLUENCE OF THE FRENCH
INVESTMENTS IN THE ROMANIAN ECONOMY
Nistor Cornelia;
University of Bucharest
ABSTRACT
In this paper will be highlighted and theoretical analyzed the main aspects concerning
the importance and the weight of the presence of the French enterprises in Romania, on the
Romanian market in general and also of the attractive elements of the Romanian business
environment. Currently, it is considered that the most important opportunity for the
development of the Romanian economy are the small and medium enterprises. This process is
facilitated by the fact that after EU accession, the legal framework was considered much
safer than before by foreign investors, among which an important place is occupied by the
French enterprises. In 2009 they were already registered in Romania more than 6.000 French
enterprises, many of which operate as SMEs. French enterprises are present in all the
economic sectors and all the regions of the country and they are market leaders in those
sectors and regions or they are on the second place. These enterprises have a growing share
in the GDP and in Romania's total exports.
Key words: French enterprise, investments, industry, automobile, energy.
1. INTRODUCTION
Before 1990, especially in the industry, in Romania were involved in the production
activity large enterprises, with many employees, who were great consumers of energy and
who used a less efficient capital. Thus, the growing costs, required, especially in last years
before 1990, closing of several industrial enterprises, so that at the beginning of the ninth
decade, in Romania were used only 70% of available production capacities. Production costs
were very high and the profitability had a low level.
France was one of the most important investors in Romania, even in the early 1990s,
taking the third place among foreign investors, having an amount of the investments in the
last years around some billions of euro or even more. The specific role of the French capital
mainly since 2000, will be reflected in the paper by the analysis of the presence of the French
companies in the Romanian economic landscape, most of whom are producing in key sectors
of industry and services (cars, banks, insurance, telecommunications, telephone, distribution
of products, pharmaceuticals, building materials, infrastructure, packaging, food products)
and by the fact that French enterprises in our country are providing employment at an
important number of people. In addition, both Romania's imports from France and Romania's
exports to France amounted to significant values, throughout the period after 1990. The main
goods imported in France from Romania are goods for consumption (mainly: clothing and
leather products, furniture) and also intermediate goods.
In recent years, France wants to diversify the areas in which was involved in the
Romanian economy, considering that one of the sectors with high potential here is the food.
In the last two years none of the French companies has left the market. Instead, they entered
on the Romanian market nearly 100 new French enterprises, and in 2010, although there was
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a reduction with a third part of the number of companies exploring the Romanian market, 50
new companies wanted to enter on the Romanian market in the medical field, the
environmental field and the energy sector. The latest entrants are including famous companies
like Bongrain who took Delaco and Axa.
According to the estimations made by authorities from the two states for the near
future, the new interest areas for the French investors in our country are: health tourism, food
industry, aerospace industry and scientific research.
This paper aims to present also the restrictions faced by foreign companies in
Romania's territory, which are the bureaucracy and the slow progress of public administration,
which obstruct the communication between authorities and the private business environment
(private sector owns 80% of the Romanian economy). Public authorities have significant
difficulties in establishing and in initiating projects related to the infrastructure, to the rural
development or to the implementation of EU rules about the environmental protection. These
delays are nothing but under-use of European funds.
The attractive elements of the Romanian business environment, resulting from the
analysis of the available materials, are the fact that the industry has the best qualified
personnel available, who can have an important contribution in the production process and
who can cause significant increases of the added value. The production costs are relatively
low and, in addition, the banking system is strong compared to others from the Southeast
Europe. EU integration may represent only a guarantee that future economic activity will
evolve on an upward trend. At present, Romania is the second market after Poland among the
countries of Central and Eastern Europe and the first country in Central Europe in terms of
projects. Romania has 2 billion euros of structural and cohesion funds, other than those for
rural development, which are designed to serve at the development of the infrastructure and
construction. It is also important that Romania is a Francophone country, which facilitates the
communication and is an important precondition for the expansion of the French business
within the country.
2. LITERATURE REVIEW
The French official Philippe Boin, quoted by Rompres, highlighted the data from
which results the increase of the foreign trade between the two countries and he underlined
the intention to expand the investments in Romania, in new areas of interest, among which the
most important is the food industry.
Patrick Gelin, president of BRD - Groupe Societe Generale and head of the Romanian
section of French foreign trade advisers, demonstrated for Rompres, the importance of the
French investments and their contribution to the restructuring process in areas of maximum
importance to our national economy, as the automobiles, cement, mobile telephony,
supermarkets. According to the documents issued by the Embassy of France in Romania, is
underline and demonstrated by statistical data and economic indicators, the important role of
France as a trade partner for Romania, France being one of the first investors here, with a
strong presence in the Romanian economy and with a significant contribution to the
diversification and to the dynamics of the Romanian market total demand.
In an article on HotNews.ro published by Ioana Morovan she shows that, although the
effects of the economic crisis is increasingly felt in both countries, by the end of 2010, a total
of 50 new French companies prospected the potential market for investment in Romania,
according to the declarations of the representatives of the French Chamber of Commerce and
Industry from Romania. It is pointed out that the infrastructure problem can be a real
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impediment to the entry of some new French investors, who may prefer other countries such
as Serbia, which are most promising in terms of highway projects, according to Bruno Roche
president of the Chamber and general manager of Veolia Romania. He said, at the request of
HotNews.ro, that recent fiscal policies adopted after the agreement with the IMF were not
particularly affected the French companies, rather having a neutral effect.
3. PAPER CONTENT
The important role that it has the French capital especially since 2000, is shown by the
fact that most French enterprises are operating in key sectors of industry and services
(automobiles, banks, insurance, telecommunications, telephone, distribution of products,
pharmaceuticals, construction materials, infrastructure, packaging, food products) and by
engaging a significant part of the total available active population. Romania's imports from
France and Romania's exports to France amounted to significant values throughout the period
after 1990. The main goods imported from France in Romania are: goods for consumption
(clothing and leather products, furniture) and intermediate goods.
In recent years, France wants to diversify the areas in which was involved in the
Romanian economy, considering that one of the sectors with most potential is the food
industry. During 2010, although there was a significant reduction of the number of companies
exploring the Romanian market, 50 new French companies wanting to enter on the Romanian
market in health care field, environmental protection field, energy and insurances.
The resumption of growth in the Romanian industry after the economic crisis has
made since 2010, when the average growth of the production was about 6%. One of the
factors that have fostered this development was the fact that many of the investors benefited
of high quality labor and were willing to devote a significant proportion of disposable income
to modernize the elements of fixed capital, especially production equipments. The increase
was made irregular in different branches. The most important rhythms were corresponding to
the industry of electricity and gas and to the manufactured products, which were developed
especially on electrical equipment, vehicles and metal products. Even if the initial
contributions of the French investors were mainly directed on restructuring the economic
activity in the field of the automobiles and cement, after that the French investors were
involved in most industrial sectors and branches of our national economy.
An important aspect achieved in the last years was the increasing of the productivity,
especially visible in metallurgy, mainly by introducing in the production activity some more
new and efficient equipments. Thus the metallurgy contributed by approximately 7% of total
exports of Romania in 2009. In the best sub-branches such as steel, the growth of the fixed
capital productivity has contributed at the reduction of the number of employees. Compared
to 2000, the productivity has doubled, which meant that in this sub-branch were not felt very
strongly the effects of the economic crisis. The main problem consisted in closing a major
part of the Romanian enterprises in the foundry. The negative balance sheet of the trade
balance for the Romanian steel and metallurgical industry in recent years is caused by the fact
that the production of the local enterprises is not sufficient to satisfy the internal market.
Among the French enterprises that are operating in this field we can note, in function of the
share of the investments, the company Mittal - Arcelor, who bought the state’s enterprise
Sidex.
Another important sub-branch of the Romanian industry is the automobile industry,
which employ about 1.3% of the total employed population and which produce about 10% of
GDP. Between 2000 -2010 the productivity grew about 3 times and the production grew
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about 2 times. In 2007, Romania's EU accession has as an effect an unprecedented
development in this area. The domestic car sales increased with 23% towards the previous
year. Because of the economic crisis, even in the following year there were slight decreases,
followed by a drop to almost half of domestic sales in 2009. Currently, the enterprises can
operate at full capacity due to the fact that the exports have risen significantly, mainly as a
result of the European program to retire. In the cars field, the largest foreign French enterprise
is Renault, which is present on the Romanian market through the takeover of Dacia Pitesti in
1999. The target proposed by the French enterprise was the production of a low-cost car,
allowing a reasonable price for Romanian buyers, but also for foreign buyers, less than 10.000
euros. An example is the car Dacia Logan, which was designed to be sold in Eastern Europe
and Third World countries, but it had an unexpected success also on Western European
markets, as well as the newest car, SUV Duster. The most important centers of Renault in
Romania are in Mioveni, Bucharest and Titu. In September 2010, Renault has opened next to
the factory, the biggest center for spare parts, which will serve both Romania and other
countries. The direct investment of Renault enterprise in Romania amounts to significant
sums and, however, the enterprise wants to increase the investment in the near future. The
amount of exports made by this enterprise is placing it among the first exporters. Its
production was almost entirely made for export. Its main competitor is the Ford enterprise,
which produces at Craiova a new car, but its production is lower than Renault’s and its export
targets particular areas of Central and Eastern Europe. The equipment used for the production
of the cars is largely imported, mainly from Germany and France, from the enterprises: Valeo,
Michelin, SNR, Piroux Industries, Auto Chassis International.
Another important company is Michelin enterprise, the largest tire manufacturer in the
world, holding about 20% of the market. The company produces all kinds of tires, from
bicycles and cars to airplanes. Michelin offers assistance and support services, is also the
creator of the site viamichelin.com, it publishes guides, maps and road atlases. Michelin is
operating in Romania since 2001 and produces tires for cars, vans and trucks. Initially, the
enterprise has paid a special attention to the modernization of the capital and to the personnel
training, which resulted in 3 time growth of the labor productivity. Its main centers are in
Floresti (Prahova) and Zalau. Its production is distributed by both internal and foreign
markets. Staff reductions were made only among people who worked in outsourced activities
(canteens, sanitation). In 2008, the company had a share about a third part of the Romanian
tire market. The main competitors are the companies Continental from Sibiu and Pirelli from
Slatina.
The extraction industry is one of the traditional sub-branches of the Romanian
industry, and it held leading positions worldwide in the nineteenth and twentieth centuries,
especially before the First World War.
In 1857, Romania obtained the first place in the world for the oil extraction and
production. Currently, the share of the oil used for the consumption is 26%. The development
of this sub-branch was favored by the country's natural resources and the fact that Romania
has always had efficient refineries and an adequate infrastructure for its transportation. Until
1970, Romania was a major oil exporter, after turning into a main oil importer. This trend is
verified in the present also for the natural gas. Especially in the last decade, in this sector were
many changes, the foreign capital had massively entered on the marked favored by the
restructuring, the liberalization and the privatization of oil and gas sector, along with changing
the legal framework, once with the integration of Romania in the EU on the 1 th of January
2007. The Government has developed a strategy on the competitiveness of the energy sector
and on the energetic security of the country during 2007 - 2020, aiming to limit the
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dependence on other countries, so that production doesn’t have to reduce. Oil is now the
second country's primary energy source, accounting for almost a third part of the total energy
consumption. Currently, almost a half of the national oil consumption comes from the internal
production and Romania has the highest refinement capacity in Central and Southeastern
Europe.
Currently, the most important primary energy source is the natural gas, which is used
for the consumption in a share nearly 50%. For the future years is provided a reduction of the
production. In this area, the participation of the French investors is reflected since 2006, by
the presence of the enterprise Gaz de France, which took over Distrigaz Sud, resulting GDF -
SUEZ. In the last years, more than a half of the total gas consumption was based on local
resources, and the rest was imported. The largest domestic producers are Romgaz and Petrom,
which are making together almost a half of the total internal production. The imports are
coming in totality from the Russian Federation and the major importing companies are: Gaz
de France Suez Energy Roumanie WIEE Romania (subsidiary of a Swiss company), E.ON
Gas Romania and Interagro. Gaz de France Suez Roumanie became one of the largest gas
storage operators in Romania, with Romgaz. Gas transport is made by the enterprise Transgaz
that has an extensive pipeline network and will invest a large amount of money in the next
two years in order to repair and to upgrade the pipeline network and the connection points,
extending the national grid.
Coal production hasn’t risen significantly in the last decade, but there were made
significant gains in the field of productivity, leading to increase the number of employees.
Currently, here there are about 0.7% of the total employed persons from the national economy
and is considered to become the first country's primary energy source in the future.
In the field of water resources, we can note the presence of the French enterprise Veolia,
whose direct investments have a significant share in the total. The company is the largest
service provider in this field worldwide. The enterprise is operating in 66 countries from all
continents. It has started its activity in Romania in 2000, with the first concession of water
and sewerage services in Bucharest and Ploiesti. The enterprise manages the production and
distribution service for drinking water, sewage disposal and pluvial water and the municipal
water treatment. The quality of its services has increased by applying a preventive
maintenance program, through acquisitions and modern facilities in sewerage and water
supply, advanced technical support.
Shipbuilding companies belong almost entirely to foreign capital, except the shipyard
from Constanta. 5 ships were produced in 2009, and orders are decreasing.
The production of aircraft exists in Romania for almost a century, but now is in a period of
restructuring. They produce and repair all types of aircraft and parts or components are built
for any type of aircraft, military or civilian. Currently the most important foreign partners are
the companies Airbus and Boeing
The Romanian petrochemical industry is characterized by the production of synthetic
rubber, plastics and synthetic fibers. The production of plastics was particularly driven,
especially since 2007, by the increasing number of Romanian and foreign enterprises in
various fields, which have quantitative and qualitative increased the demand for these
products. The branches that have affected the production in this area by reducing its own
production are mainly from the fields of construction and food industry. National enterprises
in this field have a share of 25% of the total production, the rest being provided by imports.
European rules have required the compliance with the quality standards for food goods,
leading to an increase of the demand for plastics. Another important destination was a request
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from automobile manufacturers, mainly Dacia-Renault and Ford. In the packaging, stands out
on the Romanian market the French company Rossman.
The sub-branch of construction materials, which also occupied an important place in
the economic history of the country, faced in the last years an annual reduction with an
average about 30%, mainly due to the reduction of the internal investments. The most
important uses of these products are infrastructure works, drains and rehabilitations of
buildings. The most important French enterprises are Lafarge and Saint Gobain, which
invested heavily on the Romanian market and have announced that they will increase the total
amount of investments in order to improve its position on the market. Lafarge is a
representative of the company with the same name in France, founded in 1883, which
currently is the largest cement producer in the world. It6 entered on the Romanian market in
1997, by acquiring a local producer. Currently it has three offices in Medgidia (Constanta),
Hoghiz (Brasov) and Târgu Jiu (Gorj). Lafarge Romania produces also aggregates, concrete
and plasterboard, binders, plaster and accessories. In the field of plaster boards and associate
products, Lafarge holds about one fifth of the market and most products are made for the
internal market. The French group Saint Gobain, founded in 1665, is today one of the largest
companies worldwide in construction and building materials and it is present in over 59
countries. In Romania, the enterprise has several offices: in Calarasi for the glass production,
in Ploiesti for glass wool, in Turda for plasterboard and mortar, in Satu Mare for pipes and
cast iron materials and in Braşov for the products used in the wood industry.
The electricity industry is an area that has made major restructuring after 2000,
through restructuring and liberalization of electricity sector and through changing the legal
framework even before Romania's EU integration, which has attracted a lot of funds from
foreign capital. Within companies in this sector, the state still holds a significant part. One of
the main measures contained in the energy strategy adopted by government for the period
2007 - 2020 is regrouping energy producers in two strong and efficient companies, able to
become leaders in the regional market. These will be formed with both private and state
capital and the state will be involved in the modernization of the existing stations: from
Galati, built with the contribution of the CEZ company, from Borzeşti built with the
contribution of the Electrabel Gaz de France company and from Braila built with the
contribution of the E.On/Enel company. In the medium term, the Romanian policy in this area
is to grow the production of electricity and to reduce the dependence on the unique external
supplier, the Russian Federation. The network for transporting electricity is owned only by
the Transelectrica enterprise, which is controlled by the state. One of the newest
preoccupations in this area is the wind and biomass energy, which will also involve some
European foreign enterprises.
Besides the industry, other areas where we can notice the presence of the French
companies are: insurance, telephone, banks, supermarkets, pharmaceutical products, medical
products, food industry, hotels.
The company AXA is a world-class representative of the financial field of insurances.
The Romanian market in this field is still developing, in all its segments and the population is
under-insured. The French company, having a significant international experience, aims to
bring on the Romanian market quality products and services and to stimulate the competition
among the local companies in that field.
Groupama is an insurance company established in the late nineteenth century by the
farming community. Until now it expanded and diversified the activity in 13 European
countries. Insurance activities are bringing it about 30% of total income. In Romania it
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entered on the market in 2007 and, after several mergers, in 2010 it ranks third on the
insurance market. Its main competitors are the Vienna Insurance Group and Allianz.
Orange Romania is a subsidiary company of the France Telecom, totaling over 163
million users worldwide. Its activity is in the mobile telephony, with subsidiaries in most
European countries, but also in Africa, Middle East and the Caribbean. In Romania, it had the
name Dialog until 2002. It is the largest company of its kind in Romania, which is
demonstrated by the fact that in 2006, it had a market share above 50%. Its great success is
due to the continuous growing of the mobile phone demand and to the high quality of the
network and services (including flexible and customizable telephone subscriptions and PrePay
cards). In 2006, the new EDGE technology was extended to the national level and covers over
20 from the major cities. In 2008, Orange Romania had 101 stores and over 35.000 sales
points of prepaid cards. It most important competitor is the company Vodafone, followed by
the companies Cosmote and Zapp.
Carrefour company is the largest European retailer and second in the world after Wal-
Mart. It has divisions and subdivisions in 30 EU countries, South America, Africa and Asia.
Its own brand products are becoming more and more important from year to year. A number
of famous Romanian companies in the fields of food or cosmetic products are producing
under the Carrefour brand. In 2006, the sales made in the 7 stores increased almost with 50%
above the previous year and in 2007, the company already had 10 stores, including five in the
capital. In 2009, the number had risen to 22. Its major competitors are Auchan (the first
hypermarket in Romania opened in 2006 and currently it has six hypermarkets and 4
supermarkets), Cora (retailer that has in Romania 5 hypermarkets), Real and Kaufland.
BRD is a Romanian bank, owned by the French Group Societe Generale, which in 1998
aquired 51% of shares. It is the second bank after BCR regarding the assets and the market
share. In 2009. it controlled 14 % of all the banking assets. After 1990, BRD has developed a
series of new activities for individuals and corporates, mainly on three areas of expertise: as a
commercial bank, as an operator on the capital market and as a bank for investments. In
2001, was listed on the Bucharest Stock Exchange in the first category and it becomes soon
one of the most traded companies. In 2004, Societe generale became the majority shareholder
of BRD and in 2005 BRD Groupe Societe Generale had a market share over 30% from the
total.
In the recent years, there has been an increasing trend of the number of foreign
companies that are created directly in Romania and the capital involved in their production
activity doesn’t come anymore from France. The vast majority are small companies that
operate in the services sector (hotels, restaurants, tourism), but also major companies such as
Plexirom (plastic mobiles), Arta Grafica (art print), Meli-Melo (fancy jewels and accessories
that meet the highest standards of quality and design) and Sanofi (pharmaceuticals). Sanofi is
one of the largest multinational that produces and distributes pharmaceuticals. It is established
in 2004, being the fourth largest drugs producer in the world. The company invested heavily
in the research and development activities, in production and advertising of its pharmaceutical
products, covering seven of the most important therapeutic areas.
The new investments made in the recent years by the French companies in Romania
have more and more different destinations from those that already exist (for example the glass
factory Saint Gobain from Călăraşi and Lafarge cement enterprise in Bucharest). The LVMH
company is the largest luxury goods company. It has about 60 sub-companies that are selling
several products of the great firms like Vuiton, Dior, Gucci, Guerlain, Bulgari, Kenzo,
Givenchy from the fields of clothing, perfumes, leather goods, jewels and luxury watches. It
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was founded in 1987 by two producers of luxury drinks, champagne and cognac. The oldest
brand of wine sold by LVMH is Chateau d’Yquem which dates from 1593.
Other major French companies in Romania, recognized on the international market
are: Alcatel in the field of telecommunications, Cora in the field of retail, Danone, Soufflet
and Roquette in the field of agriculture and foods, Intermarche in the field of great retail, Mr
Brico and Bricostore in the field of specialized distribution, Servier in the field of
pharmaceutical distribution and Accor in the field of hotels.
CONCLUSIONS AND IMPLICATIONS
Investment growth should cover compulsory and permanent adaptation to the
market requirements, to the changes in the business activities structure, depending on the
system of needs, which requires a different allocation of the inputs on branches and subbranches.
In addition, to ensure the efficiency of the investment, must be considered the
increase of the quality of the inputs, including management, the continuous improvement of
the methods of the organization and management of economic activities, the higher quality of
the labour, which are essential prerequisites for a quantitative and a qualitative growth of the
production.
France has always been one of the most important investors in Romania, always
occupying a leading position among the foreign investors and contributing with significant
sums to the total investment. Most of these companies are operating in key sectors of industry
and services and are using a large share of the total number of employees, helping to reduce
unemployment. In 2009, for example, French enterprises in Romania were using around 1 %
of the total of people employed in Romania.
In the recent years, France wants to diversify the areas in which was involved in
the Romanian economy, considering that one of the sectors with most potential is the food
industry. In the last two years, none of the French companies has left the market. Instead, they
came on the market nearly 100 new French companies and in 2010, although there was a
reduction by a third part of the number of the companies exploring the Romanian market, 50
new French companies wanted to enter on the Romanian market in the medical field,
environmental protection, energy, thus contributing to the development of poor sectors of our
national economy.
During a subsequent research, it may determine, using statistical analyzing
methods, how the amount of the foreign investments in Romania exercises its influence on the
global investment situation, in the whole economy and in its most important branches. It will
be possible also to calculate the structure indicators, intensity indicators and dynamics
indicators that can highlight the way in which the increase of the foreign investments in
Romania, especially the French, improves the satisfaction of the demand on the internal
market and also the balance sheet of the foreign trade operations.
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REFERENCES
1. Viorel Cornescu, Ion Bucur, Cătălina Bonciu, Magdalena Iordache-Platis, Cornelia
Nistor, Răzvan Papuc, Introduction in Economics, ACTAMI Publishing House,
Bucharest, 1997
2. Gheorghe Creţoiu, Viorel Cornescu, Ion Bucur, Economics, second edition, C.H. Beck
Publishing House, Bucharest, 2008
3. Cornelia Nistor, The transition in Romania. The modeling of the economic
equillibrium”, Military Publishing House, Bucharest, 2004
4. http://www.wall-street.ro/articol/Economie/16251/html
5. http://www.google.ro/&hl=ro&gbv=2&rlz=1W1SKPB_enRO351&gs_l=hp.3...26625.2
6625.0.27484.1.1.0.0.0.0.281.281.2- http://www.google.ro/.&aq=f&aqi=&aql
6. http://www.mediafax.ro/economic/-7226789/
7. http://www.ambafrance-ro.org/index.php/ro_RO/dossiers/les-relations-economiques-etcommerciales
8. http://www.ziare.com/articole/licitatie+autostrada+cernavoda+medgidia
9. http://ziarero.antena3.ro/articol.php?id=1241474844
10. http://stiri.acasa.ro/financiar-142/noutati-198/criza-aduce-investitorii-francezi-inromania-datorita-costurilor-mici-42647.html
11. http://www.money.ro/franta-pe-locul-cinci-in-topul-investitiilor-straine-inromania_667861.html
12. http://economie.hotnews.ro/stiri-companii-7788729-camera-comert-franceza-50-noicompanii-franceze-sunt-interesate-romania-politicile-fiscale-recente-ale-statului-romanefect-neutru-asupra-investitorilor.htm
13. http://www.ccib.ro/afacerea/Stire-4350-.htm
14. http://dictionary.sensagent.com/orange+sa/ro-ro/
15. http://www.zf.ro/companii/michelin-dubleaza-productia-de-anvelope-a-fabricii-de-lafloresti-si-mai-angajeaza-300-de-oameni-3054293/
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THE IMPACT OF THE TRANSLATIONS FROM HISTORY OF ECONOMIC
THOUGHT AND HISTORY OF ECONOMICS ON LEARNING PROCESS OF THE
STUDENTS AND ON AVAILABLE TEACHING MATERIALS
Nistor Cornelia;
University of Bucharest
Herman Radu;
University of Bucharest
ABSTRACT
One of the important aspects to enrich the training of students is the impact of
specialized texts translation. The manner and measure in which the access to specialized
materials, books and articles, translated into Romanian help them in the studying process and
in understanding the other economic disciplines and also the feedback that the students could
have at the creation of an online database containing translated texts into Romanian should
be a continuous concern of the teaching staff in higher education institutions.
student.
Key words: translation, history of economics, economic thought, database,
1. INTRODUCTION
To enrich and to improve the knowledge of economics, students must have access
to as much information as possible, especially in the present days, when the globalization
trends are expanding. In order to provide widest possibilities to study, the students must have
a sufficient number of bibliographic materials, which enables them to analyze and synthesize
certain theories developed over time and how their application in economic practice
influenced the economic phenomena and processes in different periods of time. The main
issues on this subject refers to the fact that in the national libraries there are a relatively small
number of specialized materials translated into Romanian, and the access to these materials is
difficult because, in general, there is only one copy available at loan office. So, it would be
particularly useful setting an online database with all digitized material, so that it can be
accessed simultaneously by multiple people, without having to go to the library, without all
the afferent efforts and costs.
This article aims to explore the modality and the measure in which the access to
the specialized materials, books and articles, translated into Romanian lead to enrich the
training of the students, how it helps them in their study and how it helps them to understand
the other economic disciplines and also the feed-back that the students could have to the
creation of a database containing on-line texts translated into Romanian, even to an increase
of the number of the translations. Since the original texts were written in a foreign language,
appears also the issue of modality in which the translations were made in Romanian, as well
as the issue of their quality. The data on that will be used in the analysis will be find on the
platform of the LLP / Erasmus Multilateral Project entitled "Economics e-Translations from
and into European Languages, An Online Platform".
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2. LITERATURE REVIEW
As pointed out by authors Gheorghe Creţoiu, Viorel Cornescu, and Ion Bucur (in
"Economics", second edition, CH Beck Publishing House, Bucharest, 2008, foreword):
"References to economic theories and doctrines will be an act of culture, but also a mean to
familiarize the readers to the idea that not only economic realities but also the concepts, the
perceptions and the solutions are or may be different and in a ceaseless changing. "According
to Marjal Laal and Peyman Salamati, in the article "Lifelong learning: Why do we need it?"
(Procedia - Social and Behavioral Sciences, Volume 31, World Conference on Learning,
Teaching and Administration, 2011) lifelong learning has a special importance in the
contemporary society, where the rhythm of the current activities is growing everyday and
improving and enriching knowledge is not simply a personal desire, but a necessity. John
Trim emphasizes in the "Language Education Policy in Europe" (Encyclopedia of Language
and Linguistics, second edition, 2006) that European education, the increasing of the
communication and the transmission of knowledge, are facing many complex linguistic and
administrative problems: on the one hand the problems of the barriers related to the great
linguistic diversity resulted from the fact in that every country, there are both nationalspeaking
majority population and also national minorities that speaks other languages and on
the other hand from the fact that globalization makes it necessary to extend the education and
the transfer of knowledge in foreign languages. Gerald Erichsen (Principles of translations:
how do you decide Which word to use, About.com Guide), emphasizes the very important
aspects related to the quality translations on to the fact that the translator has to achieve an
exact translation of terms, in order to not affect the meaning of words, which sometimes is
very difficult because there are several meanings for the same word. For this reason, the
author notes that each translator must understand the meaning of the whole sentence and
choose for the translation the word that best suits the whole context. The alternative method is
to search in the documents available online the word most often used by previous translators.
Finally, to emphasize the importance of the translations for the education process, we must
mention the opinion of the authors of the book "History of Economics", Maria Muresan and
Dumitru Muresan, from the foreword at the first edition: "The lessons of the past can provide
the occasion for reflection and an inspiration source, given the current circumstances of
course, in the concerns to formulate solutions to today's economic problems "(M. Muresan, D.
Muresan, History of Economics, second edition, Economic Publishing House, Bucharest,
2003).
3. PAPER CONTENT
In order to give at the students the opportunity to study and understand the diversity of
economic phenomena and processes from the surrounding reality, the causes that influenced
them, they must have an easy access to as many specialty papers in economics as possible,
both from national specialized literature and the international economic thought. Since the
original was written in a foreign language, the issue of existence and how the translations
were made in Romanian and quality. Since the original texts were written in a foreign
language, appears also the issue of modality in which the translations were made in
Romanian, as well as the issue of their quality.
During this research, a first stage of observation, showed that in the national
libraries there are a relatively small number of specialized materials translated into Romanian
and the access to these materials is difficult, because, in general, it is available only a single
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copy. In most cases, this copy is also the only one translation in the country. Consequently, it
is not possible to compare the various translations and it can not be tested the hypothesis that
a translator, influenced by the economic and political ideas of the specific period in which he
mad the translation, could use in it some specific terms that not represented accurately the
sense of the word, making an unconscious error, beyond its control, or doing this error
wishing to support the ideas promoted by the macroeconomic managers in that period.
Another aspect highlighted by the first phase of this research and that will be
analyzed later is that the number of translations in each period, since the second half of the
nineteenth century is relatively balanced, referring to the most important authors,
representatives of the main trends in the economic thought. Some examples are: Adam Smith,
David Ricardo, Friedrich Hayek, John Maynard Keynes. The only period in Romania when
there were significantly more translations of the same author is after the second world war
until 1989, when we can observe a clear preference for many texts written by Karl Marx and
also Friedrich Engels.
Since an important number of Romanian scientists have studied abroad, starting
with the first half of the nineteenth century, we will desire to demonstrate the influence of the
ideas learned from abroad in subsequent writings of Romanian economists of the time. In
particular, during the centralized economy, the ideas of Marx and Lenin were the base of the
economic theory and economic policy in that period. In the last years, translations have been
made for different bibliographic materials, corresponding at different trends and doctrines,
developed in the present or, on the contrary, even from the representatives of classical
economic thought, just to be used by the students and the specialists and to show them various
modalities of perception and analyses of the current economic realities.
One of the hypotheses to be tested in further researches is how the translations had
an impact on the national economic theory and policy. It also will monitor how these
translations can influence the opinions and analysis that students are making about the current
economic reality and also the frequency and success with which students will access and use,
in the studies and the works that they develop, the on-line database that will contain the
digitized texts of the translations and that will be made available at a large number of users,
not only at the students. Most data that will be used in the future research will be found in the
platform of the project LLP / Erasmus Multilateral Project entitled "Economics e-Translations
from and into European Languages, An Online Platform".
CONCLUSIONS AND IMPLICATIONS
The aim of the research contained in this article is to highlight the impacts that
have the translation of economic texts, mainly those in the field of economic doctrines and
history of economic thought, on teaching and training students in the economic field and also
the utility of those economic theories and ideas for their analysis and research. From this
perspective, it is important to study how the quick access to this information by setting up the
online database will help them to improve and to enhance the research in the economic field
and to increase the number of economic research papers and books.
This short paper is a part of the dissemination activities for the project LLP /
Erasmus "Economics e-Translations from and into European Languages, An Online Platform"
number 51829/-LLP-2011-IT-ERASMUS-FEXI. An important goal of the project is to
investigate the great impact of the economic texts translations of history of economics and
history of economic thought, taking into account the historical, educational and linguistic
aspects of the translations made in each country participating in the project. The main goal is
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to jointly implement an online database containing digitized texts, translations in the national
languages of the main writings of specialized books and articles in economics.
REFERENCES
1. Creţoiu, Cornescu, Bucur, Economie, ediţia a II-a, Ed. C.H. Beck, Bucureşti,
2008,cuvânt înainte and page 13
2. M. Muresan, D. Muresan, Economic History, second edition, Economic Publishing
House, Bucharest, 2003, page 15
3. http://www.sciencedirect.com/science/article/pii/B008044854200657X, Language
Education Policy in Europe – 27 ianuarie, pages 446 – 453 - retrieved at 4nd of May
2012
4. http://www.sciencedirect.com/science/article/pii/S1877042811030023, Lifelong
learning; why do we need it? – 27 ianuarie,pages 399 – 403 - retrieved at 4nd of May
2012
5. http://spanish.about.com/od/translationresources/a/translating.htm, Gerald Erichsen, în
“Principles of translations: how do you decide which word to use?” (“About.com
Guide”) - retrieved at 4nd of May 2012
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CAUSES AND EFFECTS OF INCESSANT BUILDING COLLAPSE IN NIGERIA
Olojotuyi Bamidele Segun;
School of Housing, Building and Planning, Universiti Sains Malaysia
Abdelnaser Omran;
School of Housing, Building and Planning, Universiti Sains Malaysia
ABSTRACT
This research is aimed at determining the remote causes and attendant effects of
incessant building collapse in Nigeria. Questionnaire survey was targeted the project
managers, engineers, builders, architects, quantity surveyors, consultants, contractors, developers,
town planners, monitoring agencies who resides in Lagos, Abuja and Port Harcourt. As results,
factors such as the prominent causes and that the built environment professionals, regulatory
agencies and the government have a major role to play in bringing the enemy called building
collapse to its knees and save Nigerians from continuous loss of investments, injuries and
death are seen as the most important factors leading for building collapse. It is recommended
that the various built environment professional should form an alliance to stamp out
“quacks” from carrying out design and construction supervision in the country.
Keywords: Collapse, Quacks, Substandard, Material, Workmanship, Supervision
1. INTRODUCTION
In the past five decades, Nigeria as an independent nation has been striving to develop
itself in every field of human endeavor, obstacles notwithstanding. Currently, Nigeria is
pursuing the “Vision 2020” as one of its strategies to become one of the top leading
economies by year 2020. In order to realize this vision, the nation has been advised by the
Accenture, the official consultant on the vision, to focus on the development of five key
sectors of talent, capital, resources, consumers and innovations. This entailed that the nation
must equally embark on a massive housing and infrastructural development. On the other
hand, the built environment, in any country, determines the nature and pace of national
development and citizens’ quality life. The construction of buildings and infrastructure are
vital inputs for economic activity, leading to economic growth and increased incomes in the
short run and national development in the long run (Anthony, 2011). Considering the
importance of the construction sector to Nigerian economy and as the quest to achieve
sustainable development continues, the construction industry requires adequate attention from
all stakeholders. Unfortunately, the high rate of collapse of existing buildings and the ones
under construction in Nigeria appeared not to be encouraging and needs to be addressed
(Anthony, 2011). Structural failure in buildings, in broad terms comes in various forms and
degrees of severity; the worst of which is a collapse. Deterioration or decay especially of
vigour or usefulness of a building can be categorized as a failure of some sort but a loss of
bearing strength resulting in a sudden breakdown, physical depletion and/or falling apart is
termed a collapse. Among these factors are greed, incompetence, corruption, poor planning,
poor enforcement of building codes, inadequate public awareness and education, and limited
financial and technical resources (Falobi, 2009). Every structural system is designed to meet
some needs and be safe to avoid loss of life, property and damage to the environment. In a
normal set up, failures are not expected within the projected lifespan of structures. But due to
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the imperfection in the actions of human beings and the existence of so many other external
factors that influences the safety of the structures, failures do occur (Ede, 2010). Generally,
structures do fail over time as a result of human factors such as negligence, design flaws,
ageing, material fatigue, extreme operational and environmental conditions, accidents,
terrorist attacks and natural hazards. But the causes of building collapse in Nigeria can be
traced to abnormal factors not obtainable in many other nations (Anthony, 2010). On 24 th of
June 2011, a 234NEXT reporter asked Ekundayo Adeyinka Adeyemi; the first Professor of
Architecture in Africa (a Nigerian), what is responsible for recent cases of collapse of
building in Nigeria. In his response, the Professor said:
“In fact, the issue of collapse of buildings in Nigeria is quite saddening and need
not recur anymore. You know that building is an interdisciplinary thing. The
architects do the drawings and we also have the construction people. So we have
some contractors who do not buy the required materials to get the job well done.
So I think the engineers and the contractors have to be more faithful in their jobs
so as to curb the menace of the unnecessary collapse of building in our
environments. Though, we have come of age but we can still do better if we can
put in more honesty and dedication to the discharge of our duties because building
work is a continuous thing”.
Building failure, according to Ayininuola and Olalusi (2004), is an unacceptable
difference between expected and observed performance of building components. They
identified two types of failure in building, which are cosmetic and structural types. Cosmetic
failure occurs when something has been added to or subtracted from the building, thus
affecting the structures' outlooks. On the other hand, structural failure affects both the outlook
and structural stability of the building. Incidences of distressed or collapsed buildings are
global phenomenon and are not limited to Nigeria. At the international level, a number of
building collapses were reported--Ronan Point apartments collapse in U. K. when kitchen gas
exploded on the 18th floor sending a 25-storey building to the ground in 1968; the 2000
Commonwealth Avenue Tower collapse in Boston, 1971; The Civic Center of Pavia in 1989;
and collapse of Murrah Federal Building in Oklahoma City in 1995, where air blast pressure
caused the collapse of few lower floors while the upper floors failed by progressive collapse.
In year 2000, a four-storey commercial building at 14th and 2nd Avenue in Brooklyn, USA,
collapsed and vacant building at 124th Street in the north of Manhattan in New York the
partially collapsed in 2007. Similarly, a five-storey vacant apartment building in Manhattan
that earlier appeared to be falling apart for months finally collapsed on March 4, 2008. In
Nigeria, the common causes of building collapse have been traced to bad design, faulty
construction, foundation failure, extraordinary loads, use of unqualified contractors and poor
project monitoring and above all, lack of enforcement of building codes by the relevant Town
Planning Officials (Badejo, 2009; Falobi, 2009; Bamidele, 2000). The cost of these collapses
in terms of loss of human lives and enormous economic waste, loss of investments, job,
income, etc, cannot be over emphasized. Both the environmental impact and the disgrace it
brings to the professionals involved in the building industry must not be overlooked also
(Anthony, 2010).
2. PROBLEM STATEMENT
The world is however becoming dangerous as a result of the geometrical order of
population growth, urban development in coastal areas, poor planning and housing
developments in high risk areas of the city. In recent times, the incidence of building collapse
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in the country’s major cities of Lagos, Abuja and Port Harcourt have been alarming. Lagos,
the major commercial nerve center of the country, has recorded four cases in 2006 with two of
such collapses in Ebute Metta that claimed 37 lives included residential buildings. Adegoroye
(2006) reports that on Saturday March 25, the Nigerian Industrial Development Bank’s
building collapsed killing two persons and injuring 23 others. In November, 2007, a twostorey
building collapsed along Okegbogbo Street while another two six-storey buildings
along Imam Ligali Street in Lagos Island collapsed, affecting two other six-storey buildings
and leaving fifteen persons injured and one dead. The shameful incidence continued unabated
by shifting base to Abuja the nation’s capital, when on 30 th of July 2008, a four-storey
building under construction within Jabi district collapsed leading to death of at least 23
people. As if these was not enough, on the wake of 28 th of April 2010, the residents of Lagos
was greeted with the saddening news of collapse of a two-storey market plaza in Oshodi,
killing at least four persons and leaving many others wounded. The dust barely settled on this
collapse when the news circulated like fire that on 11 th of August 2010, an
uncompleted/abandoned four-storey residential building located at Garki district of the
nation’s capital Abuja collapsed, killing more than 14 occupants. And just few months ago,
the Daily Trust Newspaper on June 29, 2011 confirmed that “at least one person has been
killed after the collapse of an uncompleted building undergoing construction at Mararaba
town in Nassarawa state, off Nigeria’s Federal Capital Territory, Abuja. The latest occurrence
of building collapse as reported in The Vanguard Newspaper of 27 October, 2011 was the
collapse of a six-storey office building located at No. 11, Aderibigbe Street in Maryland area
of Lagos State. It was gathered that the over 300 staff of various company occupying the
building were evacuated before the collapse occurred. The collapsed occurred on 26 October,
2011 at about 6:30pm Nigerian time. When buildings collapse with the rapidity of bubbles
bursting, it calls for national concern. Many cities in Nigeria, including Abuja, have been
painful witnesses of massive structures collapsing on people, some in their sleep. The high
incidence of collapsed buildings in the country in recent times is both tragic and a source of
national embarrassment. It is tragic because although every death is painful, the death of
several innocent lives in avoidable circumstances is regrettable and it is embarrassing because
it depicts another aspect of the nation's systemic rot.
3. RESEARCH METHODS
The data for the study were collected from two sources; primary and secondary
sources. The primary data were collected through the distribution of questionnaires
(quantitative approach), to relevant respondents in the construction industry namely; Project
managers, Engineers, Builders, Architects, Quantity Surveyors, Consultants, Contractors,
Developers, Town Planners, Monitoring Agencies who resides in Lagos, Abuja and Port
Harcourt. The sources of secondary data consist of journals articles, unpublished thesis, and
proceedings of conferences, symposiums and extracts from newspapers, books, relevant
internet websites and other related reports from government documents.
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4. DATA ANALYSIS AND FINDINGS
The empirical data generated were then analysed using descriptive and analytical
statistical and appropriately interpreted. The output was further subjected to Relative
Importance Index (RII) to ascertain rating of the factors. The prominent factors contributing
to the collapse are use of quacks, use of substandard/inadequate material, poor workmanship,
and lack of adherence to design specification, lack of adequate supervision by the
professionals, refusal of clients to pay for professional services, proliferation of market with
substandard materials, corruption in governance, high cost of construction/material and lack
of government concern. Going by the results, use of quacks, substandard/inadequate
materials and poor workmanship ranked first, second and third respectively among the causes
of collapse, this is corroborated by Oloyede et al. (2010) when he submitted that “going by
reasons adduced, the use of low quality building materials ranked first coupled with
employment of incompetent craftsmen and artisan under very weak supervision on site”. Lack
of adherence to design specification, lack of adequate supervision by the professionals and
refusal of clients to pay for professional services came fourth, fifth and sixth respectively.
Other less prominent among the factors adjudged as causes of collapse in order of ranking are
proliferation of market with substandard materials, corruption in governance, high cost of
construction/material and lack of government concern. On the effects of building collapse, it
was adjudged that loss of investment and injuries ranked first and second respectively while
death, tears/sorrow and economic waste were ranked third, fourth and fifth respectively.
CONCLUSION & RECOMMENDATIONS
The revelation of this study in relation to remote causes of unending building collapse
is Nigeria can be traced to abnormal factors not obtainable in many other nations (Anthony,
2010). These collapses are deemed avoidable having considered the factors adduced as the
prominent causes and that the built environment professionals, regulatory agencies and the
government have a major role to play in bringing the enemy called building collapse to its
knees and save Nigerians from continuous loss of investments, injuries and death. It is
recommended that the various built environment professional should form an alliance to
stamp out “quacks” from carrying out design and construction supervision in the country. The
town planning units and standard organization of Nigeria must ensure that existing laws are
adhered to including certification of building materials. Lastly, the government must work
towards improving the economy so as to ensure that the common man can access and afford
professional services and adequate building materials.
REFERENCES
1. - Anthony, N.E. (2011). “Measures To Reduce the High Incidence of Structural
Failures in Nigeria” Journal of Sustainable Development in Africa 13, No. 1, 2011).
2. Anthony, N.E. (2010). “Building Collapse in Nigeria: The Trend of Casualties in the
Last Decade (2000 – 2010)”. International Journal of Civil and Environmental
Engineering, 10(6)32 – 42.
3. Ayininuola, G.M., & Olalusi, O.O. (2004). Assessment of Building Failures in
Nigeria: Lagos and Ibadan Case Study. African Journal of Science and Technology
(AJST) Science and Engineering Series, 5 (1): 73-78.
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4. Badejo, E. (2009). “Engineers, Others Urge Multi-disciplinary Approach to Curb
Building Collapse” The Guardian Newspaper, Retrieved from
http://www.naijaproperties.com/news-95php
5. Bamidele, O.T. (2000). “Building Collapse: Stakeholders Proffer Solutions on Way
Forward.” Daily Sun Newspaper, Retrieved from http://www.dailysunngr.com [18
Feb., 2000].
6. Ede, A.N. (2010). Structural Stability in Nigeria and Worsening Environmental
Disaster: The Way Forward in Proceedings with the West African Built Environment
Research Conference Accra, Ghana. July, 26-28, Pp. 489-498
7. Falobi, F. (2009). “Nigeria: Tackling Disaster at Grassroots in Lagos” Daily
Independent Newspaper, Retrieved from http;//www.dailysunnewspapers.ng
8. Oloyede, S.A., Omoogun, C.B., & Akinjare O.A. (2010). Tackling Causes of Frequent
Building Collapse in Nigeria. Journal of Sustainable Development, 3:3.
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NATIONAL STUDENT ENROLLMENT REGISTRY.
A REAL HELP FOR EMPLOYERS AND UNIVERSITIES.
Olteanu Cosmin Cătălin;
University of Bucharest
ABSTRACT
The main purpose of the paper is to illustrate the purpose of National Student
Enrollment Registry, a national database, linked through a distributed information system, of
all students from higher education system. The general idea is to have a strong unique
informatic system where all the data should be collected from all universities. Employers and
all academic institutions can check someone’s background easy through a national portal just
by log in. As a result of the paper, the author found that this system has it’s flows but can be
improved.
Key words: Informatic system, ID student number, Database for employers, students
and academic institutions.
1. INTRODUCTION
The purpose of National Student Enrollment Registry is to have a national database,
linked through a distributed information system, of all students from higher education system.
In a way, we can say that a functional system like this could provide the full path of a
student – an individual record of all academic studies.
For such a result, all academic institutions (universities) have been linked through a
UE project that provided an informatics system linked to a local database connected also to a
national one.
The results of such a system are useful to employers, students and others academic
institutions.
Why employers? Because a PR can easy check if a candidate for a job has been told
the truth in his/her cv just by log in in a national portal and search by name or ID.
Why useful for students? The answer is simple. One student can also log in in the
national portal and check his academic path. This way he/she is sure that the studies are
recognized and the diplomas are real and provided by Minister of Education.
Why for academic institutions? If a student want’s to enroll for superior studies like
master or PhD, his background can be checked and no one could came from fake universities /
faculties, like in the past.
2. LITERATURE REVIEW
National Student Enrollment Registry (NSER) may become the only way students
could avoid in future receive of diplomas without legal protection (România Liberă, 20 July
2009).
In the context where 4 universities have been discovered to enroll students on fake
faculties or fake form of faculties and moreover to print diplomas for them, a change was
needed. This change was to be made by a national database of unique numbers for every
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student (license studies, master studies or doctoral studies) – Lex et Scientia , no. 2 , 2009,
pag. 514.
This way NSER will lead to a coherent picture of human capital involved in higher
education system and detailed information will be available for implementation of education
policies and strategies (Market Watch, 18 September 2010 and 3 June 2011).
4. PAPER CONTENT
National Student Enrollment Registry (NSER) is reglemented by the law 1 from 2011
and, this year, by the minister order 3313 from 2012. This way the legal environment is very
well defined to have a strong informatic system.
When the system will be fully functional, a PR can easy check if a candidate for a job
has been told the truth in his/her cv just by log in in a national portal and search by name or
ID. One student can log in in the national portal and check his academic path. This way he/she
is sure that the studies are recognized and the diplomas are real and provided by Minister of
Education. And more if a student want’s to enroll for superior studies like master or PhD, his
background can be checked and no one could came from fake universities / faculties, like in
the past.
First of all I will present the NSER system, from a former job where I was the IT
manager with responsibilities also of NSER.
On a first look the system is quite simple. We have a local component (client and
database) and a centralized one (database and advanced client) at the UEFISCDI core – Fig.1.
University Local NSER Central NSER
portal.rmu.ro
University Repr. Student Institutions/Employer
Fig. 1 NSER system.
From Fig. 1 we can deduce that the information flux is quite simple.
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University employees add students data to the local university database through the
local client (Fig. 3). When all the data are added, the IT manager with the Rector,
electronically sign the package and send it to national database. When all the data collected
from all the universities are in the national / central database, students – by theirs own
accounts- employers – again by theirs own accounts- and university representatives can
access an Internet portal (http://portal.rmu.ro) to check the data (Fig. 2).
In this way when a student or graduated student apply to a job, the employer easy can
check the future employee by accessing the NSER portal (Fig. 2).
Student Login Area
Fig 2. NSER Portal
Institutions/Employer
Login Areas
Fig. 3 NSER Client
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The main problems that results from managing such a system was that all or almost
all universities had already a informatic system developed locally.
That means the administrative personal had to add the same data in two different
systems because the NSER database is somehow closed from external clients.
Another thing was that all the select fields were not updated with all the information
needed. To update or add a field to a select field, the procedure takes almost 5 weeks. In this
situation adding data is quite difficult. There is an import component but is way far from be
sync one.
When the data is added for a year and you have to start another year the first thing to
do is to download new tables for select fields which are added as new tables. Let say that you
work for 2011-2012 and you have a table, for example, country2011-2012. If you continue for
2012-2013, you will have another table country2012-2013. This way is wrong. Suppose you
work for 10 years. You’ll have 10 tables for country. And this just for one field.
From my experience with NSER, when you export the data to central database, you
sign the data package digitally but after the send action you don’t have nothing, no prove, that
the export was done successfully (Fig. 4). I say this because on the first export I send correctly
the data but in the central core an error deleted the data. To say more, the date was recorded to
a different institution (Fig .5).
Fig. 4 Success on exporting data
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Fig. 5 Exported data to a different institution
As a solution we added some new indexes in local informatics system (not NSER) to
solve some issues.
CONCLUSIONS AND IMPLICATIONS
This system is now on a right way of development but is far away from a mature
system. As a future development I say that local informatics systems should be linked with
NSER database and the client just need to validate student personal information.
All the systems should follow the local system and when an ID student is manipulated
in some way (expelled, transferred etc.) the data sysnc. in both databases. This development
will be managed in a different paper.
REFERENCES
1. Olteanu Cosmin (2009), „National unic number registrar. Utopy or “a must have” Lex
et Scientia, no. 2 , 2009, pag. 514.
2. http://www.rmu.ro
3. http://portal.rmu.ro
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MATERIAL DELIVERY TO CONSTRUCTION SITE: ISSUES, PROBLEMS AND
THE WAY OUT
Abdelnaser Omran;
School of Housing, Building and Planning, Universiti Sains Malaysia
Abdul Aziz Hussin;
School of Housing, Building and Planning, Universiti Sains Malaysia
ABSTRACT
Materials are often ordered either very late; invariably leaving the supplier with
uncertain demand and high material buffers to guarantee service level; or too early leading
to buffering at the site… The aim of this paper is to review some issues, problems and propose
solutions for managing material delivery to construction site.
Keywords: Material delivery, construction site, problems, issues, Malaysia
1. INTRODUCTION
The aim of construction site management is to coordinate and control several
important things to achieve the successful project in construction. The construction project
management was divided into five elements which are money, manpower, machine, material
and method. Those elements need to manage effectively and systematically to produce the
higher quality of the product. In project management it include of the material management
that important resources need to manage effectively in construction project. The management
of the material can be divided into two process which material delivery and obtain material.
When the problem of material management arises, it can gives impact on the material
management and thus it will affect the overall project management. For example, if the
delivery of the material is late so the project will delay and thus it can increase the cost of the
project because the time period of the project is lengthen. The material is one of the elements
that contribute in a large amount of the project cost. So, minimizing the material cost will
reduce the project cost. To minimize the project cost, the facilities can used to manage the
materials such as infrastructure, communication, technology and transportation and
connection. To produce the high quality and effectively management, the project management
can be done through the 5M which means:
A) MONEY
The management of the money is important to avoid any loss and uncertainty cost.
The main objective of the money management is to ensure the cost spends is not exceed the
budget of the project. At least the cost spend did not exceed the cost of tender. The overall
budget of the project involve the labour cost which is the maximum used of the labour with
minimum cost .This can be achieved from the effective of the arrangement work by labour
division (Mohsen, 2006). Besides that, the budget from the purchase of the material and the
budget if the work has any changes also consist in the project cost management. The benefit
in cost management is control the cost of the project which means the efficient use of plant
and equipment, low cost used by client and maximizes the profit to the contractor.
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B) MACHINES
Machines are the equipment need in construction project. The objective of the used of
the material is to shorten the construction duration, reduce the cost and labour use and
increase the quality of the material .If the contractor have their own equipment is more
easily for them and it can keep the company image. But to have own equipment need to
examine first because it involve of the high capital. To have the equipment need set up to
prepare the services such as maintenance, rental and others. Then, the management needs to
ensure the policy to establish the company is to lengthen the life cycle of the equipment in
construction operation. Then, the management of the equipment is important as one of the
resources in construction activities (Mohsen, 2006).
C) MANPOWER
The manpower involve in construction industry are divided into two categories which
is professional worker and not professional worker. Example of the professional worker is
architect, engineer and quantity surveyor while the worker that not professional is skilled
worker, semi-skilled worker and unskilled worker. So, the construction industry involves
many individual and each of them has their own roles. The management to the manpower
involves so many interactions between them and if the interaction is going well, then the
implementation of the construction project can be done effectively.
D) MATERIAL
Even though the project is different, but the resources needed such as material is same.
Example of the material is concrete, wood and others. The effective use of the material can
achieve the objectives to ensure the entire material deliver to the site complement with the
work that want to implement with the right time, good quality and within the cost of the
project. A good management of the material involve of the schedule, application process,
order ,reception, storage and the material safety .Even though the delivery process from the
supplier but the concern from contractor is need to ensure the effective implementation of
material management.
E) METHOD
To produce the successful project and high quality product within the time and budget,
the choice of construction method should be suitable with the type of the project. In
addition, the worker should deliver the proper work method by following the guidelines and
procedures provided.
Recently, the construction industry is growing well as many construction firms are
compete against each other to get the project and perform the best work quality to produce
high quality of product. But, whatever it still have the problems that need to face by the
construction players .For example lack of material supply. This problem occurred because of
the simultaneously demand from the contractor. Thus, the construction industry still can
overcome this problem which is the adaptation should be made to face the late delivery of
material to construction site. In addition, the lack of material supply that usually occurred, the
industry overcomes this problem by import and the manufacturer will increase the stock in
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order to fulfill the increasing demand. However, the government action needed to limit the
market manipulation that may cause by the manufacturer or supplier behavior. Thus, in this
topic, we will specific on material delivery to construction site. As discussed before, the
material delivery is one of the process material management. In managing the material, it is
important to make sure that the material delivered to construction site within the time. The
late delivery will distract the process of construction project. Figure (1) shows the process of
material before it delivered to the construction site.
Prepare the tender
document
Tender duration
Tender obtained and
valuation of tender
Contract for materials
Quality guarantee
The control of material
production
Material obtained
Figure 1: Process of material before deliver to the site
The great competition causes the price or money as the main factor in their success of
bidding the work. Usually, low quality of material is used in order for the contractor to save
cost. In Malaysia, most of the material has the certified quality standard. The low quality
factor usually is not the main factor that will affect the growth of construction industry. But,
in many case the escalation of material price will affect the implementation of the project.
There are many challenges that construction industry should respond to. In competitive
industries firms always have cost saving requirements. Construction firms are also facing the
increasing pressure to shorten their delivery times. However, construction firms cannot
develop their business processes alone. Construction industry is an explosive industry where a
special end product is assembled from generic and specific components by the help of dozens
of subcontractors. That is why partnering approach is needed when developing material
delivery processes in the construction industry (Tutu, Samuli, 1997). Then, there are many
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issues and problems occurred in construction industry in various aspect and scope. Whatever
the problems occurred, there are always have the solution to solve those issues and problems.
2. ISSUES, PROBLEMS AND SOLUTIONS
There are several factors that contribute to the failure of managing a project, among
them are lower profit gained than expected due to waste in cost control, delay and penalty also
product/new material introduced are manufactured late and causing effect on project schedule
(Russel, 1976). However according to Vrijhoef and Koskela (2000), Materials are often
ordered either very late; invariably leaving the supplier with uncertain demand and high
material buffers to guarantee service level; or too early leading to buffering at the site. A
research done by Mohsen (2006) has identified several issues regarding material delivery as
the following:
a) Late deliveries
b) Escalation in material prices
c) Delay in ordering material
d) Damages on ordered material
e) Problems with the quantity of material
The issues given have shared the same end result where when all of it occurs it would
lead to delay in construction. The problems and solutions from each issue are elaborate further
in detail as we move on.
2.1 PROBLEM WITH THE ORDER MATERIAL (LATE DELIVERIES)
Late deliveries of material to the site is something that can disturb the ongoing project,
this problem happen due to the late ordering the material. Late deliveries required crews to
move to other works areas, halting the production at one area and requiring startup of new
work activities, also, shortages can stop crews from working, forcing workers to be laid off
for short periods of time. This commonly happen because of project manager lack of planning
production, it happen when there is no proper planning of material that have intension of long
period of deliveries. To get on time deliveries proper planning for a material expediting is the
best insurance for on-time deliveries, all purchase order need to include a delivery date based
on the project schedule, and early order can cause early deliveries that can cause problems
with the storage and adverse effect on project cash flow. Major material usually are ordered
within days f signing a construction contract, the purchase order should state that the job site
is to be given at least 48 hour notice of a delivery so that adequate preparation can be made at
site for off loading, inspecting, storing or directly installing the material. The material
supplier may be responsible for incomplete deliveries improper material delivered, defective
material, and late delivery of material. Confirmation with the supplier prior to delivery is
helpful in receiving the proper material for the project. Some material contracts and purchase
order have provision for back charging the supplier for damages. This can be happen when
the supplier cannot fulfill the requirement in the contract that have been agree before, so the
contractor can claim for the loss or damage happen due to the contract. The case like this have
happen before like the case of Ching Yik Development Sdn Bhd v Setapak Heights
Development Sdn Bhd (1996) 3 MLJ 675.
2.2 ESCALATION IN MATERIAL PRICES
The escalation of material prices are not a new issue in Malaysia, the construction
industry have faced with ongoing price escalation due to several factors such as the increased
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of fuel has affected other material to share the increment due to transportation, the increasing
price of metal and these unfortunately would contribute to delay which we all aware off are
consuming money and increase the construction cost. Researcher from Ghana (Frimpong et
al., 2003) and Malaysia (Sambasivan & Soon, 2007) has shared same factors that contribute
to delay which is the escalation of material price and the shortage of material. Delay in
construction industry contracting can be both psychologically and financially destructive.
Whether the delay results from an act of God, breach of contract by one of the party, or
differing site conditions, its impact on construction contracts is often catastrophic. The one
who will suffer the cost could be either contractor, client or could be both depending on the
contract and situations that would cause the delay. “Time is of the essence” has become a
common statement contained in the construction prime contract and subcontracts. Its
appearance mean that contract performance be started promptly and continue without
interruption until completion within specified time period. It was also shown in PWD 203A
2007 Standard Form of Contract clause 78. The words mean that the contractor or
subcontractor has an absolute duty to perform all contract requirements with no delay
whatsoever and is in material breach of contract for failing to complete the contract work
within the contractually specified time. Same to the proprietor that, these words also suggest
that if proprietor does not promptly review and approve shop drawings or promptly perform
other contractually specified duties has materially breach the contract. Numerous types of
delay causes can be categorized depending on the stages of project execution when the delay
took place and its consequences such as impose of various type of damages claim. This
defines the criticality of the delay in the overall project completion and its impact thereafter.
The construction delay can be grouped into three types:
i. Excusable delays: This delay is due to causes of delay beyond control such as unforeseen
events and also no fault or negligence in contractor’s part. It can be divided into compensable
or non compensable.
- Compensable delay: Delay caused by client or designer (architect or engineer) such as
design errors and changes in client’s requirements. A contractor is entitled both additional
time and compensation.
- Non Compensable delay: Delay that are not caused by client, designer, contractor,
subcontractor, supplier or other parties. Adverse weather differing site conditions,
unavoidable calamities, act of God and unusual delays in transportation are few examples. A
contractor is entitled to extension of time only.
ii. Non Excusable delays: Delay due to contractor’s weaknesses or not caused by the
contractor but should anticipated by the contractor under normal condition. Besides that, non
excusable provides no bases for recovery of either time or the monetary impact of the delay.
The contractor is the sole responsible party and consequently, they are not entitled to either
extension of time or compensation. However the client could be entitled to claim liquidated
damages from the contractor. The cause of delay such as late in material procurement,
financial difficulties faced by contractors, ineffective planning and scheduling, change
management and problems with sub contractors are a few example of non-excusable delay.
iii. Concurrent delays: This delay is due to the combination of two or more independent
causes of delay during the same period. Added that this delay occurs, at least to some degree,
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during the same period of time. Most of the time, this delay involves excusable and non
excusable delay. Therefore this delay may lead to disputes between contractor and client. The
contractor only entitled to extension of time or compensation for the excusable delay but the
penalty or liquidated damages for the non excusable delay. Many construction contracts make
the proprietor responsible for supplying materials and equipment to the executor. Should the
proprietor breach this duty or fail to provide the material or equipment in a timely manner, the
proprietor will generally be liable for delay damages. The proprietor may be able to shift the
responsibility for such delay however, by including an exculpatory clause in the contract
specifically to address this situation. Under PAM form (2006), this provision was given in
the clause 24.3(e) written as: ‘delay or failure in the supply of material and goods which the
employer had agreed to supply for the work’.
2.2.1 SOLUTION
Regarding the issue of escalating material prices, the government has agree to revise
the condition of changes in current material price where a Treasury Circular (SPP Bil. 3
Tahun 2008) where a Special Provision to the Conditions of Contract (Variation on Price) are
produce. However these are only applicable to government project. The purpose of the letter
(SPP Bil. 3 Tahun 2008) is to
To upgrade/modify the implementation of Condition of Contract (Variation on Price) that
was fixed in SPP Bil. 14 Tahun 1991
To Post pone the effecting date of Conditions of Contract (Variation on Price) SPP Bil.2
Tahun 2008 that was set on 12 th May 2008 to 1 st January 2008, and
To implement the government result to allow Special Provision to the Conditions of
Contract (Variation on Price) to project that implemented using Design and Build.
The usage of this new provision could also be used for other non government project
which could be included in the contract with the agreement between both parties. With this
provision the contractor could survive and continue their work without losing profit because
the provision are using the current material prices where fuel and steel are the main concern.
2.3 DELAY IN ORDERING MATERIAL
The primary goal of any construction project is the transformation of the expressed
desire of the owner into tangible artifacts that satisfies that desire. For such transformations to
be cost-effective, human and material resources have to be garnered and managed with the
highest degrees of efficiency achievable. Since any artifact of structure is much more than the
sum of the materials that comprise the structure, it stands to reason, that at the very least, a
prerequisite for cost-effective construction is the availability of materials at the time and
location that these materials are required on site. Notwithstanding anything to the contrary in
this purchase order and without prejudice to the right of the purchaser under this purchase
order and its entitlement to the said pre-estimated mutually agreed damages and in addition
and not in derogation or substitution thereof the purchaser shall be entitled to terminate the
purchase order in whole or in part without being liable to the seller in any manner whatsoever
or to have the undelivered portion of the equipment and/or materials to be supplied pursuant
hereto by the seller supplied and delivered at the risk and cost of the seller and without being
liable to the seller in any manner whatsoever if at the end of and despite 30(thirty) days notice
in writing the seller fails to deliver all or any part of the equipment and or materials to be
supplied pursuant hereto by the seller within and in accordance with the delivery schedule
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(the time for completion) including such extended period as may have been allowed by the
purchaser.
i) Case study: Freight delivery for the Alaska Pipeline Project
The freight delivery system for the Alaska pipeline project was set up to handle
600,000 tons of materials and supplies. This tonnage did not include the pipes which
comprised another 500,000 tons and were shipped through a different routing system. The
complexity of this delivery system is illustrated. The rectangular boxes denote geographical
locations. The points of origin represent plants and factories throughout the US and
elsewhere. Some of the materials went to a primary staging point in Seattle and osme went
directly to Alaska. There were five ports of entry Valdez, Anchorege, Whittier, Seward and
Prudhoe Bay. There was a secondary staging area in Fairbanks and the pipeline itself was
divided into six sections. Beyond the Yukon River there was nothing available but a dirt road
for hauling. The amounts of freight in thousands of tons shipped to and from various locations
are indicated by the numbers near the network branches and the modes of transportation are
noted above the branches. In each of the locations, the contractor had supervision and
construction labor to identify materials, unload from transport, determine where the material
was going, repackage if required to split shipments, and the reload material on outgoing
transport. (Au, 1998).
ii) Recommendation
Major materials usually are ordered within days of signing a construction contract.
The material delivery lead time determines the order in which purchase orders are prepared.
Therefore, special attention must be given to determining which materials will require the
longest lead time. Preparation of purchase order must be coordinated with the project
schedule such that timely delivery dates are specified on the order. Quality and quality
requirements must also be spelled out in the purchase order. The purchase order should state
that job site is to be given at least 48 hours notice of a delivery so that adequate preparation
can be made at the site for off loading, inspecting, storing, or directly installing the material
(Glenn & Richard, 2008). Simply placing a purchase order for material provides little
assurance that the materials will arrive on time. Proper planning for a material expediting
system is the best insurance for on time deliveries. All purchase orders need to include a
delivery date based on the project schedule. Early deliveries can cause problems with storage
and have an adverse effect on project cash flow. Late deliveries are worse.
Glenn & Richard (2008) said special attention is needed to ensure that shop drawing
are prepared, checked, submitted for approval, and returned to the vendor. Similarly, samples,
test, mill certificates, and other document must be approved. The control system for these
submittals must ensure prompt handling at every level. Once all approvals are in place,
manufacturing can begin. Fabrication schedule must be such that finished materials are ready
to be shipped, allowing sufficient time to get to the job site. Some materials and equipment
required inspection during the fabrication process or testing prior to shipment. These items
must be identified and a system must be in place to notify the proper inspecting or approving
organizations. While key materials and equipment are being fabricated, the expeditor should
contact the supplier for assurance that shipping arrangements have been made. Often space
must be reserved in advance on common carriers. Bills of lading and insurance also have to
be obtained in the advance. Some contractors require all subcontractors to submit unpriced
purchase orders to the expeditor. This allows the contractor to confirm that the material has
been ordered and to assist with the shipping schedule when transportation disruptions occur.
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At the project site, the expeditor and project engineer meet regularly to determine the current
status of material and to identify problem areas. Any potential delay in manufacturing of
shipping requires prompt action in order to avoid delaying the project. The longer the advance
warning of a material delay, the more options there are to work around the problem.
2.4 DAMAGES CONSTRUCTION MATERIAL IN DELIVERY PROCESS AT
SITES
Construction industry always faced with delivery material problem transferring at
construction sites. Materials that delivered by suppliers every materials obtained by them.
Damages of material at sites occur caused of common factors and identified of some factors
such as damages of process delivery materials at sites, damages of material storage process,
negligence of workers at sites while work delivery process material begin to supplier
companies until arrive to sites and used by workers to construction activities. Sometimes,
material damages also occurring from other situations in term of expectation problems on
material. In PAM 1998, Clause 1 6-9 has mentioned about materials management for
contractor and related material damages issue regarding to obligations of workers in
construction work especially in sites concern material management. Causes of Material
Damages are:
1. Damages caused of process delivery the material at sites;
2. Damages caused of material storage management process;
3. Damages caused of transfer work at sites;
4. Mistakes of works delivery process by workers; and
5. Unexpected problems upon materials.
i) Damages caused of process delivery the material at sites
According to four factors identified, main cause and more affecting quality of
materials occurs at sites caused mistake by workers when doing work at delivery process.
Most of them careless not are careful in managing, collect and storing material at sites. Also,
they are ignoring to safety and management procedures to handle materials in their work. This
occurs when they less a few knowledge of right procedures and regulations upon material
management standards outlined by Public Safety and Health at Construction Site 1994.
ii) Damages caused of material storage management process
When the materials are not in properly arranged, it may cause damage to materials and
obstruct the handling of mechanical plant. Materials should be unloaded and stored near the
point of use to prevent double handling of work. There is always a tendency for some of
material to be stored in wrong place. For example small and valuable items like door closers
and lockset, which are always stolen by workers or sub-contractors when stored in an open
store. Other example, material damages also occurs when storage process when workers
failed to handling storage work such location for store unsuitable, far to crane transferring
materials to store. Construction material that not classified according to specific
classifications where it keeps and storage will affect materials conditions. For example, soil
that will transfer used lorry need to keep and stored at clean place in order to avoid that
material spread to other places and mixed with another solid materials. According to Federal
Act 1972, if workers failed to arrange materials according to classifications, this will risks to
impact on material and damaged material in directly.
iii) Damages caused of transfer work at sites
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Material damages also occur when transferring work of delivery materials at site is
carried out. For example, transportation such crane to take away the materials to storage
location without beware and careful will damages when many materials not be pack and
binding in orderly. For example, bricks that carried out to sites will face to damages if not
handling well properly by workers. Bricks have soft surface and sensitive to stamp down
heavily on the ground and this risks to this materials to destroyed and damaged. Ignorance to
driver to be aware will affected quality on materials transferred to sites.
iv) Mistakes of works delivery process by workers
Act 1974 and the Management of Health and Safety at Work Regulations have
mentioned mistakes of work by workers are because some of them unfamiliar with task and
works transfer for them. This is will close to mistake of works by workers and will contribute
to failure works. In damages upon material at sites of delivery work process, the mistakes
would occur when workers not be careful and no expertise to do works. Usually, material
delivery works will do by workers. Most of them consist to foreign workers and less to right
procedures and rules to handling material delivery. Negligence of them always occurs because
they less technical knowledge and skills to perform works impacts of low communication
skills and understand how to handle materials properly. Mistakes such as careless,
misunderstanding, not utilize proper facilities during works of site workers caused delivery
work was carried out not complete well properly.
v) Unexpected problems upon materials
This cause occurs less of maintenance works and responsible by workers. Materials
that not control well and exposed to damages with another works at sites and sometimes
damages of materials also occurs with unexpected problems and uncontrolled. For example,
construction materials exposed to damage because extra materials such as mortar, plaster and
concrete was neglected and delayed and be hard and frozen. Sometimes seen the materials fall
down or spilled of nature conditions while finishes work such as painting, plastering and so
on affected to materials and contribute to wastage and damages (Azrul, 2004). Material
damages problem that occurs in construction site also investigated and also shown interface
using by 5M concept as below:
1) Manpower
Material damage occurs caused of manpower which local workers involved in
construction especially in site management. According to manpower concept in law
perspectives, material damages damaged and loss quality of materials caused ignorance of
workers to handling materials. Most of workers at sites consist of foreign workers who less
knowledge and procedure guideline fixed on material management site. This issue occurs
some problem on materials such damages, loss and wastage in activities at sites.
2) Material
Materials referring to sources for construction that supplied by suppliers to contractor
or owners delivered to sites. The materials such as concrete, soil, concrete, bricks and others
need to keep and maintain regard on quality and quantities to avoid problem such as destroyed
and so on. During the material transport to site, sometimes the material delivered to site
already damage, it may due to the poor packing causing by negligence of the workers. As a
result, material delivery with high quality such tile, brick and steels are broke and useless.
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According to Environmental Site Management Policy (2008), the material that transferred
need to use immediately or within a few days after delivery to avoid any damages occurred.
3) Money
Increase of cost to cover damage of construction materials by owner or contractors
impact of material replacement and new order material or bear for any lose upon materials
that delivered. Material damages contributed of careless behavior and transfer works problem
will lead to increase cost, repurchasing of new material for replace material was damaged.
Also, extra handling costs referring to production cost such transporting surplus material,
administrative cost and require extra cost directly will push up the production cost
(Edmeades, 1972).
4) Method
In this approach, method is refer to performance work by workers at site directly focus
on work material delivery management such as storage process, transferring and so on. In
delivery work material work at sites context, the method that used is storage management,
packing, bulk and palleted. All this method is used for ease of access and off loading in order
to ensure the materials can be subsequently moved, if necessary to their point of use
(Department of the Army, 1994).
5) Machinery
In this topic, machinery is used for transferred materials to sites using transportation at
site such lorry, crane and other material transport to site. But the material damage or broke not
pack properly and not handling well while load and travel to the storage contributed damage
and unload where delivery is self unload-careless handling into storage occurred
(Lllingworth,1993).
vii) Solutions
Material at site when delivered at site need to be managed with good construction
planning, build trusty towards the consultant and to avoid any bad consequences such material
waste, material damage and delay of delivery due to should take action and good solution by
the project manager or contractor roles. Below show some solutions to avoid material
damages at site either before delivery or after delivery. The suggestions to obtain benefits of
material management to contractors or project manager or others parties involves are include:
1. Buy a little amount at a time;
2. Need a small storage capacity;
3. Reduce cost to build a bigger storage;
4. Reduce of material waste due of uneven storage capacity; and
5. Reduce material damage due to long period of time of keep it.
viii) Recommendations
Material storage on site in term avoids damages or loss of materials which adversely
affect the operation of the construction project. According to Chanter (1993), problems
always arise during materials supply or delivery at sites because of the improper storage and
protection facilities. Some suggestions have been listed of previous studies on building
material in order avoids due damages, loss and wastages. Stukhart (1995) has suggested
material delivery at sites require a large storage capacity which is rarely available on site. A
few considerations need to take in the planning of the storage space such as timing of the
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initial buy, and historical information and experience. For material delivery effectively, good
access for material deliveries should to implement and practice by workers. Comprehensive
facilities transport arrivals and departures for large quantities and for large volume by pipeline
need to apply in order to avoid damages and improve material management at construction
sites. The potential of IT applications that provides a basis for developing an effective
framework to support the improvement of material management such damages, wastage and
others problem can applied by workers or people involves in construction sites. A schedule
needs to provide to ensure material management at sites controlling and keep material in long
time. According to Chartered Institute of Purchasing and Supply (1985), material
management of delivery process need to material storage management to avoid excess of
materials delivered to site creates lot storage problems, if the material are delivered too early
on site, the risk of material damaged by progressing work is reduced.
2.5 PROBLEM WITH THE QUANTITY OF MATERIAL
Problem with the less quantity of material that have been order is always happen in the
construction site, due to this problem the contractor need to bear a loss for this problem. If the
material is less than the needed material on the site, the project or the site progress will be
disturb and can cause delay happen in the construction of project. Job site management is
important because it needed to ensuring the amounts of material arrive in the site is enough
for installation and for the appropriate jobsite storage for material. For this kind of problem
can be cope if the contractor make a contract with the supplier and put the term that need to
fulfill by the supplier, if the supplier cannot fulfill the requirement that have been stick on the
contract, the contractor can claim any damage (Section 76 Malaysia Contract Act, 1950).
This kind of problem in the law we can call it as a breach of condition. And, if the supplier
refuse to perform the term and requirement that been ask by contractor, so the contract will
end like that (Section 40 Malaysia Contract Act, 1950).
CONCLUSIONS
Construction Industry in Malaysia is important sector in developing economic growth.
In construction industry many matters is carried out as common issues. One of common issue
that always occurs in Malaysia Construction Industry is about material delivery management
process in sites. Material delivery process as a process that involves receiving material
process in construction site of owner or contractor firms from supplier transfer to them as
necessary for project implementation. In delivery material problem, some problems and issues
have to identify in construction industry and this issues always happened to most company
during delivery and receiving process for their material inputs. Many causes identified
contributed for material delivery problem include problems of delays in order materials,
increase material price, damage material, quality and quantity problems and accurate data for
material ordering by owners and contractors. The problems and issues that have been outline
are used to find out good solutions to solve this problem in order to avoid repetition problem
that could affect materials management process and increase problem in project management
directly. Further, a case study also carried out to ease understanding this issue. For each
problem that identified related to act and regulation in construction laws perspectives which
underline clauses and act as a guidelines to supplier and stakeholders in term following
regulation related to material management. Problems of material delivery in sites are common
issue and should to take noted by people that work in construction industry especially local
and foreign workers that most responsible to material delivery work process. According to
this problem, a framework has created and outlines as a recommendation to ensure problems
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of material delivery process is handled properly. For examples provide large space for
management storage, Just –In -Time technique (JIT), Material management system (MMS)
and so on.
REFERENCES
1. Sambasivan, M., & Soon, Y.W. (2007). Causes and effects of delays in Malaysian
construction industry, International Journal of Project Management 25. 517–526.
2. Soon, TK.. (2010). Dispute Resolution in Relation to Delay of Construction Project
,19-24
3. Abdullah, M.R., Abdul Rahman, I., & Abdul Azis, A.A., (2010). Causes of Delay in
MARA Management Procurement Construction Projects 1-6.
4. Abang Mohsen A.A. (2006). Pengurusan Bahan : Masalah Penghantaran Dan
Penerimaan Bahan Di Tapak Bina, 35-38, 56-62
5. Rajoo, S. (2008). Arbitration in the Construction Industry 76
6. Frimpong, Y., Oluwoye, J., & Crawford, L., (2003). Causes of delay and cost overruns
in construction of groundwater projects in a developing countries; Ghana as a case
study, International Journal of project management 21: 321-326
7. Au, H.T. (1998). Project Management for Construction. Carnegic Mellon.
8. Glenn, S.K.S., & Richard, H.C. (2008). Project Management (Vol. Fifth Edition).
Canada.
9. Kasim, N.B., Anumba, C.J., and Dainty, A.R.J. (2005). Improving Materials
Management - - Practices on Fast –Track Construction Projects.
10. Ping, T.S. (2009). Material Waste in the Malaysian Construction Industry,
Unpublished MSc Thesis, Universiti Sains Malaysia.
11. Sharifah Maszura Syed Mohsin; Benefit of material management
12. Treasury Circular (SPP Bil. 3 Tahun 2008). Special Provision to the Conditions of
Contract (Variation on Price)
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TIME INCONSISTENCY AND PUBLIC POLICIES
Case study: The public pension system in Romania
Răzvan Papuc 1
University of Bucharest
ABSTRACT.
The sustainability of the national pension systems represents an issue of continuous
interest, both for the economies that conceptually include themselves within “the European
social model”, and for the economies that are conceptually closer to the paradigm of
“marginalism” in the social public intervention, given the importance of public policies within
this area for the individual and collective welfare.
The accumulation of some unsustainable public deficits on the long term, due to several
budgetary policies that reflect the lack of fiscal discipline, but also a certain captivity of the
political class towards its own elective interests, the aging population, the low fertility, the
sectorial public policies with mediocre and inconclusive effects on the increase of the number
of employed individuals, but also the numerous bankruptcies of private pension funds and the
increase of poor within pensioners, are just some of the most important socio-economic
circumstances that have enforced a facon Derrida deconstruction of the support policies for
the third age.
The purpose of this paper is to “draw”, based on the example of the national public
system, the coordinates of a “foretold death”, but also to understand that support policies for
the third age in Romania, and especially the retirement policies, represent examples of public
policies affected by the “time inconsistency” (Kydland and Prescott, 1977), whose central
issue is the credibility and lack of efficiency on the long term.
Keywords: time inconsistency, moral hazard, public pension systems
Improperly called support policies for the third age - because it creates the impression
of a voluntary and benevolent act of the state or other agents, for those in post-employment –
public policies and institutions for managing pension contributions have been, for a long time,
the constant sectorial expression of what we call a crisis situation. Its connotations, which are
among the most diverse, from the multiannual fiscal deficits to the efforts to recover the lost
time of the thematic national legislation, make us face the need for an effort to signal 8 the
resources of such situation.
The public policies in Romania from within this field, also bear the marks (as
important as those of any other economy) of the crisis situation, being able to help us to signal
accurately, what else (except for the demographic or fertility decline) and they explain the
unsustainability of the public social security systems. Twenty years of traceability and history
of the food of a crisis, represent a period of time that cannot be ignored, where only the
aforementioned variables with all their explanatory force are not sufficient to explain, based
on an elegant statistics, a phenomenon of such magnitude and complexity. For an effort of
honest deconstruction (in other words, the comprehension of the current situation by its
relations with the various contexts in which it was formed) economics and demographic
analyzes can and must be accompanied by the support brought to the theories of politics and
8 The term signal is taken from politics and raises the question of agents’ rational behaviour, depending on the
credibility of the signals.
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the theories of public administration, something we shall try to accomplish in the following
pages.
THE CREDIBILITY ISSUE OF THE SOCIAL SECURITY POLICY
From the beginning, public policies, constitutive institutions of welfare states were
governed by the objective of improving some groups’ from the society socio-economic
position, based on the principles of the paretian optimum. Within the institutions of political
pluralism, redistributive policies have been for a long period of the twentieth century the
expression of a balance achieved between competing interest groups in society, qualified by
different categories of representative techniques. This type of sui generis communion was
argued by Olson who, in 1965 demonstrates that because of the free-riders, the interests of a
few are more likely to organize in special interest groups than in the case of large groups. This
thing determined the accumulation at national level of such small groups that were draining a
greater share of the Gross Domestic Product (GDP) for their own interest, situation which
affected the GDP growth and the redistribution logic. Thus, pursuant to Olson’s logic, for
the pension systems, military or judiciary pensioners – small interest groups - were in the
position to obtain higher pensions without contributing to the costs of this situation as well,
more precisely, a larger contribution or at least age limit retirement existent at national level
for all the other groups.
Not the same thing happens with large, heterogeneous groups, with sectorial interests
that are difficult to build-up, like employees that constitute for example, different categories
of public sector employees. Therefore, instead of improving the allocative situation of the
groups defined as disadvantaged, the situation of the special interest groups is improving, fact
that questions the purpose of redistributive policies, giving way to an approach that brings
forth the efficiency of public policies, alongside with their credibility.
In order to be efficient, public policies must be credible, in other words, they must be
independent from a government’s discretionary policies. Kydland and Paterson (1977)
showed that fixed, over-contextual rules, binding commitments are those that make public
policies credible, because political discretion leads to “time inconsistency”, the motivations of
the parliament and/or government decision makers differ in various time spaces.
We believe that the main problem of the third age policies in Romania is the
credibility because of at least two reasons:
1. First, we are talking about the emergence of the time inconsistency as a result of the
analysis of public decisions regarding the system, translated into: (i) the large number of
discretionary rules during the twenty years of reform, that have created an response behaviour
governed by moral hazard from those that are targeted (ii) the inability to deliver effective
immediate budgetary results (for example, by reducing the deficit).
2. Second, it is the lack of decisive rules (meta-legal) to govern any new political
decision on a system as to not allow a new decision maker, representative of a new coalition
of interests, to achieve “an alternative redistribution pattern” 9 .
The changing and seasonal nature, depending on the electoral cycle of such policies
which are generating huge transaction costs, will have to be replaced by a continuity policy in
which bodies that are independent from electoral seasonality to pursue a redistributive policy
to meet the constraints of efficiency and vice versa, an efficient one to be able to also satisfy
9 G. Majone, Public Policies and Public Administration: Ideas, Interests and Institutions, in A New Handbook of
Political Science, Robert Goodin, Hans Dieter Klingemann, Polirom Publishing House, Iasi, 2005.
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redistribution criteria. Even if, during the socio-economic development, we can find ourselves
in the situation of incomplete contracts, of regulating contracts that are not regulating
new situations to follow, the solution will have to be the one that in Williamson’s language
is called “relational contracting”, meaning a contract with precise and clear objectives and
criteria, without any factual details - a “constitution” over a particular situation. For example,
within the pension system we shall not stipulate fixed numbers, such as percentage of
average wage over the last twenty years as pension value or the average pension to represent
50% of the gross average wage, but we shall agree on some criteria such as: the pensions of
all socio-professional categories will be awarded based only on the contributiveness criterion,
without exception. Fixed number will be replaced by a fixed rule – the motion of a regulatory
technocratic and conceptually impeccable institution where political circumstances shall not
dictate the content and significance of the rule.
1. TIME INCONSISTENCY
Within psychological analysis, the term procrastination is used to express a
behaviour characterized by avoiding or delaying taking high priority decisions in favour for
some smaller and less important ones. Explanations for such behaviour are the most diverse,
from the emergence of anxiety together with the development of major projects, to those that
ascertain that we are not genetically created to negative emotions. This type of behaviour
alienates itself from the efficiency principles underlying modern organisations, among which
the orientation towards solving problems is the most important one. The retrospective result
of such behaviour is represented by the time inconsistency of personal decisions or decisions
that involve the organization or what the organisation where the individual works involves by
such behaviour.
The public sector economy and the analysis made on the public policies, the result of
the public decisional behaviour as the one mentioned above is known as time or dynamic
inconsistency. The most important problem attached to this concept is the fact that in the
discretionary public decisions, the selection of that decision which is considered to be the
best does not result in the social objective function being maximized. The reason for which
this paradox occurs is that “economic planning is not a game against nature but, rather, a
game against rational economic agents” 10 . In other words, public decisions must be judged as
being reasonable in relation to a set of preferences expressed by a target group rather than
rational in themselves. The current decisions of government agents depend largely by their
expectations regarding future public policies actions and their results. They do not represent
the image of some invariable expectations as they are postulated by the classical theories of
public administration and therefore, iterations of the same optimal decision at a given time.
Administrative change determines simple iteration not to be possible because new governance
brings other redistributive policies to follow and other social practice. Therefore, any change
in policy will also alter the structure of the precedent rules. Even if the new rules converge
with the old ones, as Lucas demonstrated (1976), the results will be suboptimal (for example,
if at the beginning of a year, an administrative authority announces a certain target in regards
with the inflation rate at the end of the year and a certain type of support policy for
accomplishing such target, the agents’ expectations on the future development of prices will
determine a change in their current behaviour with cumulative effects on the general level of
prices, faster than those expected).
10 F. Kydland and E. Prescott, Rules Rather than Discretion: The Inconsistency of Optimal Plans. The Journal of
Political Economy, Vol. 85 (3): 473, 1977.
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At a certain time, the decisional coherence does not induce the optimality of the social
function as well. If at a certain time there are in economy major expectations on increasing
the unemployment among the population over 50 years, authorities may decide to reduce
social and financial costs of such situation by setting up the rule of early retirement. The
implemented rule, which is now coherent, can generate major negative effects in a not very
distant time horizon, by increasing imbalances of the social security budget and therefore
financial transfer efforts from other categories of public budgets. Different generations have
different preferences and even if at a certain time, authorities have taken the best decision,
considering the preferences of that generation, the result is the emergence of time
inconsistency.
Within the public pension system in Romania, time inconsistency can be observed in a
very rich production of public policies in the field 11 after 1990.
First, it is the large number of legislative provisions; we can consider them “THE BEST
DECISIONS” in accordance with the preferences of those generations. 60 laws,
orders, and decisions in the field were issued only between 2000 and 2011. They aimed at:
- the modification of the module for the calculation of pension - (for example,
calculation based on the pension point - only for 2001-2010, 28 normative acts have
established the value of the pension point), adjustment from the gross average wage
forecasted for the current year, adjustment from the inflation rate, decoupling from the pay of
those active for the military pensions);
- the modification of the retirement age and working groups - Decree-Law no.
114/1990, Decree-Law no. 68/1990, Order no. 50/1990, Law no. 73/1991, Law no. 80/1992,
and Law 2/1995 on early retirement, Law no. 86/1997, Law no. 19/2000, Law no. 341/2004,
Law 226/2006, Law no. 250/2007, Law nr.263/2010 – at the end of the ninth decade, 3
million individuals, ten times more than in 1990, have beneficiated from the reintegration in
the more advantage work groups I and II; Another result of this legislation is the existence of
1.83 million, meaning approximately 33% of total have an incomplete contributiveness stage
(2011, National House of Pensions and Other Social Insurance Rights (CNPAS) statistics);
- the modification of the legislation on the retirement rights of positively
discriminated groups.
Throughout the period after 1989, approximately 80 normative acts have regulated the
special pension system 12 . By pensions of the positively discriminated groups pension we
understand: the state military pensions, state pensions of policemen and civil servants with
special status in the prison administration system, service pensions of the specialist auxiliary
staff of the courts and prosecutors' offices attached to them; service pensions of the diplomatic
and consular staff, service pensions of parliamentary civil servants, service pensions of MPs
and Senators, service pensions of civil aviation personnel employed in civil aviation crews
and service pensions of the Court of Auditors’ staff. The pension rights of these categories
have become legal based on the transformations of some provisions from the professional
statuses within the respective domain. Such changes in the institutional build-up and logic of
group preferences in the form of some discriminatory legal provisions took place mainly after
the enactment of Law 19/2000. The contributiveness principle was replaced with different
calculus formulas taking into account: the wage income for the last month (for judges), the
average wage income in the last three months for staff in civil aviation or the number of
mandates for members of parliament. These “reasonable” formulas have lead to pension
11 National House of Pensions and Social Security - Legislative Department, 2011.
12 A. Paul (Vass), About pensions, with the analytical balance (I and II), Centre for Economics and liberty, 2010.
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values of up to 85% of the income before retirement. Also, the discretionary rule of the annual
growth of pension based on the average gross wage was amended by the group
“preference” for the development of the wage income category to which such groups
belonged to. Law no. 164/2001 on state military pensions and Law no. 179/2004 on state
pensions and other rights of the policemen have regulated based on the “separate table”
principle, the right to the benefits determined by the end of the employed person status.
As the table below shows, in 2011, the beneficiaries of special laws were the following:
Table no. 1
Beneficiaries of special laws Total number of
beneficiaries of special
laws
723.626
Number of IOVR (disabled, veterans and war widows) 14.786
pensioners
Number of war veterans and widows 307.876
Number of beneficiaries of the Decree-law no. 118/1990 69.228
Number of beneficiaries of the Law no. 42/1990 441
Number of beneficiaries of the Law no. 341/2004 4.972
Number of beneficiaries of the Law no. 189/2000 117.278
Number of beneficiaries of the Law no. 309/2002 209.045
Source: CNPAS, 2011
Of these, 77,000 pensioners were registered only in the military pension system,
having average pensions over 2,000 lei, contributiveness stages up to 25 years and maximum
age of retirement of 55 years.
Analysing retroactively “the best solutions”, we can ascertain the following:
a. Regarding the legislative measures taken in the ‘90s, they aimed at “a
transformation” of the employed population from potential unemployed to avant la letter
active pensioners. The retirement policies constituted the public authorities' response to
structural changes in the national economy. Faced with the premises of major imbalances on
the labour market, as a result of reducing the activity within the traditional industrial sectors
(mining, chemical and petrochemical, machinery, steel, etc.), but also within agriculture,
public authorities have responded with retirement policies that aimed at early retirement.
Thus, in the following tables we can observe the following developments of the number of
pensioners:
Table no. 2
Period 1990-1992 1993-1996 1997-2000
Number
pensioners
GDP
billions)
of
(USD
+ 600.000 +1.100.000 +700.000
40.8 28.9 19.6 26.3 30 35.4 35.3 35.2 38.1 35.6 37
Source: National Bank of Romania (BNR), 2011 for GDP, CNPP for number of pensioners
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Table no. 3
Period 2001-2004 2005-2008 2009-2010
Number
pensioners
of
GDP (USD
billions)
+100.000 -350.000 -20000
40.1 45.8 56.9 73.1 98.6 121.9 166 200 161.1 161.6
Source: National Bank of Romania (BNR), 2011 for GDP, CNPP for number of pensioners
The relationship between the evolution of GDP and the number of pensioners reflects
a strong inverse correlation between the two indicators for the ninth decade. Thus, in the first
period, there is a strong correlation between the two indicators – the correspondent of the
decline in the GDP from USD 40.8 billion in 1990 to USD 19.6 billion in 1992
(approximately 50%), was the increase in the number of pensioners by 17%, only in the first
months of 1990 the number of pensioners increased by 400,000 individuals; in the period
between 1997-2000 for a growth in GDP from USD 35.2 billion to approximately USD 37
billion (approximately 5%), the number of pensioners increased by 700,000.
The absolute and light growth in the number of pensioners from the following period
was due mainly to the effects of Law no. 19/2000 which introduced more stringent
requirements on retirement, but also the development of public policies within the more active
employment area by Law 76/2002. At the same, during 2000-2008 the number of pensioners
in the agriculture has been cumulatively reduced; the number of those over 64 years old has
decreased in the reference from 1.75 million to 890,000.
Among the most important legal provisions, that are producing time inconsistency in
the ninth decade, we mention the following:
• Government Decision no. 267/1990, by which the retirement age for mining
personnel was set at 45 years, its provisions being applicable to other industrial enterprises for
10 years. Together with the industrial sector discrimination on the right to retirement, the
respective legislative provision has created discrimination between members of the same
industrial sector as those who retired before the emergence of the legal provision received
recalculated that were lower by 30%.
• Decree-Law no. 60/1990 on the reduction of the minimum retirement age both for
men and women to 55 and 50 years respectively.
• Law no. 80/1992 concerning the pensions and other rights to social securities for
independent farmers and forest landowners.
• The methodology for calculating pensions based on the average wage over the last
five years has been marked by time inconsistency because, given the economic conditions,
with hyperinflation, pensions have become bigger than wages, and the pyramid of income,
based on the professional training level, has become just another academic concept, because
former employees received bigger pensions than the former hierarchically superior received
several years ago.
• All legal provisions on the calculation of pension rights.
b. The amendments in legislation on the work groups and reintegration have
been made based on the fundamentals of power resources theory and not on impact and
technical analyses. The trade union pressures from the early years of the ninth decade
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showed the preferences in terms of public policies in the field and somehow determined
central authorities to issue decisions reflecting time inconsistency. The problems of the
collective actions were once again reiterated, “rational” agents not being able to create an
efficient social institution with the purpose of creating a “fixed rule” to produce both systemic
efficiency and group welfare. Thus, Order no. 50/90, also known as “Reintegration Order” 13
determined the reintegration of approximately 3,000,000 Group III jobs into higher groups,
which implicitly led to the integrally artificial diminishing of the contribution periods for age,
up to 12 years. Such legislative provision produced a moral hazard, beneficiaries assuming the
risks of smaller future income for “the safety” of the pension, thus distorting the decisions of
the labour market, but also the individual decisions on whether to be employed or to be
assisted. This decision also created another form of moral hazard that left its marks to the
current day, namely through transactions with certificates of employment in jobs with higher
group. The criminal risks of false statements were perceived as being smaller than the
opportunity to quickly obtain a pension. Article 6 of the aforementioned Order sets forth a
problem of this type of decision, namely, the institutional negotiation at a microeconomic
level, established by the central decisional rule as one can see from the following statement:
“The nomination of persons falling within working group I and II is done by the management
of the unit together with the free trade unions from the units, taking into account the
particular working conditions in which the concerned individuals (the level of the existing
noxae, the unfavourable microclimate conditions, physical or nervous overstrain, special risk
of explosion, radiation or infection, etc.)." The job integrated into a certain working group is
the result of the agreement between interest group existent at a microeconomic level and,
under no circumstances, it is the result of an objective, technical and independent
analysis.
c. The time inconsistency of public policies from this period can be emphasized
also by another indicator, namely the increase number of the individuals who benefit
from invalidity pension. This situation is also the expression of moral hazard. The lack
of consistency of decision-making authorities within support policies on aging has led to
unprecedented risk-taking behaviours, assumed by both potential beneficiaries and the
expertise authority. If in 1990 from 3.6 million pensioners, 208,000 were benefiting from
invalidity pension, meaning 5.8% of total, in 2011 from 5,700,000 pensioners, 833,625 are
retired on invalidity, meaning 15.6% of total. Only in the period 2001 - 2011, 30% of all files
submitted for retirement were based on debilitating diseases, and this situation reached its
peak in 2001: 45% of the files. The main categories of debilitating diseases represented by
cardiovascular diseases 28.44% and by mental disorders - 19.23% and neurological disorders
- 9.6%, according to data provided by CNPAS (National House of Pensions and Other Social
Insurance Rights). The above mentioned distribution by categories of debilitating diseases
raises question mark especially if we observe the high proportion of mental disorders in their
total, but also the fact that recent inspections of the Ministry of Labour and Social Protection
revealed the existence of numerous violations of legislation.
d. Law 19/2000 and Law 263/2010 represent the most important Romanian
contributions to “the reform” of the pension system, the last repealing the first one, while
accepting most of the provisions thereof. From a technical point of view, such provisions are
13 Nistor, I. (2011), Romanian public pension system - between reform and social justice, [Online], Avaible:
http://www.aipensie.ro/?page_id=420.
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mostly the results of technical expertise rather than the inclusion of group “sets of
preferences”. However, there are several major elements that carry further the series of
decisions affected by time inconsistency. First, several systems of parallel retirement remain,
such as those above mentioned within this paper, hence the validity of a presumption in
regards to the existence of a monopoly over the agenda and a “winning set” (in the sense of
Weingast, 2005) of the “group”. Secondly it is a “formative” problem, the hard interpretation
of the principle of contributiveness (establishing equal pensions for equal contributions) being
replaced by a soft one (as a mandatory payment of contributions). Thirdly, some provisions of
the law, which created the possibility of diminishing the dynamic inconsistency, were
withdrawn in the following months as if to emphasize the changing nature of the policies
formation process (Majone, 2005). Thus, the legally, budgetary and politically correct
sentence-promise to calculate pensions only for periods where social contributions were
paid, was replaced with one that produced moral hazard where it was stated that the
contribution period consists of periods for which social contributions were due. 14 The
effects of such difference in meaning between the words “paid” and “due” left room for
maintaining a low fructification of the mass of taxpayers in terms of higher collection rates.
The formula “required contribution period” used throughout the law in order to regulate
the status of the self-employed persons’ contributions to the public pension system represents
another expression of the enactment within public retirement policies of the arbitrary
discretionary decision as long as the criteria for substantiation were not related to
contributions paid by the insured (for example, the date of birth).
2. THE DECISIVE RULE. HOW TO ENSURE DECISIONAL LEGITIMACY?
Modern theories of public administration, from the new institutionalism to the theories
of public managerialism, emphasize the importance of public institutions’ legitimacy, the
decisions taken by public institutions to ensure their survival when facing the pressure exerted
by other organizations, what we call “peer pressure” public management. A public
institution, such as the public pension system, can survive and perform even though the
decisions taken by the management authorities are perceived as being legitimate by the
beneficiaries of such decisions. A beneficiary of a public decision will act towards the
compliance of a public decision, not because he visualizes the image of a possible punitive
sanction should he transgress the rule, but because between him and the institution a
conceptual bonding exists based on the idea that beneficiaries cannot conceive another
alternative meant to maximize their own sets of preferences. Implicitly, this means that
the balance of institutions represents a norm meant to provide them with legitimacy. The
steadiness of the rules of the game represents the normal status of “the game”, groups
maximizing their interests and complying with such rules for long periods of time. To
change the rule is difficult due to the high level of uncertainty regarding the results of
changing the decision 15 . This prevents players to change the rules.
The system of institutional rules that governed and are still governing to a large extent
the national insurance system for the elderly does not meet such fundamental rules for the
efficient functioning of a public institution and a system of public rules. Therefore, the
process of implementing institutional policies based on predictability and decisive, meta-legal
rules, represent a must have of this system.
14 Idem 6
15 S. Steinmo, The New Institutionalism in Barry Clark and Joe Foweraker, (eds.) The Encyclopedia of
Democratic Thought, page 4, London: Routlege, 2001.
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In our view, such decisive rules should primarily encompass the following:
a. the “hard” principle of pension based on contributiveness and not a questionable rule
of the social importance of the activity carried out - (like special pensions for members of the
parliament, magistrates, etc.);
b. the “hard” principle of equal pensions to equal contributions;
c. the “hard” principle of pension based on the contribution period (period of actual
payment of contributions), and not based on the period due;
d. the principle of pension indexing based on the annual inflation rate, and not on the
evolution of the average gross wage on economy;
e. eliminating the formula that prevents retirement for those who have accomplished the
contribution period required by law, even if they do not have the statutory retirement age in
order to allow new generations to enter the labour market;
f. the prohibition to review the retirement legislation when measures are perceived as
“policies to eliminate the pressure” from the labour market;
g. ensuring the administration of the technocrat and depoliticised institutions system;
h. ensuring the institutional isomorphism.
CONCLUSIONS
Barr (1995), brought to the forefront of discussions on the policies for the third age in
the retirement domain the fact that the efficiency of the rules on various aspects of such
policies can only be achieved if the systems are based on simple and neutral rules, lacking
esoteric linguistics, rules that are easy to implement and comprehend by those affected now or
in the future.
In the last twenty years, the public pension system in Romania has been distinguished
by sets of rules marked by the influence of context, various short-term imbalances, the
influence of the pressure groups, as well as by the political factors’ promises to win electoral
“favours”. While such measures sought their reason within the economic imbalances of those
times - being marked by what the representatives of the new managerialism call “the best
contextual decisions”, designed to ensure together the decrease of financial deficits and a
better allocative efficiency for the target groups of these policies - they created malicious
effects on short and medium term. One of the most important effects of these measures is
represented by the long series of decisions marked by moral hazard and adverse selection of
those that were subject to such measures. At the same time, although public pension systems
were designed to operate based on anti-discrimination legislation, examples of the last twenty
years in Romania showed, as we demonstrated, the opposite. An impressive variety of laws
aimed at various groups of society - from pensioners in agriculture to those of high status
groups from society. These discriminative rules deepened, on the one hand, the financial
imbalances (the social security budget had had annually deepened deficits since the mid ‘90)
and, on the other hand, have created major social cleavages, but also behaviours regarding an
irrational – in our opinion - risk taking (like the case of individuals with decisions on
invalidity retirement, being on the brink of the law or already breaking the law).
Unfortunately, the continuous reforms of the system have been marked by the same
type of contextual decisions, influenced by segregationist principles, regardless the type of
segregation.
Consequently, we decided to emphasize within this paper the need for public policies
in this area to be marked not by principles of welfare based on paretian optimality, but rather
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on systemic efficiency where decisions regarding some groups’ welfare not to represent an
obstacle for the welfare of others.
ACKNOWLEDGEMENT:
„This paper is supported by the Sectorial Operational Programme Human Resources
Development (SOP HRD), financed from the European Social Fund and by the Romanian
Government under the contract number SOPHRD/89/1.5/S/62988”
REFERENCES
1. F. Kydland and E. Prescott, Rules Rather than Discretion: The Inconsistency of
Optimal Plans. The Journal of Political Economy, Vol. 85 (3): 473, 1977.
2. G. Majone, Public Policies and Public Administration: Ideas, Interests and Institutions,
in A New Handbook of Political Science, Robert Goodin, Hans Dieter Klingemann,
Polirom Publishing House, Iasi, 2005.
3. Nistor, I. (2011), Romanian public pension system - between reform and social justice,
[Online], Avaible: http://www.aipensie.ro/?page_id=420.
Paul (Vass), About pensions, with the analytical balance (I and II), Centre for
Economics and liberty, 2010.
4. S. Steinmo, The New Institutionalism in Barry Clark and Joe Foweraker, (eds.) The
Encyclopedia of Democratic Thought, London: Routlege, 2001.
5. *** National House of Pensions and Social Security - Legislative Department, 2011.
6. *** Decree-law no. 60/1990
7. *** Decree-law no. 68/1990
8. *** Decree-law no. 114/1990
9. *** Government Decision no. 267/1990
10. *** Law no. 73/1991
11. *** Law no. 80/1992
12. *** Law no. 2/1995
13. *** Law no. 86/1997
14. *** Law no. 19/2000
15. *** Law no. 164/2001
16. *** Law no. 76/2002
17. *** Law no. 179/2004
18. *** Law no. 341/2004
19. *** Law no. 226/2006
20. *** Law no. 250/2007
21. *** Law no. /2010
22. *** Order no.50/1990
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ECONOMIC CRISES AND TRANSITIONS OF CAPITALISM
Magdalena Platis
University of Bucharest
Ion Bucur
University of Bucharest
ABSTRACT:
After the euphoric period of the '90s, globalised capitalism is going through a serious
structural crisis and is reaching a stage of turbulence that emphasizes deep dysfunctionalities
and its ability to self-regulate.
The serious imbalances from the global economy and the increased virulence of the
crisis calls for the identification of the destabilizing forces of the system, as well as the
context of the emergence of a new capitalism and a new society.
Crises have continuously changed global capitalism which has not ceased to
transform itself, proving to be an evolutionary and adaptive social system. The capitalism’s
ability to adapt must be analyzed based on emphasizing the interconditionality of the major
crisis with the great transitions that took place within. The evolution and characteristics of
the new forms of capitalism are revealed by the features of the specific method of
accumulation, as well as the regulation and growth regime.
Transformations that followed the phases and stages of capitalism have also lead to
changing the perspectives over crisis, by emphasizing the role of the political process in their
genesis and transgression. Within this context, the role of neoliberalism and intensification of
globalisation over the convergence of different models or varieties of capitalism is revealed.
Profound mutations generated by the current global crisis should boost the theoretical
debates on the direction of reform not only of an economic system, but also of the type of
emerging capitalism.
Keywords: cognitive capitalism, patrimonial capitalism, generalized crises, financial
capitalism, varieties of capitalism.
1. INTRODUCTION
Many analysts of capitalism consider that economic and financial crises are the recurring
feature of the economy. The current situation may even create the feeling that such system is
deeply disturbed and altered.
However, not all opinions concur with the assessment of the effects of the current global
crisis and prospects of capitalist system. Radical assessments suggest the failure of the
economic system in terms set by its own. Some have even written the obituary of market
economy, while others proclaimed “state bankruptcy”. Moreover, it is considered that this
economic system, the capitalism has reached its peak and is preparing to put an end to its
short history. (H. Kempf, 2009, page 11-12). In this view, the current crisis does not represent
an accident, but a symptom of the general crisis of human society at the beginning of the third
millennium. Although many of the theses and ideas expressed are questionable, it is necessary
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not to underestimate the extent of ongoing changes and the emergence of a new capitalism
and a new society.
The size and complexity of ideological and economic mutations involve real difficulties in
assessing the status and prospects of capitalism.
Contemporary age is marked by changes that affected capitalism in depth. If for a period
of time such developments were considered to be the extension of industrial Fordist
capitalism, it was later considered that they express a deeper and more radical rupture.
The tendency to identify a specifically dominant dimension to reflect ongoing
developments becomes increasingly evident. Shareholder capitalism, patrimonial, cognitive or
financial capitalism, represents hypotheses made by economists to describe, often in an
exclusive way, the type of capitalism that characterizes the post-Fordist era. The last quarter
of the twentieth century expresses a profound transformation of the developed capitalist
economy and the emergence of a new capitalism under the influence of new technologies and
financial globalization. Such period corresponds to a transition to a new form of capitalism,
marked by the domination of finance and knowledge. The new stage, the financial capitalism,
is identified by assessing the changes at companies’ level, as well as from a macroeconomic
perspective (L. Batsch, 2002, page 3).
Sometimes, financial capitalism is associated with the financialization of economies and it
marks the emergence of a new period of capitalism, characterized by new forms of “real”
accumulation.
There is no consensus regarding the concept of financialization. In some views,
financialization represents the increased importance of financial markets, actors and financial
institutions in the functioning of national and international economy (Colletis G., B. Paulré,
2008, page 187).
On the macroeconomic level, this process stands out by the emergence of an asset
economy and the provision of the priority of financial logic in relation to economic logic,
which confers a new image of a reshuffled capitalism, where financial markets become
privileged sites of action. A different perspective of financialization is related to the
emergence of a management concept, which argues that the concept of “shareholder value”
has redirected companies towards financial markets and emphasizes the tendency to produce
profits through financial channels rather than as a result of productive activity. Starting from
the increased significance of the financial activity as a source of profit, financialization is
designed as a model of economic development and a new phase of capitalist development. (G.
Krippner, 2011, page 51). Arguments that support the reality of financialization are
considering the role of the state in creating a proper macroeconomic environment, as well as
the regime of the macroeconomic policies used in the ‘80s and ‘90s, that have provided a
fertile ground for the rise of finance and represented the prelude of financialization.
2. ECONOMIC CRISES - POLITICAL EVENTS
Despite the crises which have left a mark, capitalism did not cease to change and adapt
to new realities. Through its evolution, capitalism must be considered an economic system
that reinvents itself through crises. Realities have shown that its significant changes were due
to major and generalised crises that capitalism faced. By this, crises appear in a new light, as
ways to revive capitalism.
There is a close interconditionality between the transitions of capitalism and the
economic and financial crises. On the one hand, capitalism generates the conditions for
genesis, increased frequency and virulence of crises. On the other hand, deep crises create
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prerequisites for the organization of new forms of political and economic regime and,
ultimately, contribute to changing global economic order. Crises that have transformed global
capitalism and resulted in the emergence of new institutions, new policies and ideologies
involve both risks and opportunities. They represent a period of reorganization and
reconsideration of the conditions for continuation of capitalism, as well as the foundations for
its future expansion.
A new thinking in line with current realities and based on the demystifying of
economic processes, contributes in finding several new meanings and perceptions of crises.
Additional elements may be arising in such context in an effort to elucidate complex issues:
how should capitalism which triggered the crisis be reformed, should the current world crisis
be a crisis of globalization or capitalism, to what extent has the nature of capitalism been
affected, the crises and capitalism issue in the twenty-first century, etc. One should
distinguish between crises of capitalism and crises in capitalism in order to identify the
determinants and connotations. For the first category, it is required the reorganization of the
capitalist system itself and not only certain components of the economic system. Change in
perspective over crisis also aims at the rethinking of the state’s role in preventing, managing
and identifying the solutions for economic recovery and growth. Within a certain period, they
were considered to be more like natural events generated by economic laws rather than
political actions. Within the development of the modern capitalist economy, this view has
changed and the state's role in crises management is again at the forefront. By their nature,
crises are considered political events which do not follow a cyclical pattern or repeat
sequences of the past. Thus, the credit crisis of 2007, the 2008 financial crash and the 2009
recession are believed to be aspects of a wider crisis, due to growth model deficiencies and
changes of power occurring in the global political economy. They can be seen from multiple
perspectives: crises of the banking system, crises of regulation, political crises of the global
order legitimacy (A. Gamble, 2009, page 42).
The political determinants of the global crisis are increasingly present within the
approaches dedicated to its genesis and characteristics. Thus, the crisis is considered to be
political to a large extent. (M. Laine, 2009, page 99) and the role of the political process
played in the genesis and overcoming of the crisis is acknowledged (R. Boyer, 2011, page 91-
121). All these guidelines lead to the tendency to interpret crises as part of the “politics of the
crisis” and to reconsider the relationship of politics to economics. Although the concerns to
explore the economics of the crisis should not be neglected, the focus is shifted on
emphasizing the role of the political action in triggering and overcoming the crises. Thus,
prerequisites are created to open a new era, marked by the rupture of some previous economic
determinism. Under the conditions of the crisis, individuals are increasingly aware of the need
for a critical intervention from the state, as well as the ability to liaise with politics.
The determinism of politics over economics represents an analysis that focuses on the
major role of the political processes in overcoming major crises. Political legitimacy is
considered to be crucial for any major reform, which makes political reason to prevail against
economic rationality. Sometimes, it is omitted the fact that politics is not subject to economic
logic as it operates in a different space, namely the space of power. The current context
requires not only the need to set again the problems of power in the centre of economics as
well, and not only in the centre of politics, but also the provision of a new political-economic
configuration. Power is present not only in politics, but also in economics and the
configuration which varies in time and space results from their articulation. If the area of
economics is characterized by the accumulation of wealth, the political one distinguishes by
the accumulation of power.
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Proclaiming the triumph of politics is due to the belief that overcoming the current
crisis will be ultimately resolved due to politics and not at all due to applying a
macroeconomic exercise or to the economists’ fragile knowledge. (R. Bayer, 2011, page 215).
3. MAJOR ECONOMIC CRISES AND STAGES OF CAPITALISM
The stages covered by capitalism in its development are closely related to the
generalized crises that capitalism went through. Some recessions are different; they trigger
deep political and economic crises and aim at the legitimacy of both economic and political
order. The Great Depression of 1930 and the stagflation from 1970 represent the two major
capitalist crisis of the twentieth century (A. Gamble, 2009, page 11). The current global crisis
has the ability to determine the collapse of a specific ideological and growth model and to
argue the current economic and political order. Furthermore, the current global crisis is
comparable with previous generalized crises that marked the great transitions of capitalism.
Therefore, one can ascertain the existence of a certain symmetry between the major crises of
capitalism and the transitions they went through. The dominant feature of the various stages
of capitalism is represented by the characteristics of the government relations with private
business, and by the characteristics of the development of the relation between economic and
political forces. (A. Kaletsky, 2010, page 41-58).
The Great Depression of the '30s is presented by the regulation theory as being a
major crisis which appoints the end of the competitive regulation method. The crisis of the
traditional neoclassical theory and the emergence of the Keynesian theory provide the
implementation of managed regulation that characterizes the global functioning of the
economy. The economy is managed by the state and Fordism sustains economic growth.
During the Keynesian-Fordist period, more precisely those “30 glorious years”, global
expansionist and recovery policies or, according to the conjuncture, rigorous policies are
promoted (stop and go, in the Anglo-Saxon countries).
According to J. M. Keynes, encouraging the collective consumption increases the
employment and return to economic growth and public deficit which may be the consequence
of productive consumption, and is considered a way to reinitiate the activity by increasing
global demand. Under industrial capitalism, accumulation is centred on machines and work
organization.
The deterioration of the economic performance in the early '70s, the emergence of
stagflation due to productivity crisis and depletion of Fordist growth, contribute and
determine the reconsideration of the Keynesian theory and the emergence of a renewed
liberalism.
The conservative counter-revolution emphasized the reduction of public expenditure
and the drastic control of social spending and suggests the profound transformation of the
growth regime and control method. The dominant features become the liberalisation and
deactivation of the state with the purpose to restore competitive conditions, gradual
privatization and deregulation, labour flexibility and the promotion of a new wage relation.
The new regulation method is based on the internationalization and liberalization of
economies and leads to the insertion of a new economic policy regime.
The “conversion” to monetarism in 1979, sets up a new direction for monetary policy
and promotes the policies of the offer. At the same time, the fiscal policies, as well as the
price and income policies, are increasingly less used to attain a fiscal balance and one can
ascertain the emergence of new forms of combined and pro-cyclical policies.
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After the ‘90s, we are witnessing a definitive break from the industrial capitalism and
its Fordist foundation. The emergence of a new period of capitalism is accompanied by the
implementation of a growth regime, sometimes referred to as “patrimonial”, whose
outstanding features are represented by the extension of the wage shareholding, the
importance of enterprise governance and the role of financial markets in macroeconomic
adjustment. A new regulation method is progressively implemented as a result of technical
changes, innovations and intangible forms of investment, as well as due to the process of
ensuring work flexibility and the transition to a new compromise when it comes to wage. The
new deeply reshuffled capitalism stands out through the central role of finance and financial
accumulation, as well as the new role of monetary policy. Thus, the laxist U.S. monetary
policy after 2001 and the significant decrease of the level of interest rates have approved the
abdication of control over credit, as well as its expansion. The increase of profit within the
financial sector and reorientation of the non-financial companies towards financial markets,
have determined the emergence of several conditions which led to the emphasis of the
economic financialization process. This new trend has turned into a source of economic
disorder by inciting enterprises to financial investments to the detriment of investments,
favouring financial expansions to the detriment of industrial restructuring, as well as by
developing financial bubbles that have repercussions on the real economy. Capitalism,
transformed and dominated by finance, witnesses a new major crisis which represents the
manifestation of structural contradictions in the operation mode of capitalism after 30 years
and it is called neoliberalism.
After the events of 2007 and 2008, theses on market efficiency are increasingly
disputed, and the world is facing a new revolution and new intellectual and political
challenges. The biggest financial crisis in history invalidates some of the previous convictions
and beliefs and contributes substantially to the loss of credibility of the conservative political
project and to the failure of the neoclassical economic model. However, the financial crash of
2008, confirms, along with the collapse of intellectual foundations of neoliberalism, the crisis
of the growth regime and a new episode of the crisis of the financialized accumulation
regime.
The next transition (Capitalism 4.0) requires the drafting of a reconstruction program,
the same thing that happened with New Deal after the 1930 crisis and the neoliberal program
following the stagflation from 1970. An idea was increasingly spread, namely the need for the
emergence of a New Deal in order to ensure the overcoming of dilemmas on exit-from-crisis
strategies and the reassessment of the domination model of the financialized capitalism.
The need to reconfigure and reinvent capitalism should be combined with
responsibility and concerns on increasing research within the economics domain, as to be able
to identify another developing strategy and to cover the void caused by the intellectual
collapse of the market’s absolutism. Reality has shown that market forces alone cannot solve
problems and cannot guarantee the guidance of all economic resources, which requires the
creation of a new model of cooperation based on the harmonization of the incentives of the
private sector within the social needs. More market or more state must not necessarily
represent a matter of ideological preference, but rather the acknowledgement of the mixed
character of capitalism. Within the post-crisis reform process, the state decided to consume a
large number of risks that the private financial system cannot sustain. However, revival of
public intervention to save the economy does not rule out the danger of the emergence of new
barriers and other forms of crisis. The thing that ultimately generated the utmost severe
financial crisis in history is due to the non-acknowledgement of the essential functions of the
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government in a modern capitalist economy. Saving capitalism was never acknowledged as a
legitimate function of governments.
For advocates of market fundamentalism, the crisis represented the price paid for
stimulating growth and innovation. The imbalances and turmoil generated by the crisis
emphasized the limits of depoliticization and the need to redefine the relations between
government and market. The severity of the crisis demanded the direct involvement of
governments. The state’s comeback was also requested by those who previously celebrated
the infallibility of the finance and worshiped the efficient markets. The conditions of a crisis
of such magnitude led to the emergence of the belief that only the state has the ability and
necessary resources to intervene to save the market from itself. Furthermore, only the state
has the ability to reorganize capitalism and create conditions for a new expansion.
Ultimately, reviving the role of collective action is due to both the magnitude of costs
associated with financial crises and the impossibility to prevent them. The collaboration
between government and market and in no circumstances the existence of some adversity
relation, will constitute the distinctive feature in the next phase of capitalism. The
acknowledgement of the mixed character of capitalism represents an essential component of
finding the transition to a post-crisis world and its identification based on moral criteria.
CONCLUSIONS
Should we acknowledge the existence of a certain heterogeneity of capitalism, it is
necessary to also acknowledge the role of major economic and financial crises in shaping its
various models and varieties of expression. However, considering such crises as regulation
factors in market economies emphasizes an apparent paradox: how can crises, which manifest
through economic imbalances, be considered a rebalancing factor? Another dilemma
characteristic to the current era should also be solved: humanity is facing a major crisis of
capitalism or a crisis of a particular type or model of capitalism?
The last decades have been marked by important institutional changes which on the
whole, represented the dissemination of the institutional forms of the neoliberal model
towards other models of capitalism: privatization and increasing the competition on the
products and services market, flexible the wage relations, diminishing social protection and
disseminating the principles of finance market governance. Due to this fact, even if the
neoliberal model is targeted primarily by current crisis, it affects the overall models of
capitalism. The great fragility of the neoliberal model whose feature is represented by the
instability, as well as its contradictions requires the identification of the type of emerging
capitalism.
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REFERENCES
1. Batsch, L., Le capitalisme financiar, Paris: Édition La Découverte, , 2002.
2. Boyer, R. , Les financiers détruiront-ils le capitalisme, Paris: Economica, 2011.
3. Calletis G. et Paulré B. (sour la direction de), Les nouveaux horizons du capitalisme,
Paris: Economica, 2008.
4. Gamble, A., The Spectre at the Featst. Capitalist Crisis and the Politcs of Recession,
Basingstoke and New York: Palgrave Macmillan, 2009.
5. Kaletsky, A., Capitalism 4.0 The Birth of a New Economy. London: Bloomsbury,
2010.
6. Kempf, H., Pour sauver la planète, sortez du capitalisme, Paris: Édition du Soleil,
2009.
7. Krippner, G., Capitalizing on Crisis. The Political of the Rise of Finance,
Massachusetts: Harvard University Press, Cambridge, 2011.
8. Laine, M., Post-politique, Paris: JCLattès, 2009.
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TOWARDS A CONVERGENT MODEL OF CULTURAL DIMENSIONS
Ploae Catalin;
Ovidius University of Constanta;
ABSTRACT
The existence of different models of national culture could be considered as a keystone
for the research on cultural differences in management for the last century. The scientific
approach on cultural differences has been facilitated and hindered by these models. On both
a conceptual and empirical level, serious research on cultural differences in organization and
management has been facilitated but in the same time inhibited by the existence of multiple –
and often conflicting – models of national culture. In this paper we offer a review of the most
known models of national culture, with the purpose of identifying the convergences and
divergences among them. The purpose of our paper is to provide a mature reflection upon
these different models by tracking various subtleties in their evolution and dispelling
prevalent misconceptions.
Key words: convergence; cross-cultural; culture; cultural dimensions
1. INTRODUCTION
The existence of different models of national culture could be considered as a
keystone for the research on cultural differences in management for the last century. The
scientific approach on cultural differences has been facilitated and hindered by these models.
On both a conceptual and empirical level, serious research on cultural differences in
organization and management has been facilitated but in the same time inhibited by the
existence of multiple – and often conflicting – models of national culture.
Different research offers us the possibility to identify various models of national
culture, as the models proposed by Kluckhohn and Strodtbeck, Hofstede, Hall, Trompenaars,
Schwartz and others. These models have long offered useful templates for comparing
management processes, Human Resources policies and business behaviors across national and
cultural borders. Some models offered also a framework of measures and numerical indicators
for different countries, widely used in cross-cultural research. But the problem for researchers
is represented by the lack of convergence across these models.
We can refer in the present to at least six models of national cultures that continue to
be widely cited and utilized in the cross-cultural research literature, meaning the models
proposed by Kluckhohn and Strodtbeck, Hofstede, Hall, Trompenaars, Schwartz and House &
GLOBE associates. Each model highlights various aspects of societal beliefs, norms and
values. Therefore, convergence across the model has been seen as limited.
In this paper we offer a review of the most known models of national culture, with the
purpose of identifying the convergences and divergences among them. The purpose of our
paper is to provide a mature reflection upon these different models by tracking various
subtleties in their evolution and dispelling prevalent misconceptions.
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2. LITERATURE REVIEW
This section aims at providing a relevant overview over the topics that were discussed
in literature with reference to the cultural models elaborated by different researchers. In our
extended paper we focus on an in-depth analysis of each model, pointing different convergent
or divergent aspects in the framework of a critical approach.
The model of Kluckhohn and Strodtbeck was one of the earliest models of culture that
has served as a principal foundation for several later models and proposed a theory of culture
based on value orientations, arguing that there are limited number of problems that are
common to all human groups and for which there are limited number of solutions. The model
suggests that values in any society are distributed in a way that creates a dominant value
system (Nardon, L.& Steers,M.R. 2006,5). The authors identified value orientations based on
the relationship of individuals and groups with nature, relationships among individuals within
society, orientation regarding preferred form of human activities, relationship with time and
evaluation of human nature.
Undertaking a factor analysis of 116,000 IBM corporate employees’ values of
workplace from more than 70 national subsidiaries from 1967 to 1973, Geert Hofstede
identified four cultural dimensions: power distance (PDI), individualism (IDV), masculinity
(MAS) and uncertainty avoidance (UAI) (Hofstede, 1986). Hofstede used “constructed scaled
indices” to rank each nation within the dimension and by this he achieved a typology of
national cultural differences, arguing that each dimension shaped behaviors in different social
settings. A fifth dimension – the short term orientation (STO) and long-term orientation
(LTO) towards time – was added to this model in an attempt to “avoid cultural bias”
(Hofstede&Hofstede, 2005).
Building on the work of Hofstede, Fons Trompenaars presented a somewhat different
model of culture based on his study of Shell and other managers over a ten-year survey
(Trompenaars,1993). His model is focused on variations in both values and relationships
across cultures. It consists of seven dimensions: Universalism – particularism, Individualism
– collectivism, Specific – diffuse, Neutral – affective, Achievement – ascription, time
perspective and the relationship with environment.
Shalom Schwartz asserted that the essential distinction between societal values is the
motivational goals they express (Schwartz, 1992). He identified ten universal human values
that reflect needs, social motives and social institutional demands. These values are
purportedly found in all countries and represent universal needs of human existence: power,
achievement, hedonism, stimulation, self-direction, universalism, benevolence, tradition,
conformity and security (Nardon, L.& Steers,M.R. 2006,6). Schwartz argued that individual
and cultural levels of analysis are conceptually independent (Scwartz, 1994).Individual-level
dimensions reflect the psychological dynamics that individuals experience when acting on
their values in the everyday life, while cultural-level dimensions reflect the solutions that
societies find to regulate human actions. In this respect, at cultural level, Schwartz formulated
three dimensions: conservatism and autonomy (the extent to which individuals are integrated
in groups), hierarchy versus egalitarianism (the extent to which equality is valued and
expected) and mastery versus harmony (the extent to which people seek to change the natural
and social world to advance personal or group interests).
Robert House led an international team of researchers that focused primarily on
understanding the influence of cultural differences on leadership processes (House et al,
2004). Their investigation was named the “GLOBE study” for Global Leadership and
Organizational Behavior Effectiveness. In this research, a model of nine cultural dimensions
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was proposed, of which several of them have been identified previously (e.g., individualismcollectivism,
power distance and uncertainty avoidance) but others are unique (e.g., gender
egalitarianism and performance orientation).
4. SEEKING CONVERGENCE FOR AN INTEGRATIVE MODEL OF
CULTURAL DIMENSIONS
Taken together, the cultural models presented attempt to accomplish two aspects. Each
model offers a well-reasoned set of dimensions along witch cultures can be compared,
offering by this a framework for cultural analysis. In this framework, researchers are allowed
to break down assessments on different cultures into particular aspects that are part of the
general concept of culture, and thus organizing their thoughts and focusing attention on what
otherwise would be a monumental task. But also, four of the models offer numeric scores for
rating different cultures.
As this review shows, there are many different ways to represent cultural differences,
and the available models frequently focus on different aspects of societal beliefs, norms or
values. Therefore, convergence across the models is often seen as limited. This lack of
convergence means important challenges both for researchers attempting to study cultural
influences on management and managers trying to understand new cultural settings (Nardon,
L.& Steers,M.R. 2006,8).
In order to navigate this culture theory jungle, we consider that the most productive
approach is to integrate and adapt the various models based on their utility for better
understanding business and management in cross-cultural settings. Therefore, the best
instrument in this respect is that of seeking common themes that collectively represent the
main differences between cultures.
An analysis conducted by Nardon in 2006 identifies common themes across six
culture models, referring in addition to the Hall’s model, as presented in the following table:
Common Kluckhohn Hofstede Hall Trompenaars Schwartz GLOBE
themes &Strodtbeck
Relationship x x x x x
with
Environment
Social x x x x x x
Organization
Power x x x x x
distribution
Rule
x x x
orientation
Time x x x x x
orientation
Source: Nardon, L.& Steers,M.R. (2006). Navigating the culture theory jungle: Divergence
and Convergence in models of national culture, Vlerick Leuven Gent Working Paper Series,
38,p.34
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CONCLUSIONS AND IMPLICATIONS
Following the conducted review and in respect to all findings in this area, five relatively
distinct common themes seem to emerge from the above comparison. We consider these
themes as it follows:
- Relationship with the natural and social environment, in the extent to which people
seek to change and control or live in harmony with their natural and social
surroundings;
- Role of individuals and groups, in the extent to which social relationship emphasize
individual rights and responsibilities or group goals and collective actions;
- Power distribution in society, in the extent to which power in a society is distributed
hierarchically or in a more egalitarian or participative fashion;
- Relative importance of rules, in the extent to which behavior is regulated by rules,
laws and formal procedures or by other factors such as unique circumstances and
relationships;
- Time perception and tasks, in the extent to which people organize their time based on
sequential attention to single tasks or simultaneous attention to multiple tasks.
At first glance, these themes seem to replicate Hofstede’s dimensions, but close
analyses suggests that the other models serve to amplify, clarify and in some cases, reposition
dimensions so they are more relevant for the contemporary workplace.
This work was supported by the project "Post-Doctoral Studies in Economics:
Training program for elite researchers - SPODE" co-funded from the European
SocialFund through the Development of Human Resources Operaţional Programme2007-
2013, contract no. POSDRU/89/1.5/S/61755.)
REFERENCES
1. Hofstede, G. “Cultural differences in teaching and learning”, International Journal of
Intercultural Relations, 11 (1986), 301-20
2. Hofstede, Geert. Cultures and organizations: Software of the mind, New York:
McGraw-Hill, 1991.
3. Hofstede, G. & Hofstede, G.J. Cultures and organizations: Software of the mind, 2nd
ed. New York:McGraw-Hill, 2005
4. Nardon, L.& Steers,M.R. “Navigating the culture theory jungle: Divergence and
Convergence in models of national culture”, Vlerick Leuven Gent Working Paper
Series, 38, 1-27
5. Schwartz,S.H. “Universals in the content and structures of values: Theoretical
advances and empirical tests in 20 countries”. In M. Zanna (Ed.), Advances in
experimental social psychology, 25, 1-65. Orlando, FL:Academic, 1992
6. Schwartz,S.H. “Beyond individualism/collectivism: New cultural dimensions of
values” In U. Kim, H.C. Triandis, C. Kagitḉibasi, S.C. Choi & G. Yoon (Eds.),
Individualism and collectivism: Theory, methods and applocations,85-122. Thousand
Oaks, CA: Sage, 1994
7. Trompenaars, F. Riding the waves of culture:Understanding cultural diversity in
business, London: Economists Books, 1993.
8. Trompenaars, F. & Hampden-Turner, C. Riding the waves of culture:Understanding
diversity in global business, New York: McGraw Hill, 1998.
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A SYNTHETIC REVIEW ON EFFECTIVENESS
IN
INTERNATIONAL AND NATIONAL SOCIETY
Angel Iulian Popescu
Life Style, Education and Health Association
Preliminary form/work in progress
I. STUDY DIRECTIONS
1. POLITICAL CONCEPT
A. Theoretical background
The universalism of fundamental values and needs of peoples is the key to a good inner
comprehension of the synthesis mechanism. From the beginning of time, people and nations
evolved in three directions: self-sustaining, improvement and, progress. The importance of
differences is so big that, without them, the mankind could have never accomplished this
multidimensional perspective of its own evolution. Our basic needs and ideals are in a perfect
unity into themselves but the development stages are different because the historical, political,
geographical, socio-educational and economic conditions as nations are different. Defining
the concept of progress, we should say that it represents the better solution to our problems
but achieved in a different or variable way.
Our present interest must be focused on the most effective and adequate solution to our
complex problems and this becomes the main synthesis issue. It is sure that this area extends
and goes over the political differences, opinions, and even government orientation. The reason
is simple: we are confronted with common problems and one’s problem becomes nowadays
everybody’s problem as society, nation or planet.
Democracy must become the perfect art of combining the ideological differences as the
external aspect of a different manner of trying to solve the same problems into the purpose of
common enrichment. We have to conceive the efficiency as a political must.
Politics have to overcome the paradox consisting, on one hand, in strengthening the
power of state and, on the other hand, weakening the individuality of its members. We have to
be very careful in this point because of the heterogeneous aspects which can become negative
and destructive if the discipline and morality are shadowed by the individual attitude
(including politicians’ attitude), which, being opaque, rejects the general and viable
objectivity, opening the way to instability and cultural relativism.
The political behavior of a nation has to conquer the practical necessity and the need of
a positive and constructive individualism inside developed group relations, as parts of the
same system. These will open the perspective of solving specific problems become commonly
universal problems, structured on different levels of priority. The political intercultural
education is called to create the basic factors for achieving the synthetic charisma for a
progressive and acquisitive attitude. Talking about the common values, we are obliged to say
that any cultural progress depends on a well-structured coalition between the types of culture.
Even if the method of conceiving and approaching the good results is different, the common
purpose needs to be the point of communication.
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The new idea of politics contains a reunion of human adhesions focused on solving
problems – our problems. Politics do not have their own independent existence as a
superstructure. Otherwise, its role is zero. Politics have to gather people of different
professional status and mentality in order to assure a dynamic correspondence into the social
structures.
B. Practical approach
Politics are properly conceived as a universal structure of theories of perspicacity in
solving problems, not in artificially creating new ones. Whatever is the type of society the
basic problems are the same ones simply because we all are humans and it is absolutely
convincing that we all have to follow a similar scale of values to progress as a nation. This
scale is alike, the systems are different but only some solutions are the best .We must benefit
from this universal treasure of solutions if we want to survive as a nation or between nations
and accelerate our progress. Otherwise we shall be always forced to start from the bottom of
the problem which has begun centuries ago. That is why we need to be in permanent contact
between ourselves (a benefic communion between all professional areas) and between nations
(similar or identical professional areas).
Politicians must be selected from all areas of activity as representatives of a certain
domain on the idea that we need to have a compulsory contact factual and social realities and
their problems and that we are interested in learning specific solutions to them. The solutions
have to be searched always in two directions (1) mainly inside the system-as national
opportunities and (2) sometimes outside the system, into the global community.
The National Assembly must contain personally elected persons and also social and
professional representatives come from their own professional league. The complexity of
problems asks for interdisciplinary specialists who can observe the whole picture of reality
and combine the important aspect on a scale of social needs. We can not forget that every
profession is important and responsible for social progress. The only thing that is changed is
the point and the level of the followed view.
2. HISTORICAL CONCEPT
A.HORIZONTAL HISTORY
Horizontal history as a chronology of events happened from one year to another is mainly
the interest of historians. Pulling out from history all the bad parts such as different types of
war (political, economical, military, psychological) and all the egotistic points of view, our
main duty is to observe the cycles of historical periods (on long, middle and short term). This
observation makes us able to unify the spiritual, socio-cultural and economic values which
have been proved as efficient, viable and advisable to use for everybody or every nation. The
two main areas of historical evolution (1) accumulating data, events and experiences from
nature and creating a technological structure of civilization and (2) accumulating human
experience, creating evolutionary systems which lead to cultural and spiritual development –
have to emerge now.
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B. VERTICAL HISTORY
Vertical history prevents humans from becoming some robots without self-life
experience of evolution or from having a psychological sub-human behavior, being empty of
conscience, inventiveness, creativity and affection.
This synthesis can recreate the old balance between inner life and social life as a mean of
developing new effective society members.
Also, the history contains two different aspects which are extremely important:
1) The eternity of fundamental values which always followed (e. g. life, honesty, work,
spirituality and so on);
2) The permanent adjustment of the level of knowledge referring to the eternal values
viewed always from a more complex and larger perspective – the perspective of renewing
eternity in daily contemporary life.
There is a need of our fundamental and psychological balance, for progress, to have a
continuous reference to the important aspects of the past. It is also a new image of the
historical concept of cause and effect, which determines us to act more carefully with our
lives, keeping the good things and avoiding the repetition of old abuses as deviation from the
natural and social target of development.
3. MORAL AND RELIGIOUS CONCEPT
A. OUTSIDE IMAGE
Everybody must explain to himself his origins, purpose and finality of life. Without trying
to mix between themselves into a contradictory and useless meaning, the morality and
religion of every nation on this earth, we must comprehend the necessity of developing our
future evolution starting from the understanding of fundamental and common values (life,
evolution, cooperation, improvement of our goals and ideals, ecumenism, God).
B. INSIDE IMAGE
The ideal meaning of the history of religion and human believes is that unity is lightened
into diversity. Unity expresses itself better into diversity. We must overcome the old
conception related to the existence of a chosen people or religion, by studying its deep
significance. To choose the right moral and religious concepts for common development, step
by step, starting from the beliefs which knee in front of creation to the beliefs which knee in
front of the Creator Himself, focused on the evolution of man as a complete expression of his
Creator. We find inside them the support for a political and social rightness, diversity being
the expression of a specific step in the conceptual and mystical hierarchy; unity is realized
itself as a synthesis of common fundaments. The direction appears as common wealth,
spiritual and social health, both being the ways to a real progress in understanding ourselves
and others.
4. LAW CONCEPT
INTERNATIONAL COOPERATION AND NATIONAL DYNAMICS
Nowadays man overcame the old concept of social contract and has had in front of him a
new challenge: the contract with himself as a mean of social progress. He has to define a new
perspective on his life, creating the possibility of absorbing the other cultures’ good examples
such as they are his own. His needs must be better satisfied because they have become more
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refined. A Common Constitution is, in fact, an image of the understanding process which now
affects every nation into the direction of absorbing and sharing different solutions, better
solutions for its problems, starting with a national and international signature on a new “bill of
rights” – our common planetary rights.
From this point of view, the individual benefits twice: (1) from the dynamic development
of the law system from his own country assuring him of all the main needs for his complete
progress; (2) from or to the global level, he receives or gives the historical best experiences
which are asked to be shared with others for their fundamental and objective values and
content.
Law is the expression of a certain scale of social needs. It is the instrument of an idealistic
communion – mean of generalizing the most effective and viable behaviors, procedural
mechanisms and social commandments. The dynamics of law is not well-structured yet, but
the perspective of progress relays on the political ability of debating and implementing
attitudes, on one hand, through the national Legislative and Executive instruments and, on the
other hand, through proper national education and referendum. We have to discuss publicly
our needs and their solutions obtained from and outside the country.
5. INTERDISCIPLINARY SCIENTIFIC CONCEPT
A. SCIENTIFIC COMMUNITY
Always society and sciences needed information taken from studies, researches and other
types of scientific investigation. Always there will be an objective point of view, even if it
changes from one generation to another simultaneously with the development of intellectual
and spiritual level. For a long time, scientists have communicated with each other formulating
a common database for scientific knowledge – a kind of lingua franca.
B. NON-SCIENTIFIC COMMUNITY
The scientific discoveries and technological processes have pushed up seriously the
development of civilization.
Now civilization must become a public and general source of formative and educational
truths. This cannot be done without culture. Culture is the main mean of translating on
everybody’s language the importance of the complex human development. The individual and
the society, being in an interconnected and interactive existence, have to assimilate the new
discoveries for a more effective and organized life. Otherwise, ignorance is the new
“monster” which appears during the social sleep of reasoning.
We have to learn absolutely everything about securing our life, making it better and
happier. This could be a correct solution against the social fatalism, routine and moral
disturbance.
6. MEDICAL CONCEPT
The two medical directions, represented by (1) medicine practiced by qualified personal
(doctor-patient relation) and by (2) self-applied medicine based on the wide-spread medical
knowledge, have to emerge for a personal medicine of public usage. The classic medicine
suffers from an inner self-sufficient attitude which dramatically reduces the means of cure.
The communication between the medical traditions will achieve a very important goal:
analyzing human being from a complex and complete point of view (soul, mind, emotion,
energetic and physical body) – in a holistic approach.
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This approach also consists in creating a healthy attitude into the individuals. This can be
defined as the correct, healthy behavior which protects the individual by his own level of
knowledge and by his own will from getting sick (psychical and physical, good habits
developed to maintain and secure his personal health). It is a dynamic medicine conducted by
specialists, putting the first accent on prevention of diseases and, secondly, on curing of
potential ones. The national state of health is the fundament of any social and real
transformation oriented to progress and efficiency. It is the necessary condition for a future,
hard-working and effective social structure. The biological and psycho-physical support is
vital for a social and political resurrection.
7. SOCIO-EDUCATIONAL CONCEPT
Passing from the analytical study structure to a synthetic study system, develops a
multifunctional potential to a student. He has the opportunity to look at himself from every
possible angle and reconstruct himself as an individuality properly oriented to the social
interests. Two problems present interest here:
(1) - the educational ability of developing all the fundamental qualities to an individual and
the complete informative and practical program which offers the possibility of sharing the
same common data – a future base of social and family communication (on permanent
progress from birth moment till the age of 20-22 years), without any differences between men
and women, professional or career future (e.g. health, nutrition, hygiene, education, sexuality,
mentality and so on) which has to be a must for everybody into the purpose of consolidating a
dynamic society and positively controlling its evolution;
(2) - the possibility of an intercultural approach which growths the effectiveness of the
formative process by bringing to public acknowledgement the entire variety of social and
professional experiences which are different from nation to nation.
Realizing the transfer of precious information and experiences between cultures and
generations is a target of main priority. The reconstruction of a national and international
community may relay on the social and cultural communication between different nations.
The individuality is kept but the effectiveness is transferred into the purpose of common
benefit.
Every nation as a condition of personal survival into the globalization process and
potentially negative universalism has the duty of assimilating, understanding and practicing
the social behaviors which have been revealed as the most constructive, productive and
effective into the direction of public and private social comfort.
8. PSYCHOLOGICAL CONCEPT.
A new society has to eliminate the political mystification. We have to replace the
"science of what might be" with the "science of what really is". Psychology is called to
dissolve the popular superstitions, the utopian dreams, the senseless speeches and to reinforce
the words of science itself.
The destruction of personality cult of man and State characterized by a total and
unlimited trust into themselves and by a total deny of things that have no importance to them,
can be done by understanding the useless meaning of power for power. The alternative
consists in regaining the trust in spontaneous but rational and psychological human processes,
in assuring the personal responsibility for this process.
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The false believes in the political mythology, in the interference necessity of the State
into the private life, in a simple, eternal, just and marvelous world assured by the State policy,
must be purified by rational and logical explanation of causes and effects socially
interconnected.
To strengthen the power of man in the State which is just an idealistic form of social
obedience contract, we need a public and critic attitude versus the weaknesses of the system.
We need to move the accent from the public function post to the man himself such as
to create the possibility of making a career without being associated with the State power. The
social hierarchy needs not the State power to become useful. The State has to focus on
building a receptive structure to the private initiatives. Everything else must be only socially
conquered by a natural transformation process. State has the duty to assure the hardest part of
the conducting process and society has to redistribute the power into a peaceful coexistence
with the exhausted and old social structures. We have to go on the way of responsibility as a
key of social security gaining a psychological conversion and eliminating as much as possible
the psycho-social tensions.
9. ECONOMIC CONCEPT.
State has a political essence which has to be reflected in economy. This essence consists
on a deep understanding of social needs which are enormous. A question rises into this
context: would it be better for an economy to be directed by the State? It is normal for the
State to consolidate the stability of its own economy: (a) on one hand, by assuring the
existence of necessary products on the market (e.g. stimulating free private initiative); (b) on
the other hand, by protecting it from the negative effects of globalization (e.g. externalization
of capitals and profits done by super-corporations). Economy as a part of the social
mechanism has the duty of producing, circulating and regulating the product consumption
calculated on a free market initiative between needs and offers. It must be a material and
financial support for the development of the civilization, culture and spirituality.
The reinforcement of the economic stability can be done by dividing attributions; the
State has to work on the general and common administration problems, assuring the
macroeconomic balance; also, the State has to support the expansion of private and creative
forces for strengthening the social corpus. The control exercised by the State has to
conduct, organize and discipline the social tendency. This control is the expression of social
needs reflected in the political structures as a mean of achieving social satisfaction.
The microeconomic structure of the capitalist society consists on production, distribution,
exchange, consumption and credit activities. Its characteristics are:
1) accumulation of circulating capitals and investments;
2) a specific credit system;
3) exchange and consumption of production values.
Ideology, economic thinking and law are based on the fundamental principle of private
property exercised on the means of production. The production system concentrates big
masses of people who are disciplined, according to a predated production plan, and which
belongs exclusively and totally to the owner of the production means. The capitalist
production is characterized by an external, mechanical, autocratic, almost "military" discipline
which is imposed to the workers’ colectivity.
Nowadays economy faces major problems (the crisis of super-production and of subconsumption,
unemployment). They are associated. Having enormous needs, mankind might
not have been confronted with these problems but it does. The super-production expresses a
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surplus of merchandise which can not be put into consumption to a remunerator price. The
price does not go down because of the upper financial structures (cartels, trusts, corporations)
and because of the syndicates and professional unions of workers. Theoretically, the price can
not be minimized to the limit of the buyer's power of paying. Here sub-consumption appears
and reflects a general and accelerated depletion of buying power of the consumption social
masses which are obliged to buy lesser merchandise to a pre-offered price.
Maximizing the effectiveness of production, minimizing its costs and maintaining a
constant price against the obvious tendency of rapid enrichment, gaining a permanent profit,
the price of merchandise has to go down (the same quantity and quality of merchandise has to
be paid at a half or a third of the old price).The sale is assured, the consumption goes up
because now the buyer can afford to buy (the number of potential buyers growths).
Unfortunately, the technological effectiveness creates unemployment. To avoid
unemployment people must be maintained in the working process, redistributed on other
social purposes. If the unemployment growths the production and the profits themselves are
endangered because lesser buyers, lesser sold merchandise.
The main target of economy is to maintain the sales at a high level and also, to create now
jobs which will assure the necessary level of product consumption, both affecting the final
profits. Unemployment becomes a luxury which can destroy an entire economy.
The private investors have to be helped and not repressed by the State (using enormous
taxes and duties). The purpose has to be creating new jobs well-paid and not illegal and
subversive commercial activities (evasion, black market work and commerce).
The individual needs a job. His job offers a salary. The level of salary is related to a high
level of performance and sales. The high level of sales is related to a higher power of buying
given to the individual by the cheapness of the merchandise. Even if the quantity of sales
growths little by little, the needs which are enormous, will assure a permanent rate of sales.
We can divide merchandise in two groups:
1) consumption group which is permanent and never completely accomplished (e.g.
food, cosmetics, cloths and so on);
2) long term group which needs to decelerate and could maintain itself only by
selling different components or parts in a service activity (e.g. cars, houses) or by
improving its offers permanently.
The redistribution of products on a global scale will achieve an international and national
balance between needs and offers, reinforcing the global economy.
II. FINALITY - INTERNATIONAL AND NATIONAL
DEVELOPMENT
Our problems are everybody's problems and viceversa. Nowadays we are talking about
the right common future of this planet which affects everybody because life and death are in
front of us. Deforestation, pollution, ozone layer destruction, diseases, sterility, starvation,
maldistribution of products, technological means and necessary life-supporting reserves are
common problems.
Our common survival becomes the main target. Life and the right to live has to be equal
everywhere. Everybody has the right of self-progress. All we have to do is to unify our
thinking and action conceptions on a global level for achieving the best solutions to correct
and eliminate international and national discrepancies.
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BIBLIOGRAPHY: (it will be translated)
I. POLITICAL CONCEPT:
5. Claude Levi-Strauss – Rasa si istorie, Editura Fides,Iasi,1996
6. Georges Burdeau – Traite de science politique, Tome I,ibrairie Generale de Droit et de
Jurisprudence R. Pichou et R.Durant-Auzias, Paris, 1949.
7. Catalin Avramescu - De la teologia puterii absolute la fizica sociala, Editura All,
Bucuresti, 1998.
8. C.R.Motru - Personalismul energetic si alte scrieri, Editura Eminescu, Bucuresti,
1984.
9. Mircea Florian - Filosofie generala, Editura Garamond,Bucuresti, 1995.
10. Blaise Pascal - Cugetari, Editura stiintifica, Bucuresti, 1992.
11. Immanuel Kant - Scrieri moral-politice, Editura stiintifica, Bucuresti, 1991.
12. G.W.F. Hegel - Prelegeri de filosofie a religiei,Editura Humanitas, Bucuresti, 1995.
13. Horst Althaus - Hegel - Naissance d'une philosophie, Edition du Seuil, Jenvier, 1999.
14. Dan Voiculescu – Negocierea - forma de comunicare in relatiile interumane, Editura
Intact, Bucuresti, 1997.
15. Mihail Sergheevici Gorbaciov - Scrieri alese, Editura Politica, Bucuresti, 1987.
16. Francois Chatelet, Eveline Pisier - Conceptiile politice ale secolului XX, Editura
Humanitas, Bucuresti, 1994.
17. Doctrinele partidelor politice, Editura Garamond, Bucuresti, reeditare din 1923.
18. Dictionar de scrieri politice fundamentale, coordonator Laurentiu Stefan Scarlat,
Editura Humanitas, Bucuresti, 2000.
19. Encyclopedia of Government and Politics, Vol. I, Edited by Mary Hawkesworth and
Maurice Kogan, Published by Routledge, London and New York, 1992.
20. Dominique Chagnollaud - Dictionar al vietii politice si sociale, Editura All
Educational, Bucuresti, 1999.
21. Gheorghe Gilescu - Istoria gandirii politico-juridice, partea I, Editura Didactica si
Pedagogica, Bucuresti,1968.
22. G.W.F. Hegel - Principiile filosofiei dreptului - elemente de drept natural si de stiinta a
statului, Editura IRI, Bucuresti, 1996.
23. Jan van Helsing - Organizatiile secrete si puterea lor in secolul XX, Editura Alma-Tip,
Bucuresti,1997.
24. Fundamentele gandirii politice moderne - Antologie comentata, Adrian Paul Savescu,
Emanuel Mihail Socaciu, Editura Polirom, Iasi, 1999.
25. Derek Urwin – Dictionar - Istorie si politica europeana - 1945-1995, Editura
Institutului European, Bucuresti, 2000.
26. Terence Ball, Richard Dagger - Ideologii politice si idealul democratic, Editura
Polirom, Iasi, 2000.
27. Conway W.Henderson - International relations - Conflict and Cooperation at the Turn
of the 21 st Century, Edited by Graw Hill Companies, 1998.
28. Liviu Petru Zapirtan - Repere in stiinta politicii, Schita unei teorii generale a politicii,
Editura Fundatiei Chemarea, Iasi, 1992.
29. Politici sociale - Romania in contextul european (coordonatori Elena Zamfir, Catalin
Zamfir), Editura Alternative,Bucuresti,1996.
30. Faust Bradescu - Doctrine politice, vol.I, Drept si politica internationala,
Editura Majadahonda, Bucuresti, 1999.
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31. Stefano Guzzini - Realism si relatii internationale, Editura Institutului European, Iasi,
2000.
32. Virgil Stoica - Procesul si analiza politicilor publice, Editura Fides, Iasi, 2000.
33. Gabriel A. Almoud, Sidney Verba - Cultura civica. Atitudini politice si democratie in
cinci natiuni, Editura Dustyle si Cev Press, Bucuresti, 1996.
II. HISTORICAL CONCEPT:
1. Mihai Maniu, Bogdan Teodorescu - Istoria Romaniei, Editura Didactica si
Pedagogica, Bucuresti, 1998, vol. I-II.
2. Mic dictionar filosofic - Editura politica, Bucuresti, 1969.
3. Nicolae Chifar - Istoria crestinismului, Editurs Trinitas, Iasi, 2000, vol. I-II.
4. Ioan Ramureanu, Mihail Sesan, Teodor Bodogae - Istorie bisericeasca universala,
Editura Institutului Biblic si de Misiune al B.O.R, Bucuresti, 1993, vol. I-II.
5. Mircea Pacurariu - Istoria Bisericii Ortodoxe Romane, Editura Sophia, Bucuresti,
2000.
6. Emil Cernea, Emil Molcut - Istoria statului si dreptului romanesc, Casa de editura si
presa "Sansa"SRL, Bucuresti, 1995.
7. Mircea Eliade - Istoria credintelor si ideilor religioase, vol. I-III, Editura Stiintifica si
Enciclopedica, Bucuresti, 1992.
8. Radu Iftimovici - Istoria medicinei, Editura All, Bucuresti, 1994.
9. Eugen Relgis - Istoria sexuala a omenirii, Editura Universitaria, Bucuresti, 1992.
10. Marcelle Tinayre - Histoire de l'amour, Casa de editura si presa Viata Romaneasca,
1992.
III. MORAL AND RELIGIOUS CONCEPT:
1. Vladimir Prelipceanu, Nicolae Neaga, Gh.Barna, Mircea Chialda - Studiul Vechiului
Testament, Editura Institutului Biblic si de Misiune al B.O.R, Bucuresti, 1985.
2. Constantin Cornitescu - Studiul Noului Testament, Editura Institutului Biblic si de
Misiune al B.O.R, Bucuresti, 1999.
3. Mircea Eliade, Ioan P.Culianu - Dictionar al religiilor, Editura Humanitas, Bucuresti,
1996.
4. Gh.Al.Cazan - Introducere in filosofie, vol. I-II, Editura Actami, Bucuresti, 1996.
5. Biblia - Vechiul si Noul Testament, Editura Institutului Biblic si de Misiune al B.O.R,
Bucuresti, 1988.
6. Filocalia Sfintelor Nevointe Duhovnicesti, vol.1, 2, 3, Editura Ascetica, Bucuresti,
1995.
7. Filocalia Sfintelor Nevointe Duhovnicesti, vol. 5,7, Editura Humanitas, Bucuresti,
1999.
8. Lao Tzi - Cartea caii si virtutii, Colectia Camp Fundamental, Bucuresti, 1992.
9. Teologie Dogmatica Ortodoxa, Editura Institutului Biblic si de Misiune al B.O.R,
Bucuresti,1991.
IV. LAW CONCEPT:
1. Dumitra Popescu, Adrian Nastase, Florian Coman - Drept international public, Casa
de editura si presa "Sansa"SRL,Bucuresti,1994.
2. Ion Diaconu – Minoritatile - Identitate, Egalitate, Institutul Roman pentru Drepturile
Omului, Bucuresti, 1998.
3. Ion P. Filipescu - Drept international privat, vol. I-II, Editura Actami, Bucuresti, 1997.
4. Ioan Muraru - Drept constitutional si institutii politice, vol. I-II, Editura Actami,
Bucuresti, 1995.
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5. Nicolae Popa - Teoria generala a dreptului, Editura Universitatii Romano-Americane,
Bucuresti, 1993.
6. Dumitru Brezoianu-Drept administrativ si stiinta administratiei,Editura Paideia,
Bucuresti,1994.
7. Alexandru Athanasiu - Dreptul securitatii sociale, Editura Actami, Bucuresti, 1995.
8. Ioan Traian Stefanescu - Dreptul muncii, Editura Lumina Lex, Bucuresti, 1997.
9. Dan-Drosu Saguna - Drept financiar si fiscal, Editura Oscar Print, Bucuresti, 1994.
10. Eugeniu Sperantia - Lectiuni de enciclopedie juridica, Tipografia "Cartea
Romaneasca", Cluj, 1936.
11. Georgio del Vecchio - Lectii de filosofie juridica, Editura Europa Nova, Bucuresti,
1994.
V. SCIENTIFIC CONCEPT:
1. L.Engstrom - Planification familiale et contexte socio-culturel, Editure Sante du
Monde, 1974.
2. Fr. W. Forster - Indrumarea vietii pentru baietii si fetele de la 18 ani,Editura Librariei
"Societatea Anonima", Bucuresti, 1922.
VI. MEDICAL CONCEPT:
1. L.Manuila, A.Manuila, M.Nicodim - Dictionar medical, Editura Ceres, Bucuresti,
1998.
2. H.Gounel - Hygiene, Editure Fouchet, Paris, 1969.
3. Mircea Ifrim, Gheorghe Niculescu - Compendiu de anatomie, Editura Stiintifica si
Enciclopedica, Bucuresti,1987.
4. Arthur C.Guyton - Fiziologie, Editura Medicala Amaltea, W.B.Saunders.
5. Ghelasie Gheorghe - Medicina isihasta, Editura Axul Z, Chisinau si Editura Axis
Mundi, Bucuresti,1992.
6. C.G.Jung - Arta prelungirii vietii - comentariu la Secretul florii de aur,
Editura Trei, Bucuresti, 1996.
7. Predescu - Psihiatrie, Editura medicala, Bucuresti, 1976.
8. Vladimir Belis (coordonator) - Tratat de medicina legala, vol. I-II,Editura Medicala,
Bucuresti, 1995.
9. Ernest Gunter - Hrana vie, Editura Venus, Bucuresti, 1995.
10. Roger Pamplona, D.Jorge - Un nou stil de viata, Editura Safeliz S.L, Madrid-Spania si
Editura Viata si sanatatea,Bucuresti,1998.
11. Popescu Angel Iulian - Rolul si limitele eupareuniei in formarea unei societati
sanatoase, lucrare de diploma - Facultatea de Drept - specializarea Stiinte juridice,
Universitatea din Bucuresti, 2000.
12. Fl. C. Ulmeanu - Medicina culturii fizice,Editura medicala, Bucuresti, 1965.
VII. SOCIO-EDUCATIONAL CONCEPT:
1. Maria Voinea - Sociologia dreptului, Editura Actami, Bucuresti, 1995.
2. Mircea Macin - Sociologia lui Petre Andrei, Editura Politica, Bucuresti, 1969.
3. Eugeniu Sperantia - Introducere in sociologie, vol. I-II, Editura Casa Scoalelor,
Bucuresti, 1944.
4. Jonathan Franklin - Mintea si relatiile in noua era, Editura Contact international, Iasi,
1993.
5. Mihai Peteanu - Educatia relatiilor dintre sexe, Editura didactica si pedagogica,
Bucuresti, 1973.
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6. Victor Bratulescu, Gheorghe Nicolescu - Mihail Eminescu, Ion Creanga si Simion
Mehedinti despre Scoala romaneasca, Editura Institutului de arte grafice "Lupta" -
N.Stroila,Bucuresti,1941.
7. George Strat - Problema elitelor sociale - Comunicare la Academia de Stiinte Morale si
Politice, 10 aprilie 1940, Tipografia Ziarului "Universul", Bucuresti, 1942.
VIII. PSYCHOLOGICAL CONCEPT:
1. Nicolae Mitrofan, Voicu Zdrenghea, Tudorel Butoi Psihologie judiciara, Casa,
de editura si presa "Sansa" SRL, Bucuresti, 1992.
2. Constantin Cucos – Pedagogie, Editura Polirom, Iasi, 1999.
3. Norbert Sillamy – Dictionar de psihologie, Editura Univers Enciclopedic, Bucuresti,
1998.
4. Dumitru Cristea – Tratat de psihologie sociala, Editura ProTransilvania, Bucuresti,
2000.
5. V.Gozman, A.Etkind - De la cultul puterii la puterea oamenilor - Psihologia constiintei
politice, Editura Anima, Bucuresti,1990.
6. Sigmund Freud - Opere,vol.I, Totem si tabu; Moise si monoteismul; Angoasa in
civilizatie; Viitorul unei iluzii, Editura stiintifica, Bucuresti, 1995.
7. Sigmund Freud – Introducere in psihanaliza, Prelegeri de psihanaliza, Psihopatologia
vietii cotidiene, Editura Didactica si Pedagogica, Bucuresti, 1993.
8. Eleonor Emmons Maccoby - The Psychology of sex differences, Edited by Standford
University Press, Standford, California, 1974.
IX. ECONOMIC CONCEPT:
1. Mircea Cosea, Paul Ghita, Ilie Gavrila, Dan Nitescu, Constantin Popescu -Economie,
Editura Didactica si Pedagogica, Bucuresti, 1993.
2. Gheorghe Cretoiu, Viorel Cornescu, Ion Bucur - Economie politica, Casa de editura si
presa "Sansa" SRL, Bucuresti, 1994.
3. Viorel Cornescu, Ioan Mihailescu, Sica Stanciu – Management - Teorie si
practica,Editura Actami, Bucuresti,1994.
4. Anastase Gusti - Scrieri sociale,politice si economice, Editura Librariei Universitare
I.Carabas, Bucuresti, 1940.
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GLOBAL CRISIS – AN ECOLONOMIC APPROACH
Constantin Popescu
Academy of Economic Studies, Bucharest
Alexandru Taşnadi
Academy of Economic Studies, Bucharest
Ileana Ciutacu
Academy of Economic Studies, Bucharest
Motto: At the beginning of the last decades of the 20th century,
we are coping with a serious global crisis. It is a complex and
multidimensional crisis, of which facets reach each aspect of our
life – health and means of living, quality of environment and
social relations, economy, technology and politics. It is also an
intellectual, moral and spiritual crisis quite significant in the
history of the world.
Fritjof Capra – “The Moment of Truth”
ABSTRACT:
Considering the evolution of life of the whole living, "crisis is a natural
manifestation, a form of the systemic wisdom homeostasis ". Interpreted in terms of Hawayen
philosophy, life of the "whole living" which includes economic and social life as well,
crisis stands for excesses and deficits beyond the homeostasis "critical mass" that disturbs
due to the dangers generated by the harmony of integrated integers .
As it encompasses both threats and opportunities that encourage creative destruction,
crisis heightens awareness of a behavioural change for the sake of a new harmony. The
current global crisis, in accordance with the holistic vision, is a systemic crisis a cultural,
moral, spiritual and intellectual one that affects negatively all segments of life, such the
natural, the economic, the social and their interactions, too.
As a science of man-made environmental health, ecolonomy interprets the global crisis
construed as a deviation of human behaviour and institutional development from the
requirements expressed by the harmony of "integrated integers", the nature of the tunes,
coherence and resonance.
Deficits of love, authentic knowledge, faith in certainty of hope, wisdom, of education
on the meaning of life and for life, compassion and selflessness, etc, as well as excesses of
selfishness, greed, power, domination, poverty, ignorance, waste, freedom without
responsibility, etc., engender through their actions human and social behaviours which
threaten social life and cut through homeostasis.
The transformation of the dangers into opportunities- the backward evolution, is a
process of which metanoia is occurring inside human being where the paradigms find " a
nice nest" due to which we come to know, understand, we relate and act.
Keywords: the whole living, ecolonomy, awareness, education respiritualization,
quantum transformation.
JEL: E30
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1. WE ARE “INTEGRATED INTEGERS”
Researches in the field of quantum physics, systemic biology, transpersonal
psychology, holistic medicine, neurone-economy, etc., emphasize the urgent need to interpret
our world as a whole living together, where the natural and man-made environment must be
in harmony 1 .(see Fig.1).
The essence of the new scientific visions, dating since the genesis, is consisted of by
the principle: One in One, One in All, All in One, All in All 2 .
The nature of this principle that generates homeostasis 3 of the common whole living is
explained by quantum physics under as a form of harmony defined by meaningful interactions
of attributes: tune, coherence and resonance 4 .
The essence that we are different and unique, both in the natural and artificial
environment, results into “systemic wisdom”, promoted by Bateson Robert 5 according to
whom the functionality in harmony is the only option for the whole living synergy sense.
Human being is at the same time nature and society, family based by love is also
nature and society, human community where the imperative of faith in the certainty of hope
is nature and society, business organization where the imperative of labor is achieved is also
nature- society relationship, institutions, as rules of homeostasis in society, are nature and
society, all together forming the man- made environment 6 .
The purpose of the man-made environment is the expression of wisdom based by love,
authentic knowledge and faith that put into light through people and for people, the potential
of natural, cultural, spiritual and traditional potential after the win-win principle 7 .
As long as we exist and succeed each other as “integrated integers”, any individual ,
familial, organizational, communitarian, etc should not be the expression of energy loss for
other subsystems in which we integrate. If we accept the antinomies: win-loss, rich-poor,
success-failure, supra consumption –sub consumption, educated-illiterate, selfish-altruist,
happy-unhappy, etc we can them as natural considering the limits of a natural “distance” 8 that
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support the development of the homeostasis process in the common evolution of the whole
living.
In results that when economic life wins, the natural life should not lose considering the
capacity of homeostasis of dynamic self-balance 9 .
Being different and unique, meaningfulness may be achieved only if, accepting the
consequences of our behaviour, we could complying with the harmony necessary to the
interaction between the man-made environment and the natural one, between the states and
the regions of the world, communities and families, communities and human families,
between people.
It implies that it is not common to have a higher GDP, to pollute, to have
economically rich countries and economically poor countries, to record overconsumption out
of control of any biological or moral laws which brings about harms threatening billions of
people’s lives, to have waste of limited resources (inefficient use of resources) compounded
with deficit of resources for vital needs, to endanger life itself through the very irresponsible
use of people’s scientific knowledge, mind and hands 10 .
Interpretation of the current situation regarding the earth evolution from the
perspective of the holistic scientific vision, of “the integrated integers” puts into light the fact
that we have really moved ahead, but in the wrong direction disproportionally 11 . Naturally,
we have kept on providing more and more advanced knowledge that helped man fight against
limits and uncertainties and, at the same time, we paradoxically feel threaten by our own
progress consequences.
Nowadays, we are facing up the effects of evolution which are the our civilization
cyclity, even more dominated by the deficits of love and kindness as well as the excesses
of freedom without liability and greed that Plato named “man decadence”.
It seems that, according to the philosophical and recent holistic researches, a human
civilization evolves when peoples behaviours are justified by love, authentic knowledge and
faith in the certainty of hope and involves when our choices are infested by excess of greed,
deficit of wisdom, will to dominate and greed..
2. TO BECOME HOPE DELIVERY.
Our knowledge and appreciation of the use of crisis for life evolution as integrated
integers find its solution by answering the question: why do we lose the meaning of life? 13
We could answer this question, as old as the world itself, while trying to approach the
interpretation that scholars give to the purpose of human life in society 14 .
It seems that the common denominator of these philosophical, scientific and religious
interpretations is hidden in the expression “YES to life!” although we are aware that we must
die. Victor E. Frankl states that as long as the optimism of this expression is the result of the
understanding of the tragic triad: suffering, guilt, death, crisis is the expression of some
unavoidable circumstances generated by our choices that change the meaning of our life. .
These deviations, consciously or unconsciously, may be interpreted using the
methodology of triads 15 , as they result from the natural interactions we have with people
around us, divinity, and the whole living of which part we are. Besides these natural
interactions, basic for the “systemic wisdom”, life does not exist. How we are supposed to
live without breathing, nourishing our mind, loving, working believing in the certainty for
hope etc.
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It is obvious that, from the perspective mentioned above, the meaning of life, no
matter if it is about human life or the artificial one, stands for: a life as an interacting and
interrelating integer supported by energies in a continuous transformation 16 .
As for the relation with ourselves, considered by Thales of Millet as being the most
difficult problem of knowledge, from “to know yourself ”, deviations that are reflected in our
behaviours and crises, had different causes and forms of manifestation.
For example, if we fail to have a better approach of “who we are?” what is our
internal “voice” , there is the risk to live against us, to work against ourselves and love against
us. These forms of manifestation of the cruelness inside Us 17 that are produced through
interactions and their causes are justified by: deficit of elementary education, deficit of
authentic education, deficit of faith in hope certainty, deficit of human wisdom etc.. All these
forms of deficit transform the energetic potential in deviated behaviours: people take up
drinking and smoking or working in an irresponsible manner or in a field that does not fit
them etc.
On this direction of human life dominated by deviated behaviours, a series of
“horizontals” of a social life regarding life, labour, love that spoil the social, cultural and
moral environment where people “learn” humbleness, theft, greed etc.
The experts in the field demonstrate that within this relation with ourselves, there are
the causes of failures and the deviations when self-governing one’s life. And if these people
get to lead organizations or states where democracy is poor or is completely lost, human and
institutional behaviours turn into disasters such as bankruptcy, wars, poverty etc.
Osho, for example, states that had Hitler enjoyed more maternal love, the world
should have been exempted from the horrors of the war that he caused 18 . It is know that 50%
of the values and life knowledge are assimilated in the first 7 years and up to the first 80%, in
the first 20 years, afterwards human behaviours put into practice the way of living in which
they were raised and educated.
It seems that the lack of love in the first years of a child’s life that is achieved in
human family, is the main cause that influences “what we are going to become”.
It explains the fact that the pollution we produce is the result that we don’t love our
planet, that we are not aware of this love, we do not feel this feeling, that we were not
educated to have this positive experience of this love. That’s why, in accordance with our
wisdom of live deficit, along the life of a human being, it is the main cause that can explain:
why when we produce, we actually pollute, why do we allocate more resources for spacetechnical
arming than education and health etc. We share the belief that when the love or
happiness deficit prevails, the “globe” created around us (cause only here it is created )
naturally is filled with expressions of negative options about which Freud talks in his dialogue
with Einstein , such intolerance, hate, domination will, greed, pathologic selfishness, revenge
etc).
This love deficit that influences not only the relation “with ourselves” , but also the
one with the others and the environment, seems to generate man’s behaviour “without fear of
God”. Such a human behaviour in a social context poorly structured institutionally, where
poverty reigns and corruption and ignorance become the internal cause reigns and corruption
and ignorance become the internal cause of a moral and cultural environment that engenders
crises and imbalances. (see Fig.2).
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How could we diminish such a human deficit, control it or even better transform it into
something positive? If we agree on the thesis “hope against hope”, explained by Osho,
probably that we should get closer to the most urgent spiritual need of people nowadays: To
become again what it is! 19 It means that a human being should be naturally endowed with
the pleasure of living. It is amazing the way in which the physician psychologist Alfred
Adler 20 explains in “The Meaning of Life” that all organs, brain inclusively, after Daniel
Goleman 21 , have both a biological and social function. From this perspective, people may find
their happiness only if they long for and live as part of the whole living.
The love deficit mentioned above does not seem to ne rooted in human biology. It is
the product of the society born inside man, lack of education in family or anywhere else, a
type of educational system that aims at turning people into production factors, an institutional
environment where culture and morality of rules, as well as punishment threats also, are bad
represented of even in heading for the wrong direction.
Consequently, we believe that in education and not only, starting with family,
continuing with the institutional and the one produced through experience of life and labour,
we can easily go to the correction and rebound in this fundamental need for meaning of life
in society.
Such a process may start with what experts call “human psychology” as the true
change come institutional and social is always produced only inside of human being.
“Psychology of Awakening” 23 from the interior to the exterior of life is a complex process
that prevails only if it starts in the first years of life. It implies a reconsideration of the place
and the role of human family based by love in the future society, process that is
organically linked to people’s relation with work, with themselves, the gradually
diminishment of excessive dependence on work, the material and spiritual poverty, the even
greater importance given to marriage regarding the consolidation of familial relations. It is
exactly what Barack Obama used to say “Dare to hope” that the future of the American dream
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is rooted in the idea of family, but not any family, only the one that support the young and
innocent human being who learns to live while heightening the awareness of fundamental
values he/she acquires thanks to his/her parents’ behaviours and facts.
Due to the fact that life means 10% of what is going on and 90% of the way we react
to what happens to us. What happens is actually the only thing on which we can act, the rest
representing the unavoidable circumstances that we cannot control. There are two ways that
influence human behaviour in this situation.
‣ A spontaneous, mechanical and almost exclusive reaction of a feedback determined
by human biology;
‣ An answer ability that integrates in its substance a certain distance of a feedback
based on the latest processes of learning, the latest experiences that can make work
the best abilities that should put into light the highest values of the existent potential:
physic, energetic, mental, spiritual, educational and religious etc. (see Fig.3).
Both necessary and important, “awareness” as internal psychology process, that
transform into change what we want to produce, is only the beginning of the major changes of
“metanoia” that must be produced in the societal institutions, in regulations that guarantee
these institutions, in education of the young generation who understand and sustain changes,
in institutional behaviours of public organizations, in the democracy of human communities.
When these transformations that are produced inside the human beings as a result of
external stimuli, as Covey said, their efficiency is low as it lacks internal wisdom, necessity
awareness 25 generating fear, dependence on exterior, efforts made to comply with regulations
what may affect the quality of change and generate unexpected results.
While in the first variant, awakeness is regarded as hope for something better which
motivates positively the pro attitude, in the second case, the deficit of awareness does not
have the necessary support to determine individuals to dream about the impossible 26 .
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3. TOWARDS A NEW WAY OF LIFE.
Finding solutions for the current global crisis must be rooted in the wisdom that
human life achievement is organically linked to the consumption of beauty and knowledge 27 .
While the first ones are engendered as “a nature gift” and as an expression of man’s efforts
“to destroy creatively”, knowledge is the results of human beings’ efforts to approach and
understand the laws of nature that oblige us.
To overpass this global crisis means to recover the natural beauties or the ones
created by authentic knowledge so that the harmony of their use – such as experience,
generates human and institutional behaviours, defined through: offer, coherence and
resonance.
Offer, from the perspective of a new way of life that we also call ecolonomy, implies
a permanent state of harmony with ourselves, our sameness and the whole living. It implies
that between what we think, what we talk and what we achieve, there is a that isomorphism,
that, after Mahatma GANDHI, is source of happiness. Premises of this Isomorphism are in
formation of a healthy thinking from the perspective of understanding that we are part of a
whole living (natural or created ) and so, accomplishment/inconsistence of life strongly
depends on the way we react to what is going on. Consequently, we need a healthy thinking,
pro-active and participative that is based on the our future choices from the perspective of
behaviours of “living saints” and not “real pigs”, as Mother Theresa interpret them 28 .
Coherence – as substance of the ecolonomic way of living – implies the existence of
some links of the meaning that should contour the interrelations of the type “integrated
integers” that the systemic wisdom express: family, community, organization, state etc, but
also the specific of interactions where the subsystems correspond to the processes of
composing the whole living created by man.
While the deficit of offer that can situate us outside of what “we are”, the deficit of
coherence may produce disarticulations, interactions that engender negative externalities,
such as :
- excessive dependence on labour regarding life and love;
- obtaining profit with the risk of pollution;
- obtaining nominal economic growth considering the external indebt excess etc.
Resonance from the perspective of a healthy way of living place offer and coherence
in a unique “tune” that determine us not to live against our principles, not to be deviated from
our choices along transition through life.
Let’s try to imagine what would happen if in an orchestra some musicians would
play against some others and would not find any resonance in the legitimacy of "tune"
defined by harmony sound. Or, in economy, for example, we almost always find ourselves
producing and polluting the environment to get profit from hazardous activities, recording
overconsumption, stirred by greed at several million people while other billions of people are
fighting underconsumption putting into danger their survival.
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Our economic life has been led for a long time by a pathological individualism and
incoherent selfishness, greed without end and a willingness that changes gradually into the
power to dominate and control the life of the others.
These meaning evolutions developments are those which explain where to look for
causes hazards contained by the current global crisis.. In these causes, interpreted
considering the holistic vision, we can find not only interaction with the dangers but also
interaction with opportunities. That’s why we assert that it is in our behaviours that causes
generate not only dangers as a result of breaking up requirements of the alive homeostasis,
but also the the meaning of awareness as a support of the internal objective reality that may
provide solutions to solve the crisis. It is exactly what physician Luule Wiilma claims, that
people intuitively discover the causes of disease, but quite few become aware of it 29 .
Experiencing such an inner transformation such means to our identity, we change inside
ourselves where there are hidden the spiritual, scientific and religious paradigms etc.,
through which we understand and interpret the outside world, we refer to it and we can
embrace or not the change that we want to produce.
Under these considerations of a new way of living, overcoming the current global
crisis, that we consider a new ecolonomic crisis, assumes to act by acts and deeds of thinking
and behavior that should put into light the reappearance of harmony between what we think
about, what we talk about and what create from the perspective of the health of whole living.
(see fig.5).
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4. SPIRITUAL NEEDS
Starting from the wisdom "Crisis is inside US “, in nature and society of man, in our in
behaviours and taking into account the ecolonomic nature of the causes that generate
excesses and deficits affecting the homeostasis of the whole living, setting up some spiritual
directions that should take control and mitigate causes, represents the challenge of meaning
during this period. These spiritual directions spiritual can be explained in the form of some
imperatives that engender in their dynamic interaction and unity "conscience novogom".
Firstly, we organically need to respiritualize the education of the human being starting
with the first years of life and going on with the other forms of education for the meaning of
life and for the rest of life. Basically, we make reference to:
- placing human beings on values of meaning will expressed under the form of
freedom through liability, freedom in solidarity, freedom in communion and freedom
in compassion;
- integration in the educational process of genuine history, authentic about biological,
social, community, ecological life to know and understand that it people cannot feel
fulfilled unless they hope and build in respect and harmony with this segment of
human type from where it come from
- the selection of all the information knowledge growing explosively, those forming the
body of authentic knowledge in one area or another, avoiding to pour in the human
mind anything anyway, because it is no longer "a bag without bottom" but still more
of them are becoming unnecessary;
- use for Educational Curricula of a detailed report focused on important things, from
the field of logic and history so that it can be outlined for any dominant science trend
, the only one that matters for human wisdom;
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- drawing up curricula with much more liability by rendering responsible all the
stakeholders: individuals, family, community, business environment, state, natural
environment;
- the choice considering “the love rule” of the people involved in education, so that so
that in this fundamental field of social life, educators should be in the most part those
who love what they do and do what they love;
- the opportunity to help in real terms any graduate in every step of education to know
and to discover his/her own vocation which, later on, should be harmonized with the
new contexts to be manifested through the imperative of work
Secondly, we are considering the creation of the institutional framework that rules the
game life in harmony to ensure homeostasis for the proper functioning of "integrated integers"
so that the negative externalities of this “visible hand” could be kept under the control of the
ecolonomic democracy of human communities.
Thirdly, we refer to the acts and deeds of human and institutional behaviours and
institutional generated by facing up the uncertainties evolution, limited resources, aging
problems and injustice human flaws and that deviate more or less, depending on
circumstances or the demands of social life homeostasis. From this perspective, the threat
with punishment seems inevitable and represents a way to prevent and overcome crisis,
because human react adequately, healthy, a proper motivation both from positive and negative
perspective.
“If you work well, I pay you well and you live better”;
“ If you dare to live better while stealing or doing fraud, then you will be punished in
the name of the whole living”.
It is known that the appearance of concrete needs that guide through awareness
interests and human activities, is based on the harmony of three factors:
- reason and human will;
- setting up productive objectives by social entities: family, community, business
organizations, state, international organizations etc;
- threat with human, institutional, social, cultural, religious punishment when
individual who makes his/her own decision, deviates through his/her behaviours from
the rules of social life homeostasis.
As for the fourth reason, becoming aware of the harmonization of the “ the invisible
hand”, specific to different homeostasis, with the “ visible hand ” of human communities in
different institutional forms so that we avoid as much as possible the excess of freedom as
well as the deficit of responsibilities and freedom for liability become rule, not exception .
Only “the right man in the right place” can guaranty the harmony of co-existing homeostasis.
In the fifth place, we make reference to the activation of feed-back regarding human
activities so that the stakeholders may correct human and institutional behaviours by
replacing the ones that deviated from the co-existing homeostasis harmony. In this way, a
sort of “reflected responsibility” is created from the part of those who were chosen or named
as well from the part of those who chose and named. In this way, the guilty feeling resulting
from the reliability with which this feed-back of the ecolonomic democracy, such as
“integrated integers”, is engendered.
In the sixth place, we consider that the control of risk resulting from the evolution of
the natural and artificial environment under circumstances of uncertainty implies a new
organization of the ecolonomic risk management starting with the individual himself and
going on with the family, the community, the state and up to the international or global level.
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We refer to the organic need to set up our national and international organizations
according to the principle "integrated integers" , so that every subsystem may meet, through
the allocation of resources, its main function of specific risk control and, at the same time, it
may express proper feedback in terms of the vertical of institutional liability where capacity
is exceeded by the situation itself.
For example, any community could assist the family, the state could also support
community, state organizations, nations and peoples in order to find some solutions to stem
the crisis situations that go beyond countries efforts etc.
In this respect, turning of the UN organization into The World Organization for the Risk
Control (OMRC) on a global scale, would mark the beginning of this process from upwards
to downwards with the appropriate level of divisions of continents and countries which should
use common resources, such as human , financial, technological, information, etc., obtained
by proportional contributions of member countries and peoples. Such a world organization
should merge World Education Organization, the World Bank, IMF etc
The resources of any kind aggregated at various levels to control of the risks of
common development, could be targeted in the direction of transposition in practice of the
ecolonomic model of freedom in terms of responsibility, solidarity, communion and
compassion.
Instead of using the resources to kill people in the so called democracies, we could
redirect them so that we may control name the cosmic, social, economic, sanitary risks,
natural disasters, epidemic etc..
In the seventh place, we promote change based on the transition from competition
between people to man competing with himself (vertically) as form of meaning
performance manifestation through human powers harmony and not through fight, as it is
happening on the competitive market between operators. The advantage of man’s
competition with himself before the competition between people, is that the intelligent human
self governing is organically linked to potential of each individual by avoiding any form of
negative externality which might arise in the competition between the people when they
make proof of what's worse about them and not what's better.
We refer, in the eighth place, to the need to incorporate into practice the principle
above with the help of new rules to encourage people’s competition with themselves as an
element of complete performance of meaning and control, even eliminate, the competition
between the people generators of negative externalities for organizations, families,
communities, state and natural environment. In this respect, adopting a new system of
indicators of human type GDP, ecolonomic efficiency, healthy profit, ecolonomic costs,
national happiness gross/net, etc., represents a decisive step forward for measuring
institutional human competition with himself from the perspective whole living’s health .
Finally, in the ninth place, we condition the existence of these organic requirements
to head for the expectancy human revolution (ER) the substance of which is formed by
conscience revolution (RC). Only if we should adjust the means revolution (MR) to the
foundation of human expectancies, we could subordinate the performances in any activity as
it results from the imperatives of human life regarding life, labour and love. A revolution of
conscience, as awareness that drives the harmony between MR and CR need a “ critic mass”
that can be suddenly form as a consequence of some threats that can appear gradually as a
result of socio-human interactions based on tune, coherence and resonance.
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Essentially, the nine principles (see Fig.6), founding the pro-active attitudes that
manifest under the circumstances of the expectation revolution, are reciprocally assumed and
excluded. They have to have the centre everywhere, from the perspective of “integrated
integers” so that the rule win-win generating and distributing ecolonomic value to harmonize
the stakeholders at all levels of the whole living.
Perceived in acts and facts by the human and institutional behaviour, the integration of
these principles in real life creates the premises of controlling human communities of excesses
and deficits that justify our choices. In this way, the harmonization of human, familial,
communitarian, institutional, economic and social coexistent homeostasis from the
perspective of the whole living, order the evolutions of meaning considering the rule win-win
and not the one win-loss.
We always assert that the crisis premises are within US, as people, families,
communities, states, etc, exactly as a consequence of the fact that excesses and deficits
disorder the homeostasis of the natural or artificial whole living, unbalancing the interactions
such as “ integrated integers”. To conclude, we appreciate that understanding the current
global crisis from the ecolonomic perspective may constitute a healthy premises to keep
under control the negative causes-consequences relations within a human “distance” in acres,
existing enough time to interfere and correcting avoiding durable deviations significantly.
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NOTES AND REFERENCES
1. Constantin Popescu, Reason and Hope. Paradigm of the Whole Living, Renaissance
Publishing House, Bucharest, 2006, pg. 164-176.
2. Quoted from Stanislav Grof, Above Reason. Birth, Death and Transcendence in
Psychotherapy, Curtea Veche Publishing House, Bucharest, 2009, pg 534.
3. In the visions of Walter Cannon, American physiologist, homeostasis stands for “the
range of coordinated physiological processes that assure the maintenance of the
stability that governs the most part of the body”, quoted from Hans Selye, Science and
life, Politică Publishing House, Bucharest, 1984, pg. 310.
4. See Ervin Laszló and Jude Carrivan, Cosmos, For You Publishing House, Bucharest,
2009, pg. 104.
5. Interpreted by Fritjof Capra, in The Moment of Truth, Tehnică Publishing House,
Bucharest, 2004, pg. 331-387.
6. Constantin Popescu, Alexandru Taşnadi, Respiritualization. Learn to be a human
being. They about US, reviewed edition, ASE Publishing House, Bucharest, 2011.
7. Stephen R. Covey, Efficiency In Seven Steps. An ABC of Human Wisdom, ALLFA
Publishing House , Bucharest, 2002.
8. The role of the concept of “distance” in scientific knowledge is interpreted
philosophically by OSHO, The Book of Wisdom, Your Own Way to Freedom, MAR
Publishing House, Bucharest, 2006, (Translated by Văsii Dan).
9. Constantin Popescu, Life as a Tragic Optimism. Ecolonomic Perspective, ASE
Publishing House , Bucharest, 2011.
10. Papa Ioan Paul al II-lea, Encyclicals, ARCB Publishing House, Bucharest, 2008, pg.
34.
11. Ibidem, pg. 36.
12. Karl R. Popper, Open Society and Its Enemies, vol.1, Humanitas Publishing House,
Bucharest, 1993, pg. 93.
13. Victor E. Frankl, Man in Search of the Meaning of Life, Meteor Press Publishing
House, Bucharest, 2008, pg.169.
14. Albert Szent Györgyi, A plead for Life, Politică Publishing House , Bucharest, 1981,
pg. 204.
15. Constantin Popescu, Alexandru Taşnadi, Using the “twin triads” in the
interpretation of economic behaviour, Business & Leadership, Craiova, 2010, pg. 7-
29.
16. Fritjof Capra, Op. cit., pg. 25.
17. Carmen Costea, C-tin Popescu, Al. Taşnadi (coordinators), Crisis is inside US, ASE
Publishing House, Bucharest, 2010.
18. see OSHO, works cited pg.195.
19. Dan Puric, Who are we?, Platytera Publishing House , Bucharest, 2008, pg. 34-44.
20. Alfred Adler, The Meaning of Life, IRI Publishing House, Bucharest, 1995, pg. 201.
21. Daniel Goleman, Social Intelligence. Curtea Veche Publishing House, Bucharest,
2007, pg. 105.
22. Marshal B. Rosenberg, Real education for an accomplished life, Elena Francisc
Publishing House, Bucureşti, 2003 (Translated by Silvia Sbârnă).
23. John Welwood, Psychology of Awakening, Buhdism, psychotherapy and the way of
personal and spiritual transformation, Elena Francisc Publishing House , Bucharest,
2006 (Translated by Todor Raluca).
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24. Barack Obama, The Audacity of Hope, RAO Publishing House , Bucharest, 2008, pg.
64.
25. Anthony de Mello, Awareness. Traps and reality chances, For You Publishing House,
Bucharest, 2003.
26. Constantin Popescu, works cited, pg. 380.
27. Albert Szent Györgyi, works cited, pg. 204.
28. Franca Zambonini – Tereza de Calcutta, God’s pencil, Pauline Publishing House,
Bucharest, 2003.
29. Luule Wiilma, Light of Soul. Learn to forgive, Dharana Publishing House, Bucharest,
2008.
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THE REAL ESTATE MARKETPLACE – A THEORETICAL BACKGROUND
APPROACH
ABSTRACT
Popescu A. Veronica Adriana;
Academy of Economic Studies, Bucharest
Popescu N. Gheorghe;
Academy of Economic Studies, Bucharest
Popescu Gh. Cristina Raluca;
University of Bucharest, Bucharest
Our paper refers to the real estate marketplace and represents a theoretical
background approach of this particular subject. Our interest regarding the real estate
industry became very clear in the moment that we saw that the subject of real estate is
extremely vast, but also not enough exploited in terms of academic literature research.
Due to the fact that the real estate has always been regarded as a real phenomenon,
including in Romania, we have decided to show the importance of this matter by analyzing
properly several aspects related to it. Firstly, the article begins with an introduction, in which
we have presented the arguments that have mainly led us to choose this subject for our
research. Secondly, our paper intends to justify, in the section entitled literature review, the
importance of gathering future data and future information upon the subject of real estate,
and generate new theories and potential approaches, of course, after emphasizing the crucial
role of the already existing ones. Thirdly, due to the fact that this study is indented to
synthesize as well the existent literature review in terms of real estate research, we have
structured our study in a specific manner, respectively: the main definitions of existing terms,
concerning the large real estate field, that we use in this paper; the relationship between
globalization and real estate in terms of literature review; the differences between direct and
indirect real estate in terms of literature review; the real estate cycles and their real
significance to the marketplace and the influence upon the economic crisis.
In terms of conclusions, our paper is intended to present the most representative
approaches in terms of real estate industry according to our opinion and experience as
research – economists, but aims, in an equal manner, to represent a future starting point
when it comes to a Romanian approach in the field of real estate marketplace, first of all for
us, and second of all for academics and researchers.
Key words: real estate, corporate business, globalization, economic crisis, literature
review on real estate marketplace
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1. INTRODUCTION
(1) What is the main subject treated in this article?
The real estate field has always been seen as a phenomenon, no matter if we refer to it
as simply a local one or much more as an international one. There has been an increasingly
growing interest in the real estate field in Europe during the late 1990s and the beginning of
this century, due to the fact that many companies have started investing into real estate, in
order to be able to outsource related services, trying to focus, in consequence, on corporate
core businesses. During the past few years, this on growing phenomenon has led to an
increasing interest in the real estate research also in Romania. That might be a key step in the
development of our society, due to the increasing interest towards the reorganization process
of the real estate companies, which lately proved to be a clear issue that went right at the core
management of the real estate field, bringing significant benefits there, rather than limiting the
knowledge and the interest just to the simple input calculation in terms of corporate
production – a situation that apparently happened in most cases.
(2) Why is it important to study this subject?
There is still a clear lack of both theoretical and empirical literature and studies
concerning the field of real estate, no matter if we choose to talk with respect to buying or
leasing decisions, or to financial security, or to the legal aspects of global financial markets.
In addition to this, it is very easy to notice that the most empirical research concerning the real
estate field, for example, comes mainly from the Anglo – Saxon countries (respectively both
from the USA and UK), and much less from Continental and Northern Europe, respectively
even in terms of Romanian research. Of course, one of the main explanations could be that the
big companies in the field of real estate are trying to reorganize their activities and functions,
in order to be more flexible and adaptable to economic shocks, due to the continually growing
insecurity in the economic field and also the changes that occurred in the business
environment lately. The main idea is here that both the globalization phenomenon, as a
general factor, and off shoring, as a particular factor, had a great direct and indirect impact
upon the real estate field.
The article’s aim is to increase the awareness of Romanian and European both
academics and corporations, concerning real estate development, which, in the end, could
prove to be an important instrument able to raise the competitive advantage of any nation
interested in developing it much further and putting its potential at work.
(3) How do the authors try to answer the main issues of this subject?
The authors’ main aim, concerning this article, is to generate a primary look in terms
of literature review regarding the vast subject of the real estate. Mainly, this article will
address to the academic public, respectively to professors and researchers profoundly
concerned by academic writing, and probably less to real estate specialists or even potential
investors in this domain, thou our study could proof to be an interesting point of referential
for their future market prospective and potentially better documented research. In our opinion,
the context for the study is extremely complex, but nevertheless, the relevance of the literature
review in terms of the real estate field will be just a starting point for us as researchers –
economists, and also for other specialists in this field. Moreover, our other future concerns
and future subjects of interest are also closely related to but are not limited to globalization in
the real estate field, competitive advantage in the real estate field and even the real estate
cycles.
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(4) What is the relation between the paper and the already existent specialized
literature?
Real estate, in terms of a great emerging phenomenon, came together with the
globalization of the markets. In this particular matter, investors, entrepreneurs and builders, in
general, prided themselves for decades with their keen sense of finding the best “location,
location, location” possible, based on their fleer and business knowledge. Much more, real
estate is considered one of the least “products” able to be traded, probably in the sense that it
is physically not movable, but it can be easily boat and sold at an international level.
That is the reason why, in our opinion, the combination between both fleer and
business knowledge and also “local tradability” – as impact factors in the discussions
concerning globalization in the 1990s – conducted to ignorance towards the way in which the
real estate industry, as a potential ongoing factor of the global economic integration, could
have helped and could have emphasized much more the globalization phenomenon all over
the world.
However, the last decade, has increasingly and continuously involved the
internalization of service sectors, including among them, various sectors and sub-sectors of
the real estate industry, as an “enthusiastic participant” at the global trend. That was, in fact,
the point when investors, entrepreneurs and builders, in general, consulting and services
firms, real estate finance firms, brokerage firms, have extended their area of interest much
further than the national borders, in their ongoing and unstoppable quest to go beyond local
markets at a world-wide-level marketplace.
We consider our duty, as research – economists, to highlight the importance of the
already existing specialized literature in the real estate industry domain, but, in equal manner,
to bring our own support in improving the already existing knowledge with furthermore
discussions and referential points, without ignoring the fact that the means used by us here are
purely didactic and intended to show also new ways of further developing and analyzing this
subject, without even merely claiming that our study is limitative in any way.
2. LITERATURE REVIEW
In our opinion, a key step in the exploration of potential strategies for any country
interested in developing, in the near future, a strong real estate industry, in this particular
matter, including, of course, Romania, is a thorough review of the current available research
on real estate industry, without the intent of being in any way a limitative one.
The fallowing literature review is intended to generate the necessary background for
other future research and further investigations in terms of real estate field, including, as well,
for the authors of this article. Due to this fact, a very important step in the exploration of
potential strategies concerning the real estate field is a thorough review of the currently
available research, which will include books, peer-reviewed scholarly journals – mainly
descriptive articles, rather than evaluative ones, practice guides, official professional sites,
professional publications and official documents with an international impact towards real
estate industry, economics and management. In most cases, practice guides and descriptive
articles are more common in this field. Moreover, there are a few notable research studies in
the topic of real estate industry, and in addition to this, there are significant gaps between the
literature and the actual research, but all this was once more both a great opportunity and a
great challenge for us as researchers - economists.
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3. PAPER CONTENT
In terms of a clear literature review analyses regarding the vast subject of real estate
field, we have decided to share our academic work into a series of smaller subjects,
respectively:
- Main definitions of existing terms, concerning the large real estate field, that we are
using in this paper (which will be our section 3.1.);
- The relationship between globalization and real estate in terms of literature review
(which will be our section 3.2.);
- The differences between direct and indirect real estate in terms of literature review
(which will be our section 3.3.);
- The real estate cycles and their real significance to the marketplace and the influence
upon the economic crisis (which will be our section 3.4.).
3.1. MAIN TERMS CONCERNING THE REAL ESTATE FIELD
In this section, we are going to present some of the most important definitions that
refer to the real estate domain, including, as well, some pertinent references to the laws that
are currently been applied in different countries.
Firstly, our main priority is to identify the use of the term “real estate”, starting from
the idea that this particular term can be used in one country with a certain meaning, and in
another country, with a completely different sense.
According to the Oxford Dictionary on-line, the term “real estate” refers to a
“property consisting of land and the buildings on it, along with its natural resources such as
crops, minerals, or water; immovable property of this nature; an interest vested in this; (also)
an item of real property; (more generally) buildings or housing in general. Also: the business
of real estate; the profession of buying, selling, or renting land, buildings, or housing.” (See
the Oxford Dictionary on-line, retrieved on December.2011). Moreover, according to “The
American Heritage Dictionary of English Language”, the term “real estate” refers to a “land,
including all natural resources and permanent buildings on it”, and it is a legal term used in
jurisdictions such as United Kingdom, Canada, Australia, United States of America, Dubai,
Trinidad and Tobago, Barbados, and the Bahamas (See the American Heritage Dictionary of
English Language on-line, retrieved on December.2011).
However, in the United Kingdom, between the terms “real estate” and “real
property”, often used with its short form “property”, exists a significant difference on
meaning. In the United Kingdom, the term “real property” refers generally to land and
fixtures, meanwhile, the term “real estate” is mostly used in probate law, and refers to all the
interests in land held by a deceased person at death, excluding any interests in money that
arose under a trust for sale of or charged on land (See A Dictionary of Law, Ed. Elizabeth A.
Martin and Jonathan Law, Oxford University Press, 2009).
Moreover, the real estate businesses in Mexico, Canada, Guam and Central America
are different from the way that they are conducted in the United States (See
http://realestatepeak.info/). Of course, there also exist some similarities, which include a
variety of legal formalities, such as taxes that need to be paid; legal paperwork that needs to
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ensure title and a neutral party, such as a title company will handle documentation and money
to make the smooth exchange between the parties. In terms of differences, we can state that
prices are often lower in Mexico, Canada, Guam and Central America compared to most areas
of the U.S., but in many locations, prices of houses and lots are as expensive as the U.S., one
example being Mexico City. Another significant difference occurs in terms of bank loans,
where U.S. banks have begun to give home loans for properties in Mexico, but, so far, not for
other Latin American countries. Also, another important difference refers to the access of
foreigners to local properties. For example, in Mexico, foreigners cannot buy land or homes
within 50 km (31 mi) of the coast or 100 km (62 mi) from a border unless they hold title in a
Mexican Corporation or a Fideicomiso (a Mexican trust) (Thompson, R. Barnard, April 12,
2010 and Thompson, R. Barnard, January 25, 2010). Another good example comes from
Honduras, where are different rules regarding certain types of property: “ejidal land” –
communally held farm property – can only be sold after a lengthy entitlement process, but
that does not prevent them from being offered for sale. Another difference occurs in terms of
real estate agents and their legal background. Here, we can say that in Costa Rica, real estate
agents do not need a license to operate, but the transfer of property requires a lawyer, and also
in Mexico, real estate agents do not need a license to operate, but the transfer of property
requires a public notary (Flock, Brian, March 9, 2009).
A second priority for us is to identify other terms closely related to the vast subject of
real estate, such as: corporate real estate, sales and leaseback, corporate real estate disposal,
corporate real estate outsourcing, international economics and real estate economics,
globalization, direct real estate, indirect real estate and real estate cycles.
Starting from that, “corporate real estate” is a term used in order to describe “real property”
held or used by business enterprises or organizations, for their own purposes. In general, a
corporate estate portfolio includes the corporate headquarters, a number of branch offices and
various manufacturing and retail sites (Krumm, Peter J.M.M., 2001).
Also, in our paper, the term “sales and leaseback” (SLB) represents the combination
of two simultaneous transactions, respectively the sale of property and the contract to lease it
back. Of course, in most cases, the leasing period can vary from long leases (also known as
financial leases) – which may lead to a situation where the leases are left on the seller –
corporation’s balance sheet according to the International Financial Reporting Standards
(IFRS), to shorter leases (called operational leases) – which operate almost in the same
manner as the traditional rental agreements, and are usually off balance sheet from the
tenant’s perspective.
Moreover, the term “corporate real estate disposal” represents a more general term
than the one implicated by the simple selling of corporate real estate, mainly because the
corporate real estate disposal can also include the sale and leaseback on some properties, sale
of empty space and also sale of space already lead to other parties. As a general rule,
corporate real estate disposal does not implicate restructuring of property asset management
services, nor complex inbuilt flexibility.
Meanwhile, “corporate real estate outsourcing”, as opposed to the “corporate real
estate disposal”, can also include the restructuring of corporate real estate management
functions in addition to sale and leaseback on some properties, sale of empty space and also
sale of space already lead to other parties. Furthermore, corporate real estate outsourcing
might also include complex inbuilt flexibility, by that meaning renewing or break options
leases, contracts of different length and even the possibility to swap a property or leases in or
out the portfolio.
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The connection between international economics and real estate economics made with
the aid of literature review and present in the academic writing is a rather weak one. In the
economic science, both the international economics and real estate economics coexist in
virtually isolated moments, and some notable exceptions that we are going to present in our
paper at a certain stage of our article. Starting from this, the “real estate economics”
represents the application of the economic techniques to the real estate marketplace. The real
estate economics tries to describe, explain and predict the patterns of prices, supply and
demand in the continuous evolution of our society. In our opinion, the closest field to the real
estate economics is the housing economics, which has the disadvantage of concentrating on a
narrower scope and also only on residential real estate markets (Bourne, L.S. and Hitchcock,
J.R., editors, 1978). In turn, the real estate economics takes under consideration a broader
image of the real estate research, aiming the real estate trends, focusing on the business and
structural changes of this industry.
In the recent economic context, the globalization phenomenon generated the so called
“new economic geography”, which deals with interplay between cities, urban agglomeration
and international trade (Fujita, Krugman and Venables, 2001).
In this context, the need to define the terms “direct real estate” and “indirect real
estate” appears extremely necessary, and the question if there exists a difference between
them on a long term basis comes also naturally. In this matter, direct real estate is those types
of properties that can be purchased directly, meanwhile the indirect real estate concerns the
shares of real estate companies listed on the stock exchanges. The main difference between
the two forms of real estate comes from the price, which is generated in principle by the value
of the buildings, but also by the management quality and the usage of financial leverage.
Unlike other subjects closely related to the real estate marketplace, which have been
addressed to in few research papers, the subject of real estate cycles has been analyzed for
more than twenty years. Taking into account this very delicate subject, we have found here
two extremes: on one hand, there is the extremely simple statement made by some academics,
that real estate cycles are either irrelevant or non–existent, and, on the other hand, there are
numerous research papers done by well–known economists such as Born, Grissom, Pyhrr,
Wheaton and Webb. As far as the studies have shown, there are three main views when
talking about the real estate cycles, respectively the microeconomic view, the macroeconomic
view and the financial view. Also, as far as we could see, the specialists did not aim in their
research to create a real estate cycle theory, but only to find proper ways to define and
describe the cycles, to enhance their importance and also to discover ways to better predict
future actions of the marketplace in the newly generated context.
After presenting the main terms that characterize the real estate industry and that we
are also using in our article, the next step is to emphasize the importance of the relationship
between globalization and the real estate in terms of literature review.
3.2. THE RELATIONSHIP BETWEEN GLOBALIZATION AND REAL
ESTATE IN TERMS OF LITERATURE REVIEW
The relationship between globalization and real estate comes absolutely naturally. The
real estate industry was affected by several important factors, such as: nowadays, real estate
firms have access to all the economies, including the ones that were not opened in the past;
the liberalization of the marketplace is a general phenomenon that implicates business
licensing, taxation and property ownership laws which facilitate the access of real estate firms
all around the Globe; the technological changes and the so called “new economy”, with its
Internet access and on-line markets, have made the term “local” stale and the term “location”
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a must as an on-going trend; in terms of financial development, it is absolutely enough if we
refer to the investment part only, which implicates lend liquidity and tradability of the real
estate equity and debt.
We have started our research activity, starting from the basic ideas expressed
synthetically in the figure bellow (See Figure 1: “The relationship between globalization and
real estate industry”):
Figure 1: “The relationship between globalization and real estate industry”
Source: the authors of this article
As we have previously stated, as naturally as the relationship between globalization
and real estate industry might seem at a first glance, the academic literature is scarce, and we
would also like to state that we have chosen to analyze only some of the existing academic
writings that exist.
However, there are some exceptions, coming from studies done by Henderson (1982),
who has made some reference to the international economics and real estate economics, or
Ades and Glaeser (1995) and Krugman and Livas – Elizonzo (1996) who have made the
connection between urban economics, international economics and trade policy, or Fujita,
Krugman and Vanables (2001) who have dealt in their studies with interplay between cities,
urban agglomeration and international trade, or Bardhan, Edelstein and Leung (2004), who
have analyzed the impact of “openness” of national economies on open residential rents in
fifty-five cities around the world.
As expected, in terms of finance, the relationship between globalization and real estate
industry has attracted, throw time much more interest from academics. In this matter, a
particular subject of interest was the one related to the issue of portfolio diversification and
real estate market movement.
As addressed to the relationship between globalization and real estate industry in
terms of finance, Eichholtz (1995) has stated that the international property rates of return
covariance are unstable, fact that might limit their usefulness in standard portfolio allocation
models, Geurts and Jaffe (1995) have shown that the county’s specific risk-return relation is
affected by institutional characteristics, such as political risks and socio-cultural factors,
Goetzmann and Watcher (1996) have performed a mean-variance analysis for a sample of
international office markets and identify three clusters of office markets that tend to move
together, which may develop the investor’s ability to diversify across international markets.
Contrary to what was stated before, Conner et al (2006) have shown that foreign real estate
investments provide diversification benefits beyond that obtainable from foreign stocks.
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Moreover, on one hand, Stevenson (2000) has shown that the potential diversification
benefits that could arise from investing in real estate securities are generally not statistically
significant and, on the other hand, Hoesli et al (2004) have confirmed the portfolio
diversification benefits of including real estate assets in a real estate mixed – asset portfolio.
Kallberg and Liu (2002) found that a common factor drives both real estate returns and
equity, and also that real estate securities were also particularly vulnerable to the crisis in
Asia, between 1997 and 1998 time. In addition to these studies, Bardhan, Edelstein and Tsang
(2006) have discovered that a country’s real estate security excess – also called risk
adjustment – returns are negatively related to its degree of openness, showing that market
efficiency for listed property firms may have been enhanced in globalizing economies.
After presenting the importance of the relationship between globalization and the real
estate in terms of literature review, the next step is to stress the differences that exist between
direct and indirect real estate on the long run, in terms of literature review of already made
studies.
3.3. THE DIFFERENCES BETWEEN DIRECT AND INDIRECT REAL
ESTATE IN TERMS OF LITERATURE REVIEW
In terms of real estate industry, investors can hold real estate in their own portfolio,
either directly or indirectly, by buying the shares of real estate companies listed on the stock
exchange market. The valuation, the leverage effect and the liquidity are the three main
characteristics that make the direct and the indirect real estate to be valued on different
markets. In the table bellow we have presented in a synthetically manner the characteristics of
the direct and the indirect real estate, in terms of valuation, leverage effect and liquidity (See
Table 1: “Characteristics of direct and indirect real estate”):
Table 1: “Characteristics of direct and indirect real estate”
Characteristics
of direct and
indirect real
estate
Valuation
Comparison
Definition: Valuation is a term often used in finance in order to define the
process used to determine how much something is worth. In finance, the
items that are usually under the process of determining their value are
assets and liabilities.
Direct real estate
Direct real estate series are determined
by appraiser valuations, which take place
approximately once a year.
In the initial moment, direct real estate is
valued by the acquisition price at the
moment when it was purchased.
Moreover, its value is updated by
periodical appraiser valuations.
The final value will depend on the sale
price at that time, but only by taking into
account the past values of the property.
Indirect real estate
Indirect real estate series are
determined by the daily
demand and supply behavior of
the stock market.
The share price of real estate
companies is affected by the
way investors see the stock
market.
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Leverage
Liquidity
Conclusions: The two different valuation techniques of these two assets
proof that at one moment one of them will show more volatility than the
other one, which, in the end, will conduct to the idea that, on one hand, the
volatility of direct real estate returns is underestimated compared to
indirect real estate returns, due to the appraisal smoothing phenomenon,
and, on the other hand, the volatility of indirect real estate returns is
overestimated compared to the direct real estate returns, due to investors’
perception of the market evolution.
Definition: Leverage is a terms used also in finance, in order to show the
use of financial instruments, or borrowed capital, such as margin, in order
to increase the potential return of an investment. Leverage can be also
defined as using borrowed money with the purpose of increasing the profit
of an investment. Due to the leverage factor, the leverage is exposed also
to the interest rate risk.
Direct real estate
Direct real estate series are presented
exclusive of leverage.
Indirect real estate
Indirect real estate series
include leverage used by real
estate companies.
Conclusions: The first idea here is that in the situation in which asset
returns of listed real estate companies are higher than its costs of debt,
securitized real estate returns tend to be higher than that of direct real
estate and also this happens when the leverage level increases. The second
idea is that direct real estate is less volatile than the indirect real estate.
Definition: Liquidity is the degree to which an asset or security can be
bought or sold on the market, without affecting the asset’s price. In
general, liquidity is characterized by a higher level of trading assets. Also,
the assets that can be easily bought or sold on the market are known as
liquid assets.
Direct real estate
In general, direct real estate is seen as a
less liquid asset, compared to indirect
real estate.
Buying and selling direct real estate
takes more time than buying and selling
indirect real estate.
Direct real estate transaction costs are
higher than indirect real estate
transaction costs.
The value (the price) of direct real estate
is determined at a low frequency in time,
compared to indirect real estate.
Indirect real estate
Indirect real estate is seen as a
more liquid asset, compared to
direct real estate.
Buying and selling indirect real
estate takes less time than
buying and selling direct real
estate.
Indirect real estate transaction
costs are lower than direct real
estate transaction costs.
The value (the price) of
indirect real estate is
determined in daily stock
exchanges.
Conclusions: All in all, in terms of liquidity, direct real estate is
convenient for long term investors, and indirect real estate is convenient
both for short term and long term investors.
Source: the authors of this article
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In terms of previous research, conducted on the relationship between direct and
indirect real estate, it was shown that these two assets are weakly correlated. We believe that
this could be a strong motivation for investors to have in their portfolio both types of assets in
order to have diverse resources at hand. There is also a disadvantage if these two assets are
co-integrated, on short term there exist clear benefits, unlike the situation regarded on long
term, when the benefits of investing in both assets is no longer possible.
In the day to day life, the pension’s funds, for example, which are considered long
term investors, use the Asset Liability Models (ALM) in order to be able to decide the optimal
strategic asset allocation.
Goetzmann and Ibbostom (1990) and Ross and Zisler (1991) where among the first
specialists who have showed in their studies, by using time series data, that these two assets
have a different behavior when it comes to characteristics such as risk or return. The
information gathered from their work has demonstrated that between these two assets there
exists a low correlation that might come from the fact that they are both based on different
valuation techniques (as previously shown in the table above), and, in terms of leverage, only
one of the assets, the indirect real estate one, is influenced by it.
Moreover, Giliberto (1990) stated that the low correlation between direct and indirect
real estate becomes stronger in the moment in which a lag of one period in terms of indirect
real estate is added into the estimation. In addition to this, he has also stated that the research
is reasonable and the results are concluding, due to the fact that the valuations based on
appraisal have proven to have low frequencies and follow the daily market conditions after a
certain time period.
In a similar manner, Myer and Webb (1993) have examined the lead – leg structure
between the two assets with the aid of Granger causality tests, coming to the result that, in
terms of prices, the indirect real estate prices encompass the direct real estate prices.
Furthermore, Barkham and Geltner (1995) have conducted an investigation concerning the
idea if the price discovery mechanism exists, in terms of public and private real estate
markets. The instrument used by Barkham and Geltner (1995) was also the Granger causality
tests, but this time by correcting the securitized real estate series data by leverage. The
conclusion of their study was that price information regarding public real estate market does
not fully reach the private real estate market for about one year, or, in some cases, even
longer.
In terms of time correlations, recent studies, such as the one belonging to Morawski at
al. (2008), have pointed out that the importance of the length of the investment horizon.
According to Morawski at al. (2008), the correlation between these two assets is likely to
grow stronger in case that the investment horizon increases. That is the reason why, by using
quarterly data between the years 1978 and 2006, they have applied co-integration analyses in
order to see if two asset classes move together on long term, and came to the outcome that
there exists a co-integration between relationship between direct and indirect real estate, both
in United States and in United Kingdom, even though indirect real estate tends to encompass
the direct real estate on short term.
Also in terms of time correlations, a study conducted Oikarinen et al. (2009) has
aimed the relationship that exists between direct and indirect real estate series, taking into
account both the short and the long term. Their study has demonstrated that the presence of
leverage in indirect real estate series might disrupt a one – to – one relationship between two
assets on long term. Their discovery was that the long term co-integration coefficient of
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indirect real estate is about 0,65, which is consistent with thirty-five percent leverage level for
indirect real estate companies in the United States.
After presenting the differences that exist between direct and indirect real estate on the
long run, in terms of literature review of already made studies, the next step is to emphasize
the role of real estate cycles and their significance on the marketplace, referring as well to the
economic crisis.
3.4. THE REAL ESTATE CYCLES AND THEIR REAL SIGNIFICANCE TO THE
MARKETPLACE AND THE INFLUENCE UPON THE ECONOMIC CRISIS
In terms of real estate cycles, a subject to which researchers have dedicated studies in
more than twenty years already, the views of the researchers have concentrated into four
major directions: the microeconomic approach, the macroeconomic approach, the financial
approach – all three being the most exploited research subjects, and also the management
approach – not that much studied by specialists, as far as we have discovered. Furthermore, in
terms of microeconomic approach, the existing views refer to four markets as part of the real
estate market: the first one is the space market, the second one is the investment market, the
third one is the new construction, and the fourth is the land market. As points of interests, the
authors of the studies are mainly concerned on topics such as rent levels, vacancies,
absorption rate and forms of expectations formation. In addition to the microeconomic
approach, comes the macroeconomic approach, which refers to real estate cycles as part of the
business cycles, and focus mainly on the overall construction activity and sector
unemployment rates, having as a final scope the idea of creating a specific connection
between the cyclical behavior of the real estate markets and other types of aggregate markets.
The financial approach of real estate cycles of the market comes together with the Modern
Portfolio Theory (MPT) and is able to generate reasonable results with the aid of the Capital
Asset Pricing Model (CAPM), the Arbitrage Pricing Theory (APT) and also the Real Optional
Models (ROM). As previously stated, the management approach of the real estate cycles has
not been studied enough, in our opinion as research – economists. In terms of the economic
determination of real estate prices, we have presented, in the figure bellow which are the main
variables in our opinion (See Figure 2: “The economic determination of real estate prices”):
Figure 2: “The economic determination of real estate prices”
Source: the authors of this article
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The real estate studies concerning the economic cycles, have started in the year 1930,
with the work Simion Kuznets (1930) – a world known Nobel Prize laureate, who was the
first one that discovered that a cycle of economic activity lasts between fifteen and twenty
years. The Kuznets cycle refers to investment in housing and building construction and is also
well known among professionals of the real estate marketplace, being one of the four existing
macroeconomic cycles that were ever discovered and properly documented, the other three of
them being the Kitchin cycle, the Juglar cycle and the Kondratieff cycle (See
http://www.cyclesresearchinstitute.org/cycles-research-economy/economy-kuznets.shtml).
After that moment, the number of publications concerning the subject of real estate
cycles continued to grow, especially after 1980, but there is still a lot of work to be done in
this matter.
In our opinion, the economic determination of real estate prices is in many ways
similar to other assets, with the main factors being (a) the discounted present value of future
rents, formed out of the (a 1 ) the current value of rents together with (a 2 ) their expected growth
over their expected life of the building, and (b) the real long term interest rate. Here, Tobin
(1969) has stated that the real estate investment may be regarded as a form of valuation ratio,
and also Hilbers and al. (2001) have compared the assets market with the real estate market,
and have emphasized the fact that the real estate market has distinctive features as well, such
as high transaction costs, lack of price transparency, infrequent trade, heterogeneous supply,
rigid and constrained supply, which, in certain situations, might lead to cyclical behavior – for
example, by taking into consideration the investor’s optimism towards future rents, that could
generate, in return, high prices and excess in demand according to Carry (1990).
As far as we have researched, Mueller, Phyrr and Born (1999) have stated that in the
field of real estate cycles there are many aspects to be furthered developed in terms of
terminology and methodology.
Moreover, an interesting model which shows that bubbles and crisis arise in the real
world is described by Allen and Gale (2000), who have proven that the marketplace is
extremely volatile in terms of property selling and buying.
In this subsection we have presented only a few of the existing references related to
the subject of real estate cycles, and as a future perspective for us as research – economists we
aim to continue the study that we have already began here, adding more information towards
it.
4. CONCLUSIONS AND IMPLICATIONS
In our conclusions and implications section we have tried to give an answer to three
fundamental questions, as follows:
(1) What is the summary of our main outcomes and in what way is our research
important to the academic world?
All in all, this whole study proves that the real estate marketplace has an enormous
potential not only for the Romanian economy, but also worldwide, and this potential has to be
exploited also in the academic research.
It is our duty, as research – economists to state the importance of real estate research at
all levels. Our study aims to reflect the theoretical aspects concerning the real estate issues,
and it consists into a background approach that shows firstly, which are the main terms with
which the real estate marketplace operate with, secondly, why is globalization influencing the
real estate marketplace and what influence does it trigger, thirdly, what are the differences
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between the direct and indirect real estate both on short and on long term, and fourthly, what
are the implications of real estate cycles towards supply, demand and the pricing system.
(2) Which are the implications of such outcomes?
The main outcomes are as follows: nowadays, real estate is considered a worldwide
phenomenon; at present, there are not enough data concerning real estate research;
globalization is a strong influencing factor that has not enough been studied as in terms of the
relationship towards real estate; there are strong differences between direct and indirect real
estate, both on short and long term, starting from the idea of valuation, continuing with the
aspect concerning liquidity and ending with the matters specific to the leverage; the problem
of real estate cycles is still a problem that is being analyzed, ever since the year 1930, when it
was first discovered and theoretically stated.
(3) What further suggestions do we have for future researches?
The main outcomes of our research, lead us in an absolute natural manner to the idea
that there are far more subjects for debate concerning the real estate field. In our opining,
there can be easily done a study on the Romanian real estate industry, maybe even in
comparison with other countries or the study of the real estate industry can continue with
more approaches at the managerial level, insufficiently documented until now.
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32. *** The American Heritage Dictionary of English Language on-line – 5th Edition, by
Enfour Inc., updated Dec. 07, 2011, retrieved on December.2011,
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SWEETS CONSUMPTION IN ROMANIA AND THE IMPACT ON ROMANIANS
MONTHLY BUDGET – THE PERSPECTIVE OF THE YEAR 2012
ABSTRACT
Popescu Veronica Adriana
Academy of Economic Studies, Bucharest
Popescu N. Gheorghe
Academy of Economic Studies, Bucharest
Popescu Cristina Raluca
University of Bucharest
The research paper addresses mainly to academics and to researchers belonging to
the economic field, but not only to these two categories.
The aim of the study is to present, in a synthetically manner, the influence factors on
which sweet consumption is based on. In this matter, the paper starts with a short
introduction, in which we have presented the main reasons why we have chosen this
particular subject, continues with a literature review part in which we have stressed which
are the main outcomes that we have considered as being relevant in this matter, presents in a
research methodology part the fact that we have based our paper on the results that we have
obtained by using our own data that we have gathered ourselves by interviewing a sample of
forty - five Romanian individuals, specially chosen between the age of thirty and thirty five
and that have no restrictions regarding sweet consumption.
The case study part of our paper is meant to reveal the economic connections that
exist between factors such as: sweets consumption, individuals’ budget, individuals’
preferences, individuals’ education, the general economic evolution of the society. The study
is done on Romanian adult individuals, and is important for the academic and research world
due to the fact that is shows the existing correlations between specific elements and
demonstrates the role of consumers behavior in his day to day preferences, focusing on
sweets consumption in the year 2012. Moreover, the purpose of our research academic
investigation is to find out, on a small scale sample, which are the main factors that influence
sweets consumption at individuals who are having between 30 and 35 years old, in order to
be able to predict the budget they allocate per month in order to satisfy their need for sweets.
Key words: consumption, budget, economic evolution, consumer behavior, consumer
preferences
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1. INTRODUCTION
In the introduction part we would like to emphasize four major aspects:
(1) What matter does the paper cover?
The paper covers the matter of sweets consumption in Romania, and intends to show
the existing correlations between consumers’ budget, behavior, tastes, and personal
preferences on this particular subject.
(2) Why is the studied matter important?
The study matter is extremely important, for us, as research economists, due to the fact
that we can better understand the way in which adult individuals analyze their consumptions
options and act according a limited budget restriction and other types of factors as well.
Moreover though, the paper addresses the academic and researchers world, but could also be
of interest for the general public, students, or other types of institutions.
(3) How does the author intend to answer to this matter?
In order to answer to this matter, we have structured our paper, into several sections,
respectively:
a) The literature review section presents the way in which us, as authors of the paper,
have referred to specialized literature, compared against the paper’s subject, emphasizing the
most important and relevant contributions on which we will ground our argumentation.
b) The case study section refers to a study that we have done between the month
January – March 2012, and with results analyzed and interpreted in the month of April 2012.
The sample subjects were forty – five Romains adult individuals, having between 30 and 35
years old, being financially independent (by that understanding that they have their own
salary and they have constant place to work), not having any health restrictions towards
sweets consumption and also, additionally, liking and usually consuming sweets products.
c) The conclusions section, emphasis matters such as: (1) the main outcomes,
presented in a synthetically manner; (2) the implications of such outcomes; (3) suggestions
for future researches.
(4) What is the relation between the paper and the already existent specialized
literature?
Between the paper and the already existent specialized literature there exists a very
strong connection. There are numerous studies on this topic, respectively on sweets
consumption and the correlation that exists to consumers’ budget, also on the sum of money
that they allocate for this type of activity, and moreover, there are interdisciplinary studies
that make a correlation between economic, social and psychological factors (for example).
But, even though this subject has been previously analyzed, we can strongly state the fact that
there was a need for such a study on the Romanian market place, due to its implications for us
as economists but also as sweets consumers. Moreover, besides the academic and research
analysis topics on sweets/sugar/chocolate consumption, we have discovered that this topic is
preferred in scientific studies opened to public, economic, health, social and psychological
newspapers and so on.
2. LITERATURE REVIEW
Our literature review section makes referrals to specialized literature, compared
against the paper’s topic, emphasizing the most important and relevant contributions on which
we, as research economists, we ground our argumentation. Moreover, we have started our
documentation by analyzing papers belonging to international journals recognized by the
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scientific community, specialized books and also, in addition, by master and doctoral thesis.
Of great help we found also working papers on this topic or on closely related topics.
(1) The idea to start this research study came to us after reading an interesting medical study
in the American Journal of Clinical Nutrition, in which the authors, Marie-Pierre St-Onge,
Kathleen L Keller and Steven B Heymsfield showed the fact that change in childhood
food consumption patterns, represents a cause of great concern in the light of increasing
body weight. The authors have stated in their study (Marie-Pierre St-Onge, Kathleen L
Keller and Steven B Heymsfield, 2003) that the food and home environments have
changed tremendously in the last years, emphasizing the aspect that environmental
influences that affect eating behaviors include the changing nature of the food supply;
increased reliance on foods consumed away from home; food advertising, marketing, and
promotion; and food prices. Furthermore, time limitations have become an important
factor in determining the types of foods consumed. In addition, the food industry
responded to these new family issues by increasing the numbers of convenience foods and
prepared meals available. In the section entitled “Changes in fast food consumption”, the
authors have shown that there is a strong correlation between sweets consumption, health
state of individuals, the possibility to gain weight, environment and restrictions such as
time limitation or budget (in this article the authors have provided several examples, one
of them referring to public expenditure on the daily package for children enrolled in the
school system, where, due to the fact that the budget has a limited extent, the food services
were outsourced, and contributed in this manner to continue to allow school systems to
sell junk “foods” in schools). In this section, they also referred at the general meaning of
the term “sweets”, which means, in their acceptation: the sweets food group consists of
foods with added sugar and sugar-sweetened beverages, cereals, snacks, and desserts.
(2) Another interesting research paper belongs to authors I-Min Lee, Ralph S Paffenbarger Jr
(1998) and is entitled “Life is sweet: candy consumption and longevity”. The purpose of
their study was to show that there exists a connection between the consumption of candy
and the longevity of individuals tested. In the section entitled “Subjects, methods and
results part” the authors have stated that the subjects chosen for the analysis were from
the Harvard alumni health study, an ongoing study of men entering Harvard University as
undergraduates between 1916 and 1950. The study was done on 7841 men, free of
cardiovascular disease and cancer, who responded to a health survey in 1988 providing
information on consumption of candy, and the result of the study was that consumption of
candy was associated with greater longevity, and moreover, men who indulged lived
almost a year longer, up to age 95, than did abstainers. In addition, the authors have stated
that they could not differentiate between consumption of sugar candy and chocolate.
(3) Furthermore, authors Katri Raikkonen, Anu-Katriina Pesonen, Anna-Liisa Jarvenpaa,
Timo E. Strandberg (2004) have shown interest in this topic as well, as shown in their
paper “Sweet babies: chocolate consumption during pregnancy and infant temperament at
six months”. The authors started their research based on the fact that chocolate contains
several biologically active components potentially having behavioral and psychological
consequences. The aim of the paper was to emphasize whether chocolate consumption and
stress experiences during pregnancy predict mother-rated infant temperament at 6 months.
In terms of research methodology, prenatal frequency of chocolate consumption and
intensity of psychological stress experience of the mothers, and temperament
characteristics of the infants 6 months postpartum were evaluated in 305 consecutive,
healthy mother–infant dyads. The results have shown that mothers who reported daily
consumption of chocolate rated more positively the temperament of their infants at 6
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months. In addition, in terms of maternal prenatal stress predicted more negatively tuned
ratings of the infant temperament, particularly among those who reported never/seldom
chocolate consumption. However, this effect was not observed among the mothers
reporting weekly or daily chocolate consumption. The conclusion of the study was that
chocolate consumption may have effects at multiple environmental and psychological
levels.
(4) The World Health Organization (WHO) in Europe published a Survey on Health
Behaviour in School-aged Children (HSBC) in 2006, regarding “Young People’s Health
in Great Britain and Ireland”. The section number 2, HEALTH BEHAVIOURS – A.
Eating and Dieting – SWEET CONSUMPTION is extremely relevant for us. According to
the data gathered and analyzed by the organization, a number of young people were asked
how often they eat sweets, according to response options ranged from “never” to “more
than once a day”. In terms of findings presented in the study, there were presented only
the percentages of young people who reported eating sweets at least daily. In terms of
gender, there was no significant difference in daily sweet consumption between boys
(30.60%) and girls (30.70%), with the exception of 13-year-olds in Ireland, where girls
were more likely than boys to report eating sweets daily. In terms of age, significantly
fewer 11-year-olds (26.6%) reported daily sweet consumption compared with 13-yearolds
(31.7%) and 15-year-olds (33.3%). In Ireland and Scotland, 13- and 15-year-old girls
and 15-year-old boys were more likely to report eating sweets daily, while in England 15-
year-old girls were more likely to do so. There were no significant age differences in
Wales.
(5) Another interesting research, which combines disciplines such as economics with
sociology and philology as well, is written by Tatiana Andreyeva, Michael W. Long, and
Kelly D. Brownell (2010). In the study “The Impact of Food Prices on Consumption: A
Systematic Review of Research on the Price Elasticity of Demand for Food”, the authors
have stressed several aspects, such as the fact that both policymakers and researchers
have to explore broad-based approaches to improving diets diet-related chronic diseases,
due to the on rising diet-related chronicle disease; a possibility proposed by the authors
in order to address the issue is to change the relative prices of selected foods through
carefully designed tax or subsidy policies, due to the fact that they believe that the
potential of price changes to improve food choices is evident from growing research on
how relative food prices affect dietary quality and obesity, particularly among young
people, lower income populations, and those most at risk for obesity. In terms of sweets,
which is in fact the topic of our research analysis, the authors were interested in sugar -
sweetened beverages, considering the fact that a possible larger scale approach is to
change prices directly through taxing products such as sugar-sweetened beverages or
subsidizing healthier foods (e.g., a refund on the costs of fruits and vegetables to
Supplemental Nutrition Assistance Program participants). The conclusions of the research
study stated that economic shocks such as falling income in a recession or dramatic
increases in energy or food prices can lead to changes in purchasing behavior that are not
necessarily predicted by elasticity estimates calculated with data collected under normal
market conditions, and, moreover, it is important to understand the effects of such
economic circumstances on diet quality, particularly in low-income groups.
(6) In addition to the study mentioned above, Adam Drewnowski (2009) has emphasized in
his paper the fact that there exists a high correlation and, in consequence, a very strong
relationship between obesity, diets and social inequity, and, moreover, the economic
environment highly influences individuals’ choices for food consumption. In his study
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entitled “Obesity, diets, and social inequalities”, the authors regards obesity as an
economic phenomenon, and he shows that (1) obesity and type two diabetes follow a
socioeconomic gradient, and in this matter, highest rates are observed among groups with
the lowest levels of education and income and in the most deprived areas; (2) inequitable
access to healthy foods is one mechanism by which socioeconomic factors influence the
diet and health of a population; (3) nutrient-rich foods and high-quality diets not only cost
more but are consumed by more affluent groups. As a consequence, the author states that
obesity is the toxic consequence of economic insecurity and a failing economic
environment.
Starting from the articles that have greatly influenced our beliefs and economic, social
and also philological perspective, we are going to present in the lines bellow the research
methodology that we have chosen for our case study on Romania, from the perspective of the
year 2012.
3. RESEARCH METHODOLOGY
The research study that we have done refers to a chosen sample of forty – five adult
individuals and implicated, in terms of time period the month January, February and March of
the year 2012. The results were centralized at the beginning of the month April and were
interpreted afterwards using both Excel and SPSS programs.
In order to be able to have an appropriate type of data for being able to test the validity of our
assumptions, we have used as form of investigation the interview based on both structured
and unstructured questions.
The purpose of our research academic investigation was to find out, on a small scale
sample, which the main factors that influence sweets consumption at individuals who are
having between 30 and 35 years old, in order to be able to predict the budget they allocate per
month in order to satisfy their need for sweets. Right from the beginning the individuals that
we have chosen for our data sample were individuals that have no health problems that
impose them to not consume sweets and also like sweets and do consume them.
The questioner had seven questions, and was structured in two parts that were able to
complete each other. The first part of the questioner was designed especially so that the
interviewees would be able to find out the purpose of our investigation, what we understand
by consumptions and to what extent does our study refer to sweets products. Moreover, the
first part of our investigation provided us information on the person interviewed that referred
to their age, their financial situation, the last school that they graduated from. The second
part of our questioner had the purpose to investigate the preferences of the interviewees
regarding sweets consumption, referring to: the frequency of their desire to eat sweets; the
sum of money they allocate per month in order to satisfy their need for sweets; which type of
sweets do they prefer; which are the main factors that influence their desire to consume
sweets and which are the main factors that influence their consumption satisfaction.
4. CASE STUDY: SWEETS CONSUMPTION IN ROMANIA AND THE
IMPACT ON ROMANIANS MONTHLY BUDGET
The research study that we have done refers to a chosen sample of forty – five adult
individuals and implicated, in terms of time period the month January, February and March of
the year 2012. The results were centralized at the beginning of the month April and were
interpreted afterwards using both Excel and SPSS programs.
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In order to be able to have an appropriate type of data for being able to test the validity of our
assumptions, we have used as form of investigation the interview based on both structured
and unstructured questions.
The purpose of our research academic investigation was to find out, on a small scale
sample, which the main factors that influence sweets consumption at individuals who are
having between 30 and 35 years old, in order to be able to predict the budget they allocate per
month in order to satisfy their need for sweets. Right from the beginning the individuals that
we have chosen for our data sample were individuals that have no health problems that
impose them to not consume sweets and also like sweets and do consume them.
The questioner had seven questions, and was structured in two parts that were able to
complete each other. The first part of the questioner was designed especially so that the
interviewees would be able to find out the purpose of our investigation, what we understand
by consumptions and to what extent does our study refer to sweets products. Moreover, the
first part of our investigation provided us information on the person interviewed that referred
to their age, their financial situation, the last school that they graduated from. The second
part of our questioner had the purpose to investigate the preferences of the interviewees
regarding sweets consumption, referring to: the frequency of their desire to eat sweets; the
sum of money they allocate per month in order to satisfy their need for sweets; which type of
sweets do they prefer to eat, belonging to Romanian brands or foreigner brands; which are
the main factors that influence their desire to consume sweets and which are the main factors
that influence their consumption satisfaction.
The results of our investigation were tested afterwards for validity, in order to avoid
potential sources of bias, and after the results were analyzed they were presented in a
synthetically manner to the same subjects that we have interviewed, in order to make sure that
the answers that we have centralized are also the appropriate ones. Furthermore, during the
interview session, we made sure that each time there were at least two of us present in the
same room with the interviewees and after each interviewed individual we have confronted
our notes with each other.
The results gathered and centralized in the first section of our research case study are
presented in Table no. 1: Correlation between net salary per month and age (%) on subjects
interviewed and in Figure no. 1: Correlation between the last school graduated and age (%)
on subjects interviewed. The first section included a number of three questions, referring to
subjects’ age, net salary per month (in Euros, with approximation) and the last school that
they have last finished.
Out of the total of forty – five adult individuals interviewed, twenty – five of them
were between 30 and 32 years old and twenty of them were between 33 and 35 years old. In
terms of net salary per month the aspects are presented in the table bellow, with reference to
the subjects’ age category (see, in this matter, Table no. 1: Correlation between net salary per
month and age (%) on subjects interviewed).
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Table no. 1: Correlation between net salary per month and age (%) on subjects
interviewed
Net Salary per month Age (years old)
(Euros) 30 - 32 33 - 35
200 - 250 55% 45%
250 - 300 35% 40%
300 - 350 9% 12%
more than 350 1% 3%
Total: 45 individuals 25 20
Source: the authors own data calculation
According to the data presented in the table above, from the total of 25 individuals
having between 30 and 32 years old, 55% of them earn between 200 and 250 Euros as a net
salary per month, 35% of them earn between 250 and 300 Euros as a net salary per month, 9%
of them earn between 300 and 350 Euros as a net salary per month, and only 1% of them earn
more than 350 Euros as a net salary per month. Furthermore, out of the 20 individuals having
between 33 and 35 years old, 45% of them earn between 200 and 250 Euros as a net salary
per month, 40% of them earn between 250 and 300 Euros as a net salary per month, 12% of
them earn between 300 and 350 Euros as a net salary per month, and only 3% of them earn
more than 350 Euros as a net salary per month. A very important issue here is the fact that we
presented to our subjects a very flexible area from which they were able to choose with
approximation the sum of money which they gain per month in order not to violate their right
to confidentiality issues.
From the figure bellow (see, in this matter, Figure no. 1: Correlation between the last
school graduated and age (%) on subjects interviewed) we can see the correlation that exists
between the age of the subjects chosen to be interviewed and the last school that they have
graduated from. In both cases, the most frequent form of school that the subjects have
graduated from is the faculty, followed by master studies, high school studies and in very few
cases doctoral studies.
Figure no. 1: Correlation between the last school graduated and age (%) on subjects
interviewed
Source: the authors own data calculation
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The second part of our questioner refers to seven questions, some of them structured
and other unstructured questions, aiming to find out subjects sweets consumption preferences.
The first question belonging to the second part of our questioner referred to the frequency of
the need of sweets consumption (question no. 1: “How frequent do you experience the need to
eat sweets?”), and due to this fact the subjects were asked to state weather they feel the need
to eat sweets: a) once a day; b) twice or more than twice a day; c) once a week; d) twice or
more than twice a week; e) other answer (which should have been stated separately). The
data gathered from the interviewed process were represented in the figure bellow (see, in this
matter, Figure no. 2: The frequency of the need of sweets consumption (%) on subjects
interviewed, according to age variation).
Figure no. 2: The frequency of the need of sweets consumption (%) on subjects
interviewed, according to age variation
Source: the authors own data calculation
From the data above we can clearly see that for individuals between 30 and 35 years
old the desire of eating sweets appears in most cases twice or more than twice a week, and in
the case of individuals having between 33 and 35 years old even more often than in the case
of individuals having between 30 and 32 years old, respectively 40%, in the first case,
compared with 37%, in the second case. At a small difference, according to the graphic above,
stay the values of desire to eat sweets in the cases of consumers having between 30 and 35
years old, but when this feeling appears one a week, respectively 34% in the case of having
between 33 and 35 years old, compared with 32% in the case of individuals having between
30 and 32 years old.
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Table no. 2: Sum of money allocated per month for buying sweets (% out of the net
salary)
Sum of money allocated per
month for buying sweets (%
out of the net salary)
30 - 32 33 - 35
Net Salary per month
(Euros)
(years) (years)
10% 12% 200 - 250
11% 11% 250 - 300
13% 14% 300 - 350
15% 16% more than 350
25 20 Total: 45 individuals
Source: the authors own data calculation
The second question belonging to the second part of our questioner referred to the sum
of money that the interviewees usually spend per month on sweets consumption, with the
statement that we have transformed the sum of money spent by them in percentages, finding
out in this manner which part of their salary they usually spend per month on sweets. By
analyzing the data represented in the table above (see, in this matter, Table no. 2: Sum of
money allocated per month for buying sweets (% out of the net salary)), we can see there is a
correlation between the net salary and the percentages individuals usually allocate per month
on buying sweets. We could state that, in both age subgroups (individuals between 30 and 32
years old and individuals between 33 and 35 years old), individuals tend to spend more on
sweets if their net salary per month is bigger. For example, by analyzing the sample collected
by us, 30 – 32 years old individuals having between 200 and 250 Euros per month, tend to
spend around 10% of their net salary on buying sweets, while 30 – 32 years old individuals
having more than 350 Euros per month, tend to spend around 5% more than the 30 – 32 years
old individuals having between 200 and 250 Euros per month on buying sweets. Or, in
addition, for example, 33 – 35 years old individuals having between 200 and 250 Euros per
month, tend to spend around 12% of their net salary on buying sweets, while 30 – 32 years
old individuals having more than 350 Euros per month, tend to spend around 4% more than
the 33 – 35 years old individuals having between 200 and 250 Euros per month on buying
sweets.
The third question belonging to the second part of our questioner referred to which
type of sweets do they prefer to eat, the ones belonging to Romanian brands or foreigner
brands. The data were synthesized in the figure bellow, and consumers were furthermore
asked to name their reasons (minimum two) which they consider relevant in choosing a
foreigner brand instead of a Romanian brand in the matter of sweets tastes (not having
included here the net salary aspects), only in case they did so.
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Figure no. 3: Romanian versus foreigner sweets brands preferences (%) on subjects
interviewed, according to net salary variation
Source: the authors own data calculation
In the figure above (see, in this matter, Figure no. 3: Romanian versus foreigner
sweets brands preferences (%) on subjects interviewed, according to net salary variation) we
have shown the preferences between Romanian and foreigner sweets brands, and we have
compared this evolution with the net salary evolution of our 45 respondents. As a general
conclusion, we have found out from the data gathered and processed, that the more the net
salary rises the more the consumers preferences tend to go from Romanian sweets brands to
foreigners sweets brands. Moreover, we believe that there is a strong correlation between the
net salary and the consumers’ preferences in terms of Romanian versus foreigner sweets
brands. Due to this fact, from the total individuals earning between 200 and 250 Euros per
month in terms of net salary, 12% out of them tend to consume Romanian sweets brands and
only 6% foreigner sweets brands, from the total individuals earning between 250 and 300
Euros per month in terms of net salary, 8% out of them tend to consume Romanian sweets
brands and 10% foreigner sweets brands (we can see a turn in the situation, as compared with
the previous one), from the total individuals earning between 300 and 350 Euros per month in
terms of net salary, 14% out of them tend to consume Romanian sweets brands and 16%
foreigner sweets brands, from the total individuals earning more than 350 Euros per month in
terms of net salary, 16% out of them tend to consume Romanian sweets brands and 18%
foreigner sweets brands. The difference existing in terms of net salary per month can be seen
reflected in two percentages more at each of the last three levels of net salary.
Consumers were furthermore asked to name their reasons (minimum two) which they
consider relevant in choosing a foreigner brand instead of a Romanian brand in the matter of
sweets tastes (not having included here the net salary aspects), only in case they did so, and
we have also synthesized these data, by presenting the four more common answers that we
got from our interviewees: a) the general belief that by paying more for a foreigner sweets
brand it means that in addition they got better quality; b) the brand itself proved to be a key
element in consumers decisions; c) a recent product that came on the market and they did not
tasted it before; d) highly advertised products in terms of sweets brands.
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The fourth question belonging to the second part of our questioner referred to the main
factors that influence consumers’ desire to eat sweets. The respondents in our case study were
asked to put in their order of preferences the factors bellow, and also were asked to bring their
contribution by indicating us other factors that they might consider relevant for their options
in sweets consumption.
The factors are presented bellow, as follows (see, in this matter, Table no. 3: Reasons
for eating sweets):
Table no. 3: Reasons for eating sweets
a) the need for sugar
b) the need for energy
c) the need to improve disposition
d) the desire to stimulate brainwaves
e) the fact that they are a good substitute form for cigarettes
f) the ability to push stress levels down
g) the ability to raise antioxidant levels in the blood
h) the benefit that the taste buds feel
i) the need to live a very rewarding experience
j) the fact that they got them as a gift
k) the fact that they are a good substitute for food
l) other factors
Source: the authors own data calculation
The respondents were able to rearrange the elements above according to their own
preferences, and due to this on the first place stay the need for sugar, on the second place
stays the need to improve their disposition, on the third place stays the ability to push stress
levels down, and on the fourth place is the benefit that the taste buds feel together with the
need to live a very rewarding experience, and on the fifth place the need for energy can be
found (see, in this matter, Figure no. 4: Reasons for eating sweets (%) on subjects
interviewed).
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Figure no. 4: Reasons for eating sweets (%) on subjects interviewed
Legend: Series 1 – total of 45 respondents interviewed
Source: the authors own data calculation
In terms of other factors, the respondents indicated in most of the cases aspects such
as: the fact that they just saw an commercial or someone eating something sweet; the fact that
they were attracted by the shape of the sweets they saw; the fact that they were curious to feel
the taste that a sweet they have just seen than would have.
An extremely important aspect, in our perspective is represented by the factors that
generally influence sweets consumption in Romania, fact that we have represented in the
figure bellow (see, in this matter, Figure no. 5: Factors that influence sweets consumption in
Romania).
Figure no. 5: Factors that influence sweets consumption in Romania
Source: the authors
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By analyzing our data sample and the interview results generated in our case study,
during the time period January – March 2012, we can state that one of the most common
situations in terms of sweets consumption influence factors are: the individuals’ budget; the
preferences and tastes of individuals; the general mood, respectively the individuals’
disposition; the individuals’ health state; the age; the level of education; the level of
knowledge; the individuals’ culture. In this category there are other factors as well, such as
the existing general trends at a particular moment, the season, the existence of a close
celebration day (as tradition or other type of celebration) and so on.
CONCLUSIONS AND IMPLICATIONS
All in all, our conclusion section covers several topics, such as: (1) the main outcomes,
presented in a synthetically manner; (2) the implications of such outcomes; (3) suggestions
for future researches.
For the first part of our conclusions section, we are presenting the main outcomes of
our research, as follows:
a) The research paper topic shows the fact that we have a great interest in to what extent
sweets influence our budget and our behavior as consumers. We have decided to focus our
study on Romanian consumers, and focused on a group of adult individuals having
between 30 and 35 years old, in order to be able to estimate their own spending and their
own budget. In this matter, there was a need for financially independent adults, and that is
the reason why we have chosen this age for our interviewees. In addition, the sample that
we have chosen for our case study is formed out of forty – five individuals that said they
have no health restrictions regarding the sweets consumption; they like sweets and they
are users of this food aliment.
b) According to the data sample analysis, we have discovered that: the more an individual
gets per month in terms of net salary, the more he will tend to spend also for sweets, as
well; as a general trend in the individuals chosen for the case study shows that they feel at
least twice a week the need to consume something sweet; an interesting outcome shows
that the higher the net salary gets for the individuals the tastes in sweets go from
Romanian sweets to foreigner sweets products. Consumers were furthermore asked to
name their reasons (minimum two) which they consider relevant in choosing a foreigner
brand instead of a Romanian brand in the matter of sweets tastes (not having included
here the net salary aspects), only in case they did so, and we have also synthesized these
data, by presenting the four more common answers that we got from our interviewees: a)
the general belief that by paying more for a foreigner sweets brand it means that in
addition they got better quality; b) the brand itself proved to be a key element in
consumers decisions; c) a recent product that came on the market and they did not tasted it
before; d) highly advertised products in terms of sweets brands.
c) The respondents in our case study were asked to put in their order of preferences the
factors bellow, and also were asked to bring their contribution by indicating us other
factors that they might consider relevant for their options in sweets consumption. The
respondents were able to rearrange the elements above according to their own preferences,
and due to this on the first place stay the need for sugar, on the second place stays the
need to improve their disposition, on the third place stays the ability to push stress levels
down, and on the fourth place is the benefit that the taste buds feel together with the need
to live a very rewarding experience, and on the fifth place the need for energy can be
found. In addition, in terms of other factors, the respondents indicated in most of the cases
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aspects such as: the fact that they just saw an commercial or someone eating something
sweet; the fact that they were attracted by the shape of the sweets they saw; the fact that
they were curious to feel the taste that a sweet they have just seen than would have.
In terms of the second part of our conclusions section, we are presenting the
implications our outcomes:
a) Furthermore, we believe that there is a very strong correlation between sweets
consumption and factors such as the individuals’ budget; the preferences and tastes of
individuals; the general mood, respectively the individuals’ disposition; the individuals’
health state; the age; the level of education; the level of knowledge; the individuals’
culture. In addition, there are also other factors that might influence sweets consumption,
by in a slightly smaller way than the previous one, respectively the existing general trends
at a particular moment, the season, the existence of a close celebration day, and so on.
b) Moreover, the society that we live in today tends to influence very easily consumers’
decisions, and in this matter also the consumption of sweets. It is generally known that all
forms of commercials, but mainly the ones that can be both visual and auditory, influence
consumers’ decisions in sweets consumptions. Also, another key factor can be regarded as
strongly influencing consumers desire to eat sweets: sugar products at discounts.
Additionally, in order to focus on the third part of the conclusions section, suggestions
for future researches, we can state the following aspects:
a) Taking into account the general economic trends today, and the fact that all the countries
are strongly being influenced by the economic crisis, we would suggest, as a future
research topic, a study in which consumers might be able to show in which manner (if any
existing, of course), their sweets consumption per week / per month has diminished due to
financial issues;
b) Moreover, we would consider also a generally interesting research topic, the manner in
which the consumption of sweets per month reflects itself in social health care spending.
REFERENCES
1. Tatiana Andreyeva, Michael W. Long, and Kelly D. Brownell (2010), The Impact of Food
Prices on Consumption: A Systematic Review of Research on the Price Elasticity of
Demand for Food, American Journal of Public Health, February 2010, Vol. 100, No. 2,
Government, Politics, and Law, Peer Reviewed
2. Adam Drewnowski (2009), Obesity, diets, and social inequalities, Nutrition Reviews®
Vol. 67(Suppl. 1):S36–S39, doi:10.1111/j.1753-4887.2009.00157.x, internet link:
http://www.bvsde.paho.org/texcom/nutricion/diets.pdf
3. I-Min Lee, Ralph S Paffenbarger Jr (1998), Life is sweet: candy consumption and
longevity, BMJ VOLUME 317 19-26 DECEMBER 1998 www.bmj.com, internet link:
http://www.bmj.com/content/317/7174/1683.short
4. Marie-Pierre St-Onge, Kathleen L Keller and Steven B Heymsfield (2003), Changes in
childhood food consumption patterns: a cause for concern in light of increasing body
weights, American Journal of Clinical Nutrition, Vol. 78, No. 6, 1068-1073, December
2003, internet link: http://www.ajcn.org/content/78/6/1068.full
5. Katri Raikkonen, Anu-Katriina Pesonen, Anna-Liisa Jarvenpaa, Timo E. Strandberg
(2004), Sweet babies: chocolate consumption during pregnancy and infant temperament
at six months, Early Human Development 76 (2004) 139–145, internet link:
www.elsevier.com/locate/earlhumdev
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6. The World Health Organization (WHO) in Europe published a Survey on Health
Behaviour in School-aged Children (HSBC) in 2006, regarding “Young People’s Health
in Great Britain and Ireland”, internet link:
http://www.hbsc.org/downloads/YoungPeoplesHealth_GB&Ireland.pdf
7. Article: See-The-Amazing-Statistics-On-Sugar-Consumption-In-The-U-S (April, 2010),
internet link: http://thevreelandclinic.wordpress.com/2010/04/21/see-the-amazingstatistics-on-sugar-consumption-in-the-u-s/
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A STRATEGIC ANALYSIS OF THE ALBANIAN YOUTH EMPLOYMENT.
Enida Pulaj (Brakaj);
University of Vlora
Amali Cipi ;
University of Vlora
ABSTRACT
The youth in Albania represents the largest part of the capable working force.
However, the ability and the strength to work do not constitute a guarantee finding a suitable
employment, due to limited work places. On the other hand, the internal migration, the
informal economy, the lack of the appropriate policies to promote the employment among
young people and the incongruity between the education and the labour market create an
unfavorable situation for the youth employment. Many of them stay unemployed for a long
time after the graduation while the others remained discouraged by losing the hopes or
choose to have a work unrelated with their profession. The number of young graduates is
very high compared to the work places provided from labour market in Albania. This is a
serious problem and the statistics show alarming figures about this phenomenon affecting
mostly young people without excluding those graduated.
The high unemployment of youth means unused and missing opportunities because the
employment of young generation is also a wide challenge for cooperation including all social
factors such as universities, businesses, institutions, donors and above all the government.
The principal aim of this paper is to make an evaluation and to analyze the issues concerning
the problems of youth unemployment in Albania. An important role in this study has the
determination of the factors which helps the development of this labour market force.
The paper is structured in two parts:
The evolution of the labour market in Albania and the analysis of youth unemployment.
What does the labour market provides for them?! The way how the youth employment can
be developed.
According the purpose of this work there are following the description and
comparative methods.
Key words: youth, graduation, strategies, unemployment, employment policies.
1. INTRODUCTION
“The country`s future depends on its youth”
The long and difficult period of transition which Albania passed during the years ‘90,
as well as other post communist countries in the region, it was accompanied by a series of
economic, social and cultural changes. The statistics rank Albania as the country which stands
for the young population and high levels of unemployment for them (World Bank Data 2010).
The aspirations of young people for education and employment are one of the success factors
towards the economic and social development of a country. The employment of young people
plays an important role, not only from the standpoint of the efficiency and productivity but as
a vital and energy force increasing the technological capacity and development. Youth
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employment is a challenge for everyone because it promotes the cooperation of many factors
such as government, private businesses, universities, state institutions and foreign investors.
The creation of new work places and the youth employment are both the difficult challenges
for Albanian economy. It requires a strong support from macroeconomic policies, stability
and sustainable climate for private business development and successful education policies. It
is noted that Albania is the country that is characterized by young population so it expected to
have the advantage and the superiority in efficiency and productivity if it uses the right
incentives for the youth employment.
Since the first years of transition, governments faced the problem in carrying out the
transition to market friendly schemes, whilst trying to avoid the collapse of the old system,
and ensuring that the beneficiaries still gained access to decent benefits (Cerami, 2005).
Following the changes and the transition of the year’s `90-`91, there were taken a series of
economic and social reforms. The liberalization of prices, the financial market, the creation
of a labour market and the privatization law were some of the radical changes that arose
during the transition period.
However, during this period were observed critical social problems such as poverty,
unemployment, insecurity at the individual as well as at the communal level. These initial
conditions that were created made it very difficult to accept phenomena such as high
unemployment and social polarization.
The large industrialization scale, the absence of the market mechanisms, and the lack
of the competition were typical characteristics of the Albanian market. The local economy
until the last years of the transition was based on:
The labour distribution in manufacturing and in the heavy industry with outdated
technology that was often unproductive.
There existed a limited experience regarding the way the free market and competition
functioned.
There was no free labour market.
The change from a centralized economy to an open economy was difficult. Even
Albania as one of post communist countries faced many problems. The unemployment as a
macro-economic problem affects in the reduction of the living standard and the psychological
problems of individuals. The early years were characterized with an immediate growth of the
number of the unemployed as a result of the interrupted activity of many economic,
agricultural, and industrial companies.
There was achieved the rapid privatization and market liberalization during the
transition period which created an appropriate environment for the domestic and foreign
investments and foreign. Labour market has changed completely during this period. One such
market did not exist before. This is because the state was the only buyer of labour and the
only regulator of the economy including also the labour market.
The employment of young people remains one of the main problems nowadays. Many
young people after graduating stay as job-seekers for a long time or work in different
professions from which they have studied. While, the labour market is little host for the young
people with a low level of education.
The youth investment is the future investment and the high youth unemployment
means missed opportunities and underestimated values. The exclusion from the labour market
that affects young people can have serious effects on economic and social terms. The young
unemployed people are unable to contribute effectively to economic and social development
of the country. Statistics indicates a critical situation of youth employment. Their employment
level is about 20% lower than the national rate of employment. About 43.3% of young
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workers earn a salary, while the rate of all young people self-employed is 13% compared with
about 34.5% for the adults(INSTAT 2010).
Other problems relating to the labour market and the youth employment are:
- The low wages progression.
- The increase of nominal wages but the decrease of real wages that the employees receive as
a result of inflation.
- The minimum wage(Lemos, 2009) determined from the government is less than the
minimum living standards (about 20.000 all or aproximately 140 euro).
- High unemployment disparity by geographical regions. This disparity is highly concentrated
in the northeast region as a consequence of the continual lack of investment and in the central
region due to the uncontrolled flux of population towards this area.
2. CAUSES OF YOUTH UNEMPLOYMENT IN ALBANIA
As Curtain says in his paper there are several reasons or arguments why the
government and the society have to invest in young people such as: giving young people their
fair share of resources, looking young people as vulnerable requiring special attention ahead
of other age groups, economic benefits of investing in young people and the economic returns
from investment in specific types of youth programs, long-term benefits available which it is
based on improving national security by lowering the chances of young people engaging in
violent criminal activity (Curtain, R 2004). But, in Albania as other countries in transition, a
complex mixture of individual, economic, demographic, cultural and political factors
influence the success or failure of young people to find decent first-time employment.
Some important causes are:
A. INADEQUATE LABOUR MARKET CONDITIONS
a. Lacking matching mechanism
In many developing countries labour market institutions scarcely exist or they are
ineffective. The institutions often suffer from a lack of human and financial resources and the
existing staff do not possess the skills to effectively match the supply and demand side (e.g.
through labour market information systems or employment agencies). Also strong regulations
and bureaucracy are obstacles to creating the information flow and transparency that is needed
for a labour market to function smoothly.
b. Labour protection laws
Labour protection laws such as a minimum wage or restrictions on dismissals may
have unintended negative consequences on youth employment. They have to be coupled with
active labour market policies to bring unemployed people, especially youth, into the work
force.
c. Missing employment strategies
Although most countries have recognized youth unemployment as a main problem for
further social, economic and political development, effective and coordinated employment
strategies at national and local level are often missing. Furthermore, in those countries where
strategies exist there is a lack of effective implementation, monitoring and evaluation.
The missing implementation of employment strategies and the lack of synergies between
economic, labour market, education and social policies result in various institutional and
structural problems hamper young people’s access to the labour market. There are taken some
employment incentive strategy, however, at present it is too early to assess the impact of these
policies.
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B. DEFECTS IN THE EDUCATION AND TRAINING SYSTEM
a. Lack of formal education and premature exit from school.
In many countries, the poverty, the discriminatory laws, the religion and social norms
hamper the access of young people, especially girls, to education or force them to leave
school prematurely. Parents do not enroll their children due to inadequate school facilities,
harassment by teachers and lack of stimulus, or just because they need the additional income
from the children’s petty trade activities. Inadequate education impedes access to the formal
labour market and perpetuates poverty, especially among youth from the poorer segments of
the population. This refers to the northern part of Albania which has a low economic and
social development.
b. Lack of education.
As a country which passed a long and difficult transition period, in Albania, it is the
obvious the fact of school drop out for economic reasons. Consequently, a large part of youth
population consists on young people with 9 years of education and 62% of youth aged 18-24
years did not complete secondary education or they are not in education or training process.
So, these young people do not have any kind of training and consequently they face more
problems in the labour market.
c. The outdated curricula
Curricula are often outdated and do not reflect the realities of the modern labour
market and modern society. Furthermore, there is a lack of cooperation between the education
system, the private sector and youth social service providers. Thus, young people are
inadequately informed about the requirements and opportunities of the labour market and do
not possess the necessary technical and social skills. The chances to gain some work
experience during school time or through vocational training (e.g. company internships or inhouse
training courses) are often non-existent.
Another problem is the tendency of labour market increasingly looking for graduate
people at informatics fields and professionals in the technical sciences. However, it is not
difficult to find graduates from the humanities and social sciences in the labour market.
d. Lack of work experience
Due to a lack of work experience and an inability to compete with skilled and
experienced workers as a consequence of inadequate education, first-time job seekers tend to
encounter more barriers to employment. Particularly in times of economic recession young
people are likely to be dismissed before their adult colleagues, partly because the latter
possess better negotiation power and more stable work contracts (last-in-first-out problem).
Both aspects lead to the greater likelihood of young people entering informal and precarious
working relationships, particularly in transition and developing countries (temporary and parttime
work, poorly paid, often high-risk jobs without insurance).
The young graduates of the age of 20-24 years have more difficult to find a job
because of the lack of experience which the market labour requires today. For the first quarter
of 2010 the number of unemployed youth with bachelor education was 4575, 43,737
unemployed people with secondary education, and 63.173 with 9-year education. (The
national employment service 2010).
e. Lack of access to credit and markets
The new business initiatives and entrepreneurship by young people are hampered by
their limited access to credit and support networks. Many credit institutions refuse access to
credit for young people, because they cannot provide collateral. Furthermore, due to
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insufficient information and access to support networks young business people often have
problems getting access to markets.
f. Missing linkages between the formal and informal labour markets
For many young people, especially disadvantaged or marginalized youth, the informal
economy is the main entrance to the labour market. However, in many cases this involves
poor working conditions and the young people have no opportunities for further development
and training. Therefore it is very difficult to advance from the informal to the formal labour
market.
C. THE INFORMAL ECONOMY.
There are different opinions about the role and the size of the informal sector. Some
people think that the informal sector serves as a lubricant for the market economy creating
work places. But this sector has negative effects which serve as barriers for the economic
development. The economic activity of the informal sector coexists with the structured
sectors, even in many cases it competes successfully. Sometimes, the informal sector provides
work places and the incomes for many people, increase the purchasing power, provide a
short-term development and many people seek to maintain this position. All the societies in
transition pass this labour market phenomenon but in certain periods the relationship between
the formal and the informal economy change.
In Albania, the construction sector has a high level of informal labour market which
reaches 20-25%, while the economic informality reaches 7-9% (ILO 2009). Nowadays, this
sector is one of the profitable and important sectors to the Albanian economy, about 7.5%
level of growth. According the data of the informal activity of the labour force, Albania ranks
at 6th place compared with other countries.
3. WHAT SHOULD BE DONE TO ALLEVIATE THIS SITUATION?
Governments around the world are looking for effective strategies to improve job
prospects for young people. Above all, the youth employment strategies need the effective
involvement of young people; they must participate in problem analysis and policy design as
a condition for backing the strategy. The identification of needs and an understanding of the
specific situation of the youth being targeted and the local labour market are essential for the
development of any employment promotion strategy. A detailed local analysis should seek to
determine youth employment problems, challenges and potential solutions.
Strategies for preventing or fighting youth unemployment have to consider the supply side
(supply of employable young people) the demand side (employers demand for labour force)
and approaches to match both sides to each other.
The employment promotion programs were presented for the first time in Albania in
1999.
The main goals to implement in these programs are:
Creating new work places and reducing the unemployment;
Professional training of unemployed job seekers, especially in those areas where is
missing the training capacity;
Helping the private companies to increase their activities and make the best selection of
the labour force;
Minimization of black labour;
Promoting youth employment and specific groups of unemployed.
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Invest in the quality of education and training and improve its relevance to labour market
needs. Education and training programs equip young people with the skills required by the
labour market. Policy coherence and more effective coordination across education and
training systems and labour market institutions should be pursued at all levels, including
between government sectors as well as public employment services, private employment
agencies and education and training providers.
Improve the quality of jobs and the competitiveness of enterprises with a view to
increasing the number of jobs in productive sectors and ensuring job quality for the many
young people who are working in the informal economy.
The employment promotion programs are the only active state programs which act
directly to the group of unemployed job seekers, to encourage them to find jobs for a longterm.
Really, these programs affect the reduction of the number of registered unemployed and
what is more important its scope is to remove them from the passive schemes of income
(payment of unemployment and economic aid).
The professional practice is one of the strategies in the labour market. This program
focuses the young people who have just graduated from their university or high school, both
inside and outside the country, and are unemployed as a result of lack of work experience.
For this reason these young people will be included in professional practices in private
enterprises or public institutions. The Albanian youth will have the opportunity to get the
right experience to have a long term employment as well.
Besides the professional practice program which is an important one in the labour
market regarding the promotion of youth employment, other aims are to be fulfilled are as
following:
1. Ongoing implementation of employment promotion programs where priority will be
given to youth.
2. Effective implementation of the counseling program for employment and occupation,
including the counseling programs at schools, universities and employment office.
3. It should be applied reduced tariffs for professional training for specific groups of
young people.
CONCLUSIONS AND IMPLICATIONS
There are large numbers of young people out of work in Albania and the numbers are
rising in response to the changing economic conditions. The recession, so far, has affected
young people unemployment rates more than any other age group.
Helping young people into work is vital if we are avoiding long lasting consequences
for the young people themselves and wider negative impacts on society and the economy.
Young people can face many different barriers to entering employment, from a lack of work
experience or transport to other disadvantages such as health problems or low qualifications.
The recession is also introducing additional barriers as the labour market becomes tighter and
the opportunities and demand for labour reduce.
The Government has introduced a number of new policies to make sure that the
current generation of young people is not written off to long term unemployment.
There are some programs that promote the youth employment:
• Implementation of a labour market strategy in close cooperation with the private sector.
This refers to the drafting of joint plans to increase employment by improving the
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performance of institutions and improving the business environment and separate businesses
and raising funds to promote and encourage employment.
• The skills development for people in the formal and informal sector. The formal training
courses can teach the skills to help and to highlight their importance.
However, the workplace, whether formal or informal, is the best place to learn and improve
core skills for work. All these workers need to develop skills. Researches in the formal
economy show that new workers use a range of strategies to develop their core skills for work
and 'fit in' to the workplace.
• Entrepreneurship education for young people.
The universities must have their own incubator for the Students' start-ups. The formation of
an entrepreneurship culture can be done through a host of interventions like the use of media,
the creation of literature for inculcating entrepreneurial values, the documentation of cases,
the success stories and behavioral exercises. Students (the young people) have done to proper
and provided with adequate support. Besides the special entrepreneurship training, the
institutions also need to instill certain basic ideas in doing business. The university students
need to done reminded of the importance of this basic train.
Some general rules to promote the linkages
• The improvement of job counseling, placement and information systems for young people,
and monitoring of these instruments.
• Empowerment of Youth Organizations to fight for prioritization of Youth Employment.
Young people should make the best of their potential. Promoting the potential of young
people means the renewal of society and contribution to the country`s values and goals.
• Monitoring of labour standards.
• Promotion of young entrepreneurs.
• The creation of a favorable environment economic, especially for micro, small and mediumscale
enterprises.
•Setting up incentives graces for employers to young people.
• Promotion of the public-private partnerships. Partnership and social dialogue are in
accordance with the principles of market economy, because influence in creating a productive
environment for youth employment and investments made for them.
REFERENCES
1. Albanian Statistics Institute, (INSTAT), Statistics of year 2005-2010
2. Alfio Cerami, “Social Policy in Central and Eastern Europe. The Emergence of a New
European Model of Solidarity?”(paper presented at the Third Annual ESPAnet
Conference “Making Social Policy in the Postindustrial Age”, 22-24 September 2005).
3. Kristina F. Becker, “Fact Finding Study: The Informal Economy”, Swedish International
Development Agency. March 2004
4. ILO (International Labour Office) (2002a). Decent Work and the Informal Economy.
Geneva: International Labour Office.
5. International Labour Organization (ILO), 1972. Employment, Incomes and Equality: A
Strategy for Increasing Productive employment.
6. INSTAT. Labour market in Albania. (INSTAT Report 2009)
7. Richard Curtain, “The Case for Investing in Young People as part of a National Poverty
Reduction Strategy'”, Paper commissioned by the United Nations Population Fund, New
York, released at the Technical Meeting on Promoting Sexual and Reproductive Health
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and Reproductive Rights: Reducing Poverty and Achieving the MDGs, Stockholm,
October 2004
http://www.curtainconsulting.net.au/download_controlled/Youth%20&%20Development/InvestinginYoungP
eopleCurtain14Oct04.pdf
8. Sara Lemos, "Minimum wage effects in a developing country," Elsevier, Labour
economics journal, Vol. 16(2), p. 224-237, April 2009.
9. Private sector and labour market development in Albania: Formal versus informal. April
2004
10. Promoting employment recovery while meeting fiscal goals. International Institute for
Labour Studies, Geneva.
11. The Bank of Albania. Tirana 2007, The Albanian economy, achievements and challenges.
12. The labour code of the Albanian Republic
13. World Bank Data 2010. Retrieved online
http://www.tradingeconomics.com/albania/age-dependency-ratio-young-percent-ofworking-age-population-wb-data.html
14. World Trade Organization (WTO) ‐International Labour Organization (ILO). 2009.
Globalization and informal jobs in developing countries. Geneva
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A CASE STUDY ON THE ORGANIZATIONAL CLIMATE AND STAFF
MOTIVATION IN AN OPERATIONAL STRUCTURE OF THE POLICE
Purda-Nicoară (Netotea-Suciu) Valeria-Liliana-Amelia;
Academy of Economic Studies of Bucharest;
Manolescu Aurel;
Academy of Economic Studies of Bucharest;
Dorobanţu Maria-Roxana;
Constantin Brancoveanu University of Râmnicu-Vâlcea
Lungeanu Emil;
Academy of Economic Studies of Bucharest
ABSTRACT
This paper presents the results of a study conducted in 2012 in the Fraud Investigation
Service (FIS) of the Police Inspectorate of Tulcea, with the purpose to provide information on
aspects that can influence the work performance of employees of the operational structure.
Key words: FIS, staff motivation, workload, difficulties in the activitty
1. INTRODUCTION
The aim of the research is to statistically present the way in which some aspects of the
professional activity are perceived by the police officers in the investigated structure, to find
new ways to increase the degree of motivation of these workers and to make
recommendations for improvement of the identified faults, so as to increase the degree of
achievement of the institution objectives.
The objectives of this study are:
• to know the opinion of the surveyed population on the factors of motivation;
• to identify the attitudes of the police officers with regard to the existing motivational
system;
• to outline the specific aspects of the work environment;
• to gather knowledge of the type of management and the work style of the management
team;
• to gather knowledge of the relationship types existing in the operational structure
investigated;
• to assess the level of stress and psychological comfort faced by the officers in their
specific activities;
• to identify the main problems faced while performing their tasks;
• to assess the degree of satisfaction felt in their work;
• to determine the expectations of FIS police officers from their work;
• to identify the determinants of the activity carried out by the team;
• to identify ways to correct deficiencies found.
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2. AN EVALUATION OF THE ORGANIZATIONAL CLIMATE AND STAFF
MOTIVATION IN AN OPERATIONAL STRUCTURE OF THE POLICE
The researched community is represented by the team of policemen from the FIS
Tulcea, which, on 29.02.2012, had a total number of 22 positions, out of which one belonged
to the chief of service, one was a vacant position, and the remaining functions (20) were
occupied by 17 police officers (two of whom had head office functions) and 3 guards.
The research unit and the survey unit coincide, being represented by civil servants
with special status (guards or police officers), employees of the FIS.
The study was conducted between 01-14.03.2012, through questionnaires administered by a
single operator, interviewing for 2 hours / day, the time necessary to complete a questionnaire
being approximately 30 minutes.
Sample size. For the investigated sample to be representative of the general
community, a margin of error was considered of ± 3% and a probability of 97% results
guarantee. The value of the t coefficient corresponding to the probability above mentioned
(which is found in statistical tables covering the probabilities underlying the coefficient of t
from 0 to 3.09) is 2.17 (Cătoiu Iacob et al., 2009, p 719).
The research sample size was determined using statistical tables prepared by Morgan
and Krejcie, which investigated the relationship between the community size and the sample
size, and which mentioned that the sample corresponding to a sample base of 20 units
comprises 19 units of observation. Under these circumstances, we believe that there is no
question of establishing a method of sampling to identify survey units because, for a correct
characterization of the issues investigated, it is necessary that the sample units to meet 19 out
of 20 units comprised in the community survey (Cătoiu Iacob et al., 2009, pp. 498-499).
Prior to conducting the actual research a pilot survey was conducted on a mini
sample extracted from the established sample, which was to test the questionnaire and its
application by the operator. On this occasion, it was found that the time alloted to the survey
is sufficient, since the time it takes the person interviewed to answer the questions is about 30
minutes. Also, there was an active participation of the subjects in conducting the research, as
they declared they were willing to answer the survey questions honestly. Following the pilot
survey conducted, it was found that it is necessary to improve the quality of the questionnaire,
which is why some questions were rephrased, while in others, the multiple choice answer was
used.
Data collection. The questionnaire used to collect information for the study presented
below contains 22 closed, open and mixed questions, divided into two sections: personal
information of the respondent, and questions on the topic. A total of 20 questionnaires were
distributed, all of which were completed and returned. Of the total questionnaires, 19 were
declared valid, one was canceled due to the presence of errors which could not be corrected.
After gathering the information, a very important role goes to its systematic tabulation using
different variables. Also, special attention needs to be paid to statistical analysis of the
percentages from the tables, as first summary information.
The results of data processing and tabulation of all characteristics and the percentage
calculations are synthetically presented in the following part.
The results of the survey. Summaries of information presented below were obtained
using the following questions in the questionnaire:
1. What is the age category you belong to?
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Table no. Answers to the question "What is the age category you belong to?"
No. Answers No of answers Overall
procentage
1 18 to 23 years 1 5,26%
2 23 to 30 years 1 5,26%
3 30 to 35 years 3 15,79%
4 35 to 40 years 6 31,58%
5 40 to 45 years 7 36,84%
6 over 45 years 1 5,26%
Total 19 100,00%
36.84%
31.58%
5.26%
10,53%
18 to 23 years
23 to 30 years
30 to 35 years
35 to 40 years
40 to 45 years
over 45 years
Figure 1: Distribution of respondents by age
The analysis of contingency table associated with this question provides the conclusion that
the largest part of FIS staff are police officers aged 40-45 years (36.84%), 35-40 years
(31.58%) and 30 - 35 years (15.79%).
2. Have you attended an educational institution belonginh to The Ministry of Administration
and Interior (MAI)?
Table no. 2: Answers to the question "Have you attended an educational institution
belonging to MAI?"
No. Answers No of answers Overall
procentage
1 yes 12 63,16%
2 no 7 36,84%
Total 19 100.00%
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63.16%
internal source (graduated
of a MAI education unit)
36.84%
external source (graduated
other education units)
Figure 2: Distribution of respondents by source of employment (Type of school graduated)
According to the above, a rate of 63.16% of respondents were trained in institutions belonging
to MAI, and the remaining 36.84% were employed from external sources.
3. What is the latest education unit you have graduated?
Table no. 3 Answers to the questions "What is the latest education unit you have
graduated?"
No. Answers No of answers Overall procentage
1 Highschool 1 5,26%
2 Post highschool 0 0,00%
3 College 0 0,00%
4 University 5 26,32%
5 Post university 13 68,42%
Total 19 100,00%
5.26% 0.00%0.00%
26.32% Highschool
Post highschool
College
University
Post university
Figure 3: Distribution of respondents by educational level
According to their training, the distribution of respondents is as follows: 68.42% are
graduates of postuniversitary courses or master’s degree courses, 26.32% are university
graduates and 5.26% are high school graduates.
4. Your experience is:
a. within the institution, your experience is...
b. within the FIS, your experience is...
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Table no. 4 responses to the question "Your experience is:
No.
Within the institution
Within FIS
Experience within
the institution
No of Overall No of Overall
answers procentage answers procentage
1 less than 6 months 0 0,00% 1 5,26%
2 6 months to one year 0 0,00% 0 0,00%
3 1 to 5 years 1 5,26% 4 21,05%
4 5 to 10 years 5 26,32% 8 42,11%
5 10 to 15 years 2 10,53% 3 15,79%
6 over 15 years 11 57,89% 3 15,79%
Total 19 100,00% 19 100,00%
57.89%
5.26%
26.32%
less than 6 months 6 months to one year 1 to 5 years
10.53%
Figure 4 Distribution of respondents by experience within the institution
15.79%
15.79%
5.26%
0.00%
21.05%
less than 6 months
6 months to one year
1 to 5 years
5 to 10 years
10 to 15 years
over 15 years
Figure 42.11% 5 Distribution of respondents by experience within the FIS
Most of the workers have been employees of the Romanian Police FIS for over 15 years
(57.89%), followed by the category who have serviced in the institution of 5-10 years
(26.32%) and 10-15 years (10.53%), those with between 1 and 5 years of experience are less
represented (5.26%).
Considering the period they have served in the structure investigated, it appears that
most officers fall in the range of 5-10 years (42.11%), followed by those who have been
employees of FIS for 1-5 years (21 , 05%), and then, with equal percentages, those with
between 10-15, and over 15 years of experience (15.79%), and those with under 6 months,
with only 5.26% of the respondents.
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5. What does the police work in this department give to you?
Table no. 5 Answers to the question "What does the police work in this department give
to you?"
No. Answers No of answers Overall
procentage
1 Financial stability 3 15,79%
2 Intellectual satisfaction 5 26,32%
3 Opportunity to work in a pleasant 5 26,32%
environment
4 Opportunity of promotion 1 5,26%
5 Nothing more than other positions 2 10,53%
6 Daily routine 1 5,26%
7 Satisfaction of a job well done 2 10,53%
8 Something else 0 0,00%
Total 19 100,00%
5.26%
10.53%
5.26%
10.53% 15.79%
Financial stability
26.32%
Intellectual satisfaction
Opportunity to work in a pleasant
environment
Opportunity of promotion
Nothing more than other positions
Daily routine
Satisfaction of a job well done
26.32%
Figure 6 Distribution of determinants of job satisfaction
Working for the economic and financial fraud investigation deprtment provides the
respondents with mainly intellectual satisfaction and the chance to work in a pleasant
environment (these answers being given by a rate of 26.32% of respondents), and then
financial stability (15 , 79%) and the chance to be promoted in the institution
(5.26%). Meanwhile, 10.53% of employees feel that their work does not offer anything more
than other positions in other fields, and 5.26% said they felt the daily routine, unlike about
10.53% of the police officers investigated, for whom a case well resolved ensures the
satisfaction of a job well done.
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6. Do you believe that, for the work you do...:
Table no. 6 Answers to the question "Do you believe that, for the work you do:"
No. Answers No of answers Overall
procentage
1 You are very well trained professionally 10 52,63%
2 You are not very well trained 2 10,53%
professionally
3 I don’t know/ I won’t answer 7 36,84%
Total 19 100,00%
60.00%
50.00%
40.00%
30.00%
20.00%
52.63%
10.53%
36.84% You are very well
trained professionally
You are not very well
trained professionally
I don’t know/ I won’t
10.00%
answer
0.00%
Figure 7 Perception of respondents on their professional training
Employee training is important for at least two reasons: on the one hand, it is a
prerequisite for good work performance, and, on the other hand, it provides employee self
control, which translates into a good reaction speed.
Regarding the training, over 52.63% of police officers say they are very well trained
for the work they perform, while 37% refuse to answer this question.
7. Do you feel the need for additional professional training?
Table no. 7. Replies to the questions "Do you feel the need for any additional
professional training?"
No. Answers No of answers Overall
procentage
1 Yes 10 52,63%
2 No 9 47,37%
Total 19 100,00%
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Figure 8: Perception of respondents on the need for additional professional training
For continuous updating of professional knowledge, half of the employees feel the
need for further professional training in the following areas (in order of preference): criminal
law, criminal procedural law, financial law, tax, etc.
8. In the context of the country's integration to the European Union, do you consider that you
should be paid at the same level as functional counterparts in the European Community?
Table no. 8 Replies to the questions "In the context of the country’s integration to the
European Union, do you think that you should be paid at the same level as functional
counterparts in the European Community?"
No. Answers No of answers Overall
procentage
1 Yes 13 68,42%
2 No 1 5,26%
3 I don’t know/ I won’t answer 5 26,32%
Total 19 100,00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
68.42%
5.26%
26.32% Yes
No
I don’t know/ I won’t
answer
the respondents' aspirations to
income equality between
Figure 9 Distribution of answers depending on the aspiration to income equality between
themselves and the corresponding officials of the EU
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9. Please placed the occupational stress experienced on a scale of from 1 to 5 (1 = very low,
2 = low, 3 = average, 4 = high, 5 = very high)
Table no. 9 Responses to the question "Please place the occupational stress experienced
on a scale from 1 to 5"
No. Answers No of answers Overall
procentage
1 Very high 7 36,84%
2 High 8 42,11%
3 Average 3 15,79%
4 Low 1 5,26%
5 Very low 0 0,00%
Total 19 100,00%
To evaluate the average intensity of occupational stress experienced in the FIS, the
data in the contingency table above, representing individual assessments of employees
surveyed are distributed on a scale (semantic differential) with 5 levels - from very favorable
(5) to very unfavorable (1). Following this method of scaling, we obtained the following
results:
7 5 8 4 3 3 1 2 0 0 35 32 9 2 78
stress
4, 1052
19
19 19
Given that the reference scale is from 1 to 5, we can estimate that the average value of
these assessments, 4.11, expressed a high level of professional stress felt by workers of FIS
10. Please placed the level of your psychological comfort on a scale of from 1 to 5 (1 =
very low, 2 = low, 3 = average, 4 = high, 5 = very high)
Table no. 10 Responses to the question "Please place the level of your psychological
comfort on a scale of from 1 to 5"
No. Answers No of answers Overall
procentage
1 Very high 0 0,00%
2 High 4 21,05%
3 Average 4 21,05%
4 Low 7 36,84%
5 Very low 4 21,05%
Total 19 100,00%
To determine the overall score recorded by the FIS wellbeing, we can do the same as for
occupational stress, with the following result:
5 0 4 4 3 4 2 7 1 4 46
psychological confort
2, 4211
19
19
The result (2.42) indicates an average of confort felt by police workers.
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11. ”How many hours do you work on an average week?”
Table no. 11 Responses to the question "How many hours do you work on an average
week?"
No. Answers No of answers Overall
procentage
1 40 hours or less 0 0,00%
2 40 to 45 hours 13 68,42%
3 45 to 50 hours 6 31,58%
4 over 50 hours 0 0,00%
Total 19 100,00%
31.58%
0.00%
0.00%
40 hours or less
40 to 45 hours
45 to 50 hours
over 50 hours
Figure 10 Distribution of respondents by number of hours worked, on average, per week
About the workload, approximately 70% of respondents indicated that, on average,
they work between 40 and 50 hours, and the remaining 30% between 45 and 50 hours weekly.
12. Compared to your actual possibilities of fulfilling the tasks, do you consider that the
workload is:
Table no. 12 responses to the question "Compared to your actual possibilities of
fulfilling the tasks, do you consider that the workload is:"
No. Answers No of answers Overall
procentage
1 Overload, difficlut to do entirely 14 73,68%
2 Proper 5 26,32%
3 Underload 0 0,00%
Total 19 100,00%
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Figure 11 Distribution of respondents by perception of workload
13. What are the main difficulties that you face in your activity?
Table no. 13 Responses to the question "What are the main difficulties you face in your
activity?"
No. Answers No of answers Overall
procentage
1 Lack of logistics needed to properly perform 10 52,63%
the tasks
2 Poor working conditions 4 21,05%
3 Overload of tasks in a too short time 9 47,37%
4 Long hours 1 5,26%
5 Others (professional traning) 1 5,26%
Figure 12 Distribution of respondents’ perception about difficulties in their activity
Regarding the perception of labor, among the major difficulties faced regularly, the
police officers mentioned: the lack of logistics including cars, fuels and lubricants, spare
parts, furniture, IT equipment, stationery etc. (52.63%), the large volume of tasks that must be
met in a too short time (47.37%) and poor working conditions (21.05%).
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14. ”Do you think that, within the FIS:”
Table no. 14 Responses to the question "Do you think that within the FIS..."
No. Answers No of answers Overall
procentage
1 There is interpersonal tension 0 0,00%
2 Relationships are rather tense 5 26,32%
3 There are frequent rumours and distorted 2 10,53%
messages
4 There are no tense relationships 12 63,16%
Total 19 100,00%
Figure 13 Perception of respondents on relationships within the FIS
Regarding the existence of tense relations, there have emerged the following opinions:
63% of the group members said that there were tense relations in the structure they belonged
to, and 26% stated that relations were very tense, while over 10 % of the community believed
that rumors and messages often appeared distorted.
15. ”What do you appreciate about the work group?” (Rank on a scale of from 1-4,
where 1 = most, and 4 =least)
Table no. 15 Responses to the question "What do you appreciate about the work group
(ranked on a scale from 1-4, where 1 = more, and 4 = the least)?"
We will resort to the use of rank ordering as a method to rank the hierarchy of the
attributes considered, as follows: first place 4 points, second place 3 points, third place 2
points and fourth place 1 point. Following the calculations, we obtained the following average
scores for the importance of each attribute:
4 4 8 3 7 2 0 1
16 24 14
0 54
lucrul în echipă
2, 8421
19
19 19
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11 4 4 3 4 2 0 1
44 12 8 0 64
unity of the team
3, 3684
19
19 19
professionalism of the
4 4 7 3 8 2 0 1
16 21 16
0 53
colleagues
2, 7894
19
19 19
Based on the averages obtained, it can be said that the police perception of the
working group is closely related to communication and networking. Note that the subjects
interviewed appreciate about the team in which they operate, particularly the facty that it is
quite united, on tne one hand, and the benefits of teamwork and the colleagues’
professionalism on the other hand, in similar proportions.
These conclusions are confirmed by the results obtained from an analysis of the data recorded
in the contingency table above, whereby 57.89% of respondents have a high appreciation of
the team in which they operate, because it is relatively well united, while the rest of the
respondents appreciate the ability to work in a team and the colleagues’ professionalism, to
the same extent (21.06%).
16. „What do you not appreciate about the work group (on a scale from 1-5, where 1 - the
most and 5 - least)?"
Table no. 16 responses to the question "What do you not appreciate about the work
group (on a scale from 1-5, where 1 - the most and 5 - least)?"
Again using the rank ordering method, we will determine the averages obtained by each of the
characteristics the respondents disregarded about the work team, which are as follows:
11 5 5 4 2 3 0 2 1
1
55 20 6 0 1 82
passing the responsibility
4, 3157
19
19 19
2 5 7 4 5 3 2 2 3 1
10 28 15 4 3 60
incompetence
3. 1578
19
19 19
3 5 4 4 8 3 3 2 1
1
15 16 24 6 1 62
superficiality
3, 2631
19
19 19
1 5 2 4 3 3 10 2 3 1
5 8 9 20 3 45
selfishness, arrogance
2, 3684
19
19 19
2 5 1 4 1 3 4 2 12 1
10 4 3 8 12
37
something else
1, 9473
19
19 19
it resuults that the attributes the team of workers of the FIS condemn are, in descending order,
passing responsibility to other team members, superficiality in performing the activity,
incompetence, selfishness and arrogance of colleagues.
Comparable results are also obtained by analysing the contingency table including
police officers’ opinions on the working group. According to the data in the table above, the
issues ranked among the top causes for disapproval are the following: passing responsibility
to other members of the staff (57.89% of respondents), selfishness and arrogance of
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colleagues (52.63%), superficiality in the activity (42.10%) and, last but not least,
incompetence (36.84%).
17. In your opinion, the conditions in which you work are:
Table no. 17 responses to the question "In your opinion, given that you do business
are:"
No. Answers No of
respondents
Overall
procentage
1 Very good 0 0,00%
2 Good 2 10,53%
3 Neither good, nor bad 4 21,05%
4 Rather bad 8 42,11%
5 Inappropriate, unacceptable 5 26,32%
Total 19 100,00%
Using Likert's scale, we can determine the average score obtained by the working
conditions.
The result of 0.8421 suggests that the police perceive the operating conditions as
average, neither good nor bad, if we take into account the reference scale from -2 to +2.
This view is supported by the distribution of interviewees’ opinions contained in the
contingency table, that the FIS workers operate in working conditions which they consider
rather bad (this view was expressed by a percentage of 42.11 % of respondents) or even
inappropriate, unacceptable (26.32%).
18. What bothers you the most at work is..., (in order of frequency , on a scale of from 1-
10, where 1 - most, and 10 - least):
Table no. 18 Responses to question " What bothers you the most at work is..., (in order
of frequency , on a scale of from 1-10, where 1 - most, and 10 - least) "
Occupational stress is an important phenomenon that should be considered when
studying the organizational climate of an institution because it can generate negative effects
cascading first on the individual and then, inevitably, the institution.
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Many of the FIS workers (42.10%) believe that the stress factors that bother them
most at work are (in descending order of frequency) unsuitable working conditions
(inadequate tempreture(no air conditioners or proper heaters, no proper insulation provided by
the doors and windows),the existing furniture being in an advanced state of physical and
moral wear, lack of logistics strictly necessary to perform the activity in good conditions: the
vehicles in use are not acceptable or are not in good condition, there are not enough spare
parts, no fuel and lubricants for them, the existing IT equipment is in an unsatisfactory
technical condition or it is insufficient, also the lack of stationery products and supplies, from
simple ones such as writing paper, folders, envelopes and up to the complex, including
printers, scanners, faxes, etc..) and the work overload. Moreover, police officers are
affected by the large number of overtime hours that they are required to spend at work to
fulfill their duties which they fail to perform during the working hours as a consequence of
the work overload, the excessive bureaucracy or perpetuating bias in performance evaluation,
discrimination and favoritism.
As it can be seen, the identified stress factors are either part of the institution and the
organizational climate (improper work conditions, overtime, excessive bureaucracy, etc.), or
related to workplace relations (subjectivity in performance evaluation, discriminations,
favoritism, etc.). However, it appears that the specific aspects of fraud economic and financial
investigation work (working with offenders, fieldwork, work under time pressure, etc.) are not
perceived by the officers as a great inconvenience.
19. Given a score between 1 and 10 (where 1 - most important, and 10 - least important)
to the following items:
Table no. 19 Responses to the question "given a score between 1 and 10 (where 1 - most
important, and 10 - least important) to the following items:"
For the application of the Fishbein-Rosenberg model, it is considered that the amount
of importance attributed to each of the above factors is equal to 1 and we can correct the
results, as follows:
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According to the results presented in the table above, the most effective possible
motivational factors in police work are: income, occupation and work performed, working
environment, staff, appreciation of others, using one’s skills and autonomy at work, safety of
the job, self-esteem, promotion, working conditions, decisions and leadership style of
management.
20. What style of management is used within your organization?
Table no. 20 Responses to the question "What style of management is applied within
your organization?"
No. Answers Number of answers Overall
procentage
1 Autocratic management style 11 57,89%
2 Democratic management style 8 42,11%
Total 19 100,00%
In terms of management style used in the institution, 57.89% of respondents believe that it is
autocratic, while 42.11% of respondents believe that it is democratic / participatory.
21. At what level, on a scale whose limits are the statements below, do you think lies your
service / office and its management team?
Table no. 21 Responses to the question "At what level, on a scale whose limits are the
following statements, do you think lies your service / office and its management team?"
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In order to study the working environment, the applied questionnaire also included
issues such as how to organize the activity, distribution of tasks, the working style,
communication and accountability in the FIS. As shown in the table above, the answers to
these questions by respondents are distributed mostly in the center of a scale with 5 steps
(50%) and 37.5% of them are shifted slightly to the left, suggesting a climate of cooperation
and a manager working with the team, but who slightly tends to manifest an authoritarian
exercise of management, to determine the role and tasks of bothe the team, and each
individual of the group. The planning and judgment of the conduct of activity fall more to the
management than to the members of the team. The results also suggest that the management
seems more task oriented rather than people oriented and they exercise greater control over
the people than the work itself. However, it is assumed that the work of the department is
conducted in a traditional manner, with no new elements that try to find solutions to improve,
simplify or innovate the working methods. Nevertheless, over 36% of respondents said they
did not know all the criteria for assessing and rewarding the performance at work. The
remaining scores, being centered, do not indicate significant issues developed by one of the
poles.
22. Would you leave this structure?
Table no. 22 Answers to the question "Would you leave this structure?"
No Answers Number of
answers
Overall
procentage
1 Yes, if I were given the opportunity 3 15,79%
2 I would consider such an offer 6 31,58%
3 I would leave this structure for another 1 5,26%
structure in the same organization
4 I would leave this structure for another 0 0,00%
position in a public institution
5 I would leave this structure for a position in 2 10,53%
the private sector
7 I have no intention of leaving this structure 7 36,84%
Total 19 100,00%
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Table no. 23 Responses to the question "If you answered the previous question with one
of 1-5, please indicate which are the most important reasons for you leaving this
structure"
No Answers Number of answers Overall
procentage
1 the level of income 8 66,67%
2 the workload 2 16,67%
3 the work environment 2 16,67%
4 others 0 0,00%
Total 12 100,00%
On the future of the FIS, 36.84% of those surveyed stated that they did not intend to
leave this structure, while 31.58% think that they would consider such an offer, and 15.79%
would change their current job if it were possible. Also, 10.53% of respondents expressed a
desire to leave the FIS for a job in the private sector and 5.26% for another structure within
the same institution. Among the factors that might cause them to try to change their current
job, the officers mentioned the income level (66.67%) the workload (16.67%) and the work
climate (16.67%).
CONCLUSIONS
From the analysis of the research results, the following conclusions can be drawn:
The FIS staff consists of middle-aged police officers (68.42% of whom are between 35 and 45
years of age, and 15.79% between 30 and 35 years), well educated (89.48% were universitary
or postuniversitary graduates; 63.16% of respondents are trained in specialized educational
institutions belonging to MAI) and well experienced, both in police work (a rate of 68.42%
have been employees of the Romanian Police for over 10 years, and 26.32% of respondents
have 5-10 years experience in the institution) and in the work of economic and financial fraud
investigation (42.11% have been working in the FIS of 5-10 years and 31.58% have been in
the service for more than 10 years).
This shows that SIF staff have the ability to perform their assigned work, thus being
provided one of the conditions necessary to achieve a high level of performance in the work
they perform. Also, we should bear in mind the fact that reaching this goal is conditioned by
the employee motivation to engage in the activity that is assigned to them, as possessing the
knowledge and skills needed to perform the tasks is not a guarantee that they will use them to
the interest of the institution.
In terms of satisfaction that the job offers, FIS workers mentioned intellectual
satisfaction (26.32%) and the chance to work in a pleasant environment (26.32%) and, to a
much lesser degree, financial stability (15.79%). The study also shows that the percentage of
those who have chosen income as a factor determining job satisfaction is quite close to the
percentage of police who said that their current position does not offer anything in addition to
other jobs (10.53%), and to the proportion of those who have shown the presence of routine in
their daily activity (10.53%).
It can be seen that police work presents a tendency towards very normal situations in
terms of motivation and job satisfaction consisting in the fact that the individual's higher
needs (the needs of esteem and social recognition) are satisfied to a greater degree than lower
ones (physiological needs, security and safety). A possible explanation could be that the
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police officers interviewd work for pleasure, so that labor efficiency is higher than in the case
of those who are motivated by salary. In reality, things are not exactly so, because, according
to theories of motivation, higher needs met can not replace basic needs. In this case, the
satisfaction felt by FIS workers with regard to their work can only partly compensate for the
dissatisfaction caused by income discontent. It follows that the workers in this group should
be motivated with greater emphasis on financial rewards.
On their professional training, over 50% of staff members considered themselves to be
very well trained, which is a prerequisite for good work performance, but also for a response
rate adequate to thei particular profession.
Since over half of respondents (52.63%) want to attend additional training, it would be
useful to conduct effective training programs, aimed, as they have indicated, at updating the
knowledge of business processes in areas like: criminal law, criminal procedural law,
financial law, tax, etc.
The fact that 68.42% of the respondents think they should be paid at the same level as
their officials counterparts from EU member states, and 84.62% of them consider that they are
as well prepared as those in the Community is an aspect that should be taken into account in
determining the adoption of an effective motivational system because, with open borders, it
has become a real threat the possibility of losing skilled and competent human resources to
other countries that offer reward schemes for employees which exceed the possibilities of the
Romanian system.
On the level of stress, tension and psychological comfort felt daily, most of
respondents (78.95%) believe that they perform a stressful job, which offers them a low or
very low psychological comfort (57.89 %).
The large number of extra hours (all respondents reported that the number of hours
actually worked exceeds that of the main schedule of working hours paid by the institution) is
perceived as one of the major stressors of police work. The need to work overtime comes,
according to the respondents from the fact that the volume of work they must perform is
superior to the real possibilities, due to the relatively short time available, and the multitude of
activities characterized as „emergency” (about 75% of respondents), or due to the unfair
distribution of tasks on workers (21%), the lack of facilities necessary for the activity, the
excessive bureaucracy, the small number of workers, etc. Overloading the police officers
suggests a lack of personnel and an excessive bureaucracy, and it explains the need of
respondents to give up some activities which they consider time consuming and
unproductive,
Among the issues that affect both the workers and the quality of their work one can
point out: the lack of resources necessary to perform (cars, fuel, spare parts), the improper
equipment such as office furniture and IT equipment, the lack of paper stationery, improper
working conditions (microclimate conditions thermally unsuitable, inadequate lighting, etc.).
The team is perceived, overall, as good working environment, without dominant interpersonal
tensions, with constructive relationships based on trust, cooperation and mutual
support. When dealing with relationships, one should not neglect the personality of each
member of the team, which is of particular importance in this regard.
For the analysis of the organizational climate, the applied questionnaire also included
issues such as how to organize the activity, the distribution of tasks, the working style,
communication and accountability in the FIS. The answers to the questions raised by
respondents are distributed mainly in the central part of the scale considered (50%) or are
shifted slightly to the left (37.5%), suggesting a climate of collaboration and a manager
working with the team, but there is also a slightly tendency towards an authoritarian exercise
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of management, in which the task to establish the role and tasks of the team, and of the whole
group, as well as the planning and the decision mode of action of the department, fall more to
the management rather than to the workers. The results also suggest that the manager is more
task oriented rather than people oriented, and he exercises greater control over the people than
the work itself. In terms of perception of management, it would be useful for the respondents’
statements to be viewed in conjunction with their personality characteristics, because a simple
analysis of the climate can not capture the psychological aspects underlying a particular
behavior.
However, the research revealed the fact that the service work is conducted in a
traditional manner, with no new elements that try to find solutions to improve, simplify or
innovate the working methods.
Since over 36% of respondents said they did not know all the criteria for assessing and
rewarding performance at work, it is recommended that increased attention should be paid to
this aspect.
Since the difficulties faced in performing the activity are of an objective nature, as
stated above, there is urgent need to move quickly in the sense of remediation and
optimization.
An effective incentive system should cover all the aspects that the workers refered to
such as income, profession and the work they perform, use of skills and autonomy at work,
job security, working environment, the team, self-esteem, appreciation of others, promotion,
management and decisions style of the managing team, etc., as motivating police is a complex
and dynamic process, which can not be guaranteed but by using a variety of motivational
factors.
We can therefore say that, overall, there is no evidence of special problems in terms of
working climate and management practiced by members of the management team of the FIS.
Also, FIS managers must take into account the fact that the efficiency and performance of the
team they lead can be influenced by how they consider the information on the organizational
climate issues highlighted by this present research.
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1. Anghel, L., Florescu, C., and Zaharia R. Marketing Aplications. Bucharest: Expert
Publishing House, 1999
2. Cătoiu, Iacob (coord.). Marketing Research - a Dissertation. Bucharest: Uranus
Publishing House, 2009
3. Cotoi, Dana. The Role of the Leader and that of Motivation within an
Organization. Craiova: Ed. Sitech, 2010
4. Karwowski, Waldemar. International Encyclopedia of Ergonomics and Human Factors,.
Volume 1. Second Edition. Taylor & Francis Group, 2006
5. Lynch, Ronald G., and Lynch, Scott R. The Police Manager. Sixth Edition. Mattew
Bender & Company, Inc, 2005
6. Manolescu, Aurel, Lefter, Viorel, and Deaconu, Alecxandrina (coord.). Human Resources
Management. Bucharest: The Economic Publishing House, 2007
7. Manolescu, Aurel, Lefter, Viorel, and Deaconu, Alecxandrina (coord.). Ergonomics.
Bucharest: The Economic Publishing House, 2010
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8. Nicolescu, Ovidiu, and Verboncu, Ion. The Fundamentals of Organisational
Management. Bucharest: Universitary Publishing House, 2008
9. Pânişoară, Georgeta, and Pânişoară, Ion Ovidiu. Effective Motivation. A Practical Guide.
Iasi: Polirom Publishing House, 2010
10. St-Vincent, Marie, Vézina, Nicole, Bellemare, Marie, Denis, Denys, Ledoux, Élise, and
Imbeau, Daniel. Intervention in Ergonomics. Quebec: MultiMondes, 2011.
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EMPLOYEE MOTIVATION - A PREREQUISITE FOR SUCCESS
Purda-Nicoară (Netotea-Suciu) Valeria-Liliana-Amelia;
Academy of Economic Studies of Bucharest
Manolescu Aurel;
Academy of Economic Studies of Bucharest
Dorobanţu Maria-Roxana;
Constantin Brancoveanu University of Râmnicu-Vâlcea
Lungeanu Emil;
Academy of Economic Studies of Bucharest
ABSTRACT
In the XXI century, when information replaces steel and oil at high speed, the
corporate world is facing the highest rate of change ever recorded. In the context of this
complex and dynamic economic environment, the human resource is the one that makes the
difference in competition between organizations.
In order to achieve objectives and ensure sustained success, it is imperative that any
company that wants to be successful should identify ways to stimulate performance. But as the
major achievements of the organization depend more than many small achievements on its
employees, managers have a responsibility to motivate them and to ensure that the work
environment leads to satisfaction, by developing a coherent program towards the aim of
motivating the employees.
Recognizing the importance of the human factor in organizational behavior, this
article aims to analyze the theories and models in motivation, their advantages and
disadvantages, so that those interested can have a clear vision of the phenomenon, which
could be the "foundation" of motivation strategies.
Key words: motivation, approaches to motivation, motivational theories
1. MOTIVATION – ITS PLACE AND ROLE IN HUMAN RESOURCE ISSUES
Etymologically speaking, the term “motivation” originated in the Latin word
“movere”, which means moving away.
Over time, the breadth and scope of complex motivation was discussed in numerous
specialized works, so there are many definitions for the concepts involved in the training of
personnel. Although opinions on this issue are quite varied, they revolve, however, around a
common element: the needs of the employees, the unmet needs which are energizers for all
humans.
Thus, some experts believe that "Motivation can strictly be defined as the correlation
of the needs, aspirations and interests of staff within the organization with the carrying out of
objectives and duties, powers and responsibilities assigned within the organization" (Ovidiu
Nicolescu şi Ion Verboncu, 2008, p. 291), while others define motivation as "a force that
energizes, directs and maintains behavior" (Cândea Rodica M. şi Cândea Dan, 2005, p. 181).
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Motivation can also be seen as the action to motivate, or as a trigger of the process
of re-motivation.
Motivation means all the motives - internal (inborn or acquired) or external,
acknowledged or not, physiological needs or abstract ideals - that initiate, direct and maintain
the behavior of a person towards the achievement of a purpose, which, when reached, meets
an individual need. In connection with this definition, one can make the following comments:
• internal motives of the person (such as hunger, the need for security and
recognition) cannot be isolated and observed; only the behavior that they started
can;
• a motivational process analysis draws on the individual characteristics, observing
their behavior on the issue of assumptions about the needs that have initiated them;
• motivation has always resulted in action, in other words, to meet their domestic
needs, people act towards the objectives that they consider to be generating
satisfaction;
• behavior and motivation are notions that can not be mistaken, the first being
determined by many factors (biological, social, cultural, organizational and
psychological), including an important factor- motivation.
In terms of employee motivated behavior, we can say that it is the result of the
interaction between internal or individual factors (perception of tasks, attitudes, needs,
interests, value systems), and the external or organizational factors (payroll, specific tasks,
group work, control and monitoring system, communication, feedback, leisure). Motivated
behavior of the employee results in the meeting of some needs, which ensure a balance
physically, mentally, and spiritually, however, it is fragile and transient, because one satisfied
need leaves the other needs to be met, so there will be a new imbalance that will require
individual re-motivation.
Motivation at work is closely related to at lest three categories of variables involved in
that work: individual characteristics, the job attributes, and an attractive working
environment, all these sets of variables determining employee motivation towards
performance.
In the center of the phenomenon of human resources training there is motivation - the
psychological factor with a role in activating employee performance and efficiency.
2. APPROACHES TO MOTIVATION
At the core of motivation lie human needs, that is the physiological or psychological
states caused by a lack or discomfort, which must be corrected to maintain a balanced state of
the human body.
Motivation has been the subject of many theoretical investigations over time so that
there are several approaches to understanding and explaining it. As far as motivational
theories are concerned, specialists were grouped into several categories, according to several
criteria. One of these classifications, considered more modern and more useful in
understanding organizational behavior is presented below and summarized in the table which
follows:
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Table no. Motivational theories
TYPE OF
THEORY
NAME
PROMOTER YEAR BASIC PRINCIPLES
1.
THEORIES BASED ON CONTENT
1.1. Instinct theory William
James,
Murray Theory
1.3. The hierarchy
of needs theory
William
McDougall
Charles
Carver,
Michael
Scheier
Abraham
Maslow
1.4. ERG Theory Clayton
Alderfer
1.5. The double Frederick
folded theory (the Herzberg
motivationhygiene
theory)
1.6. The XY
theory
1.7. The theory of
acquired needs
D.
McGregor
David
McClelland
1890,
1908
The outbreak of human behavior is
due to instincts
Individual behavior is determined
by twenty "social reasons", whose
hierarchy differs with each
individual
1954, Human behavior is always
motivated and determined
1972 biologically, culturally or
situationally. People seek to satisfy
ongoing needs, which are ranked as
a pyramid with five levels and are
satisfied in a particular order of
priority.
1972 Individual behavior is explained by
the existence of three needs:
existential, relational and
development.
1957 Employee attitudes toward work
depend on two factors: hygienic
(which cause dissatisfaction) and
motivational (responsible for staff
satisfaction).
1960 Managers base their work on two
sets of assumptions, generalizations
and hypothesis about human
behavior: one considered negative,
called theory X, and another,
considered positive, called theory
Y.
1965 People who acquire one of the
needs of affiliation and power
(which can be acquired through
experience and learning) behave
differently from those who lack that
need.
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2.
3.
THEORIES FOCUSED ON THE PROCESS
THEORIES FOCUSED
ON REINFORCEMENT
1.8. The job
characteristics
model
2.1. Theory of
expectations
2.2. Theory of
expectations
2.3. Theory of
equity
3.1.Strengthening
theory
3.2. Theory of
rewards
Richard
Hackman,
Greg R.
Oldham
Victor
Vroom
Lyman
Porter,
Edward
Lawler
J. Stacey
Adams
1976, How employees react to the nature
and configuration of their work
varies with individual
characteristics. For a job to be more
1980 stimulating, it is necessary to act on
its characteristics.
1964 The employee will choose one
behavior of several possible
options, depending on the
likelihood of the alternative
behavior leading to achieve the
desired, expected outcome.
1968 The employee perceives
performance as an opportunity to
receive intrinsic or extrinsic
rewards, which they expect to
achieve by providing a better
efficiency.
1961 Employee motivation is based on
concepts of justice and fair trade
continuously assessed by
comparison with others, regarding
their efforts at work and the
rewards they get as a result of these
efforts.
BF Skinner 1957 Behaviors with positive
consequences tend to be repeated
and behaviors with negative effects
tend to be avoided.
F. Landy 1987 Motivation is a result of
environmental stimuli determining
the individual to take action to
achieve certain desirable objectives
or to avoid unwanted events.
1. The theories based on content and the theories of triggers claim that people have
needs that can be met, to varying degrees by factors that initiate motivated behavior. In the
category of these theories, we mention the following:
1.1. The instinct theory is the result of the contributions of James (1890) and
William McDougall (1908). It states that human behavior is determined by basic instincts
(such as repulsion, curiosity, assertion, the parenting instinct etc.). Initially, William
McDougal developed a list of eighteen instincts, considering that they are responsible for all
human behavior; the list was completed later because it was considered to be insufficient to
explain all human behavior. The theory of instincts, classified as the ethological perspective
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was completed with the socio biological aspect, according to which all human behavior is
motivated by the fundamental need to send our genetic potential of future generations. One
criticism of the theory of instincts and of the socio biological perspective is that they do not
take into account the learning process and culture specific to humans, and their possible
effects (Pânişoară Georgeta şi Pânişoară Ion-Ovidiu, 2010, pp. 28-31).
1.2. Murray's theory, developed in 1964, was considered, chronologically, one of the
pioneers in explaining the phenomenon of motivation. The author identified twenty "social
reasons" (obedience, achievement, affiliation, aggression, autonomy, counteraction or
neutralization, defense, deference, dominance, exhibition , neutralizing negative effects,
avoiding unpleasant situations, caring and helping, order, sense of play, rejection,
sense/sensitivity, sensuality, sexuality, self-support and aid and cognitive understanding) that
cause certain behaviors, presented in alphabetical order. Showing slightly overlapping
explanations, these reasons were not ranked or structured in any way, because Murray was of
the opinion that each of the individuals has his or her own hierarchy of needs. Murray's list
was slightly enhanced by Charles Carver and Michael Scheier, who grouped the reasons into
five categories as follows: ambition, national defense, responses to others’ powerful
behaviors, love between people, information sharing.
1.3. The hierarchy of needs theory or "the pyramid of needs" was promoted by
Abraham Maslow in 1954 and it is one of the most popular motivational theories. The author
says that motivation is one of the factors that determine human behavior, which is almost
always motivated and determined biologically, culturally and situationally. Maslow's
motivational theory is a progressive hierarchy of human needs and it is presented as a pyramid
with five levels, whose satisfaction takes place in a certain order of priority (from base to top
of the "pyramid of needs"), as follows:
a. physiological needs are the starting point for the motivation theory, represented by
basic physiological necessities such as food, water, oxygen, shelter, rest, etc., whose
satisfaction ensures individual survival. Maslow said that the physiological needs
prevail, they can not be ignored by the individual at the time of their occurrence, so
the individual shall act to solve them; once they are satisfied, physiological needs are
no longer a priority for the body, so that the individual will focus on higher needs that
need to be satisfied. In an organization, ensuring these needs can be achieved by the
existence of a salary, good working conditions, a canteen inside the unit, air
conditioning, the optimum operating temperature and so on.
b. security and safety needs (personal security, protection against threats and hazards,
job safety) are above physiological needs, being the following category of needs that
can motivate. At the organizational level, this set of needs involves paying attention to
the management regarding work safety conditions, wage growth with inflation,
securing the existence of a pension, medical care etc.
c. social needs include the needs of belonging to a group, the need of acceptance,
friendship, comradeship, love, etc. They can be satisfied through communication,
involvement and social interaction and they become active after the needs of the lower
orders are met. At work, they turn into a desire to establish relationships with other
employees, to create strong links with members of team work, etc. to have a
competent manager.
d. self-esteem needs, the need for social recognition or the needs of the self, the ego
are above social needs and they concern each individual's desire to be respected by
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others, to have their prestige and achievements, their reputation and status in the
organization recognized. They refer to two categories of needs, according to Maslow,
as follows: on the one hand, self-esteem, power, social adequacy and reliability to the
world, on the other hand, the prestige, reputation, attention and appreciation from
those around. If met, these needs determine the sense of self confidence, self value,
power, confidence that can be useful and otherwise, they can cause feelings of
inferiority, weakness, helplessness, inability, and they can lead to discouragement or
compensation neurotic behavior (Pânişoară Georgeta şi Pânişoară Ion-Ovidiu, 2010, p.
38). At the organizational level, the meeting of this set of needs can be achieved by a
positive performance evaluation process, by providing positive and negative feedback,
by appreciating the employee’s work, by delegation of responsibilities, etc. (Cândea
Rodica M. şi Cândea Dan, 2005, p. 189).
e. needs of self accomplishment ("self-actualization" or accomplishment) concern the
need of spiritual development, training, self-esteem, fulfillment and realization of
individual potential and this is the maximum level, at the top of the "pyramid of
needs".
Later, Maslow grouped the first three levels of this hierarchy in the inferior
needs and he called those of the fourth and fifth stage higher needs.
Later, during 1970 (1972), the author developed this theory, adding two levels to this
hierarchy, namely the needs for knowledge (referring to the need to know, understand
and explore) and aesthetic necessities (symmetry, order and beauty), located
immediately below the needs of self esteem.
The two principles underlying Maslow's model are:
the regression principle, which stipulates that a satisfied need no longer
motivates;
the principle of progression, stipulates that the higher order needs are
activated only when lower level needs have been met, at least partially.
Following the investigations it was established that the model launched by
Maslow has some limitations due to the fact that the higher order needs of a person
become more important as they climb in the hierarchy and that individual needs vary
by career stage, size of the organization or individual characteristics.
The superiority of this approach to motivation applicable in all areas of life
consists in the validation of the work environment as a social environment, which
provides employee satisfaction, both pecuniary (money and other rewards), and
emotional (respect, recognition, interactions, and pride to be important, useful, due to
promotion and fulfillment or positive feedback).
1.4. ERG theory and the theory of "existence, relatedness and growth", which was
promoted by Clayton Alderfer, in 1972, is the concentration of Maslow's classification,
explaining motivation through three types of needs:
the basic or material needs or (E for Existence Needs), similar to the physiological
and the safety needs in Maslow's pyramid, which can be met through food, air,
working conditions, adequate wages and bonuses;
relational needs (R for relatedness), which is equivalent to the needs of belonging
and esteem in the "needs pyramid", and their satisfaction is determined by way of
relating to others;
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development needs (G stands for growth), which refers to self-realization,
recognition of merits, to maximizing the individual potential, developing new skills
and creative skills.
The ERG theory is based on the principle of progressive satisfaction, according
to which the satisfaction of needs on a lower level allows the individual’s needs to
move higher, toward the next level, like in Maslow’s hierarchy.
The ERG theory differs from A. Maslow's theory by three elements:
• an individual may seek to satisfy two or more goals simultaneously;
• it admits that some individual needs can be prioritized differently, which gives it
more flexibility than in the case of Maslow's model;
• it is based on the principle of regression due to frustration, which argues that an
unsatisfied higher order need increases the need to meet one or more lower-level
needs (Craiovan Mihai-Petru, 2006, p. 58).
1.5. The motivation-hygiene theory developed by Frederick Herzberg argues that
employee attitudes to work depend on two categories of factors: hygiene (extrinsic, relating to
context) and motivating (intrinsic, development or content). The first category of factors are
usually related to working conditions and it includes: payment of unethical labor, annoying
supervision, unfavorable working conditions, tense interpersonal relationships - formal and
informal -, questionable job security, unexplained uncertain and distant personnel policies of
the organization management, different from the wishes and aspirations of employees, etc.
(Drăghici Constantin-Victor et al., 2011, pp. 210-211). The second category refers to the work
itself and revolves around the values of achievement, advancement, recognition, responsibility
and personal development. Hezberg's theory argues that job satisfaction is determined only by
a kind of factors (the motivators), while dissatisfaction is due to another type of factors (the
hygienic). According to this theory, hygienic factors have a greater potential to cause
dissatisfaction than satisfaction, and motivational factors are responsible for the appearance of
satisfaction. We must consider that the presence of hygienic factors does not generate
satisfaction, but it simply serves to prevent dissatisfaction, while their absence or
insufficiency increases dissatisfaction at work. We must also take into account the fact that
the presence of motivational factors results in increasing job satisfaction, while their absence
does not cause dissatisfaction.
1.6. XY theory was developed in 1960 by D. McGregor. He issued two sets of
assumptions about the attitudes and beliefs on behavior management and motivation of
workers at work, namely: one, considered negative, called Theory X and another one, a
positive theory called Y, which were designed based on different styles of management. The
assumptions made by the author in these theories are (Voicu Costică şi Prună Ştefan, 2007,
pp. 281-282):
• Theory X assumes that employees dislike work and they will act effectively only in a
highly controlled environment, and it includes the following assumptions:
human beings dislike work and try to avoid it;
umans are passive in the work process and they avoid to take over
responsibilities;
employees seek to satisfy their own needs;
people want security and stable jobs;
people resist change;
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under these conditions, managers usually resort to the strict control of the
employees, to constraints and threats to achieve the objectives of the
organization;
• Theory Y assumes that employees accept responsibility at work and they do their
best to achieve the objectives of the organization, when given a reward for it and it
includes the following assumptions:
people do not dislike work and physical and intellectual effort at the
workplace is considered as natural as recreation and leisure activities;
the average person is able to take over responsibilities and they have
a considerable creative potential;
people are interested in achieving organizational objectives, they are
convinced that it will bring personal rewards;
the employee is concerned with their own safety, but they also wish for job
satisfaction, esteem and personal achievement;
organizations generally do not make special efforts to ensure the efficient
use of resources and manpower.
Trying to eliminate the disadvantages and advantages of the two theories
together, W. Ouch combined them and proposed a new model: theory Z, based
on the following principles:
mutual trust;
respect for labor;
independence and development of employees;
versatility;
selection and training of staff etc.
1.7. The theory of acquired needs, also called theory of success
acquisition, promoted by David McClelland in 1965, is based upon the idea that the needs are
a reflection of personal characteristics and they can be acquired through
experience and learning. This theory argues that people who acquire one of the needs studied
by McClelland (the need for achievement, affiliation and power) behave differently than those
who do not have that need, as follows (Pânişoară Georgeta şi Pânişoară Ion-Ovidiu, 2010, pp.
43-45):
• people with need to achieve prefer:
moderately difficult tasks and objectives because they provide maximum
opportunity to be achieved, unlike most difficult which present a risk of not
being satisfied or very light targets, whose realization would cause a low
level of satisfaction;
to assume personal responsibility for performance, based on their own
abilities and efforts rather than to acknowledge the work of teammates or
chance intervention;
to know how well they performed the task, so as to receive feedback in this
regard;
to avoid routine, to identify new ways to perform their activities;
• people need for affiliation are characterized by a pronounced so-called "social
intelligence", which means that they quickly learn the social networks of the
organization, they are frequently open to communication with those who form
these networks and they try to avoid conflicts;
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• people with a prevailing need for power are characterized by a desire to influence
or control others.
McClelland's model addresses the needs of higher order; it supports the importance of
training staff and training programs and promotion of managers.
1.8. The job characteristics model (Currie Donald, 2009, pp. 239-240) is based on
the idea that how employees react to the nature and configuration of their work varies by
individual characteristics. This theory is the result of research conducted by J. Richard
Hackman and Greg R. Oldham (1976, 1980), who identified five essential characteristics of
the job, as follows:
variety of skills - refers to the number skills necessary for the efficient
execution of tasks;
task identity - the extent in which the employee performs their task fully, not
partially;
significance of task – reflects the way the employee’s work touches the lives of
other people (if there is such influence);
autonomy - is the degree to which employees are free to express their judgment
in their work;
feedback - the extent to which job content performance indicators are provided.
2. Theories focused on the process, emphasizes the factors that direct motivated
behavior, and they show how employee behavior can be channeled towards the desired
behavior through motivational processes. This category includes:
2.1. expectations theory, also called the expected performance theory, the theory
of instrumentality, or VIE theory (the acronym refers to the terms valence V,
instrumentality I, and expectation E), was initiated by Victor Vroom in 1964. This theory
states that employee behavior will be chosen from several possible options, depending on the
likelihood of the alternative behavior to lead to obtaining the desired, expected result. The
relationship between behavior and expected results depends on a complex of individual
factors (needs, skill, ability, etc.), and organizational factors (organization control, reward
system, performance) and it can be characterized by three measurables:
valence or preference, reflecting the value anticipatingly attributed by the
employee to the results of his work. It can be negative when the individual
considers unpleasant results, generating dissatisfaction (fatigue, conflict,
overload), null, when the rewards are immaterial to them, or positive, if the results
of his work are rewarding (high salary, social support, autonomy);
instrumentality, is the belief that the employee will receive rewards commensurate
with the contribution to the work. For example, instrumentality is low, when an
employee is required to have the best performance in conditions where wages are
low, zero, if the employee sees no link between performance and pay (as in the
case of fixed wages) or greater, when the employee expects to get the rewards
(evidence of gratitude, bonuses, advancement, etc.) for better results (Craiovan
Mihai-Petru, 2006, p. 60);
expectation expresses the extent to which the employee believes that a certain
behavior will lead to obtaining a particular result. Although, usually, the worker
believes that the efforts and efficiency obtained are interrelated, in some cases (for
example, when the equipment is obsolete, the materials are of poor quality, there is
improper equipment, information, skills and insufficient support) the employee
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making efforts, but the performance remains unsatisfactory, the employee may end
up being demotivated.
According to Vroom's theory, motivation is directly proportional to the
expectation, instrumentality and valence:
MOTIVATION = EXPECTETION x INSTRUMENTALITY x VALENCE
Analyzing this relationship, we can draw the following conclusions:
direct proportionality is necessary and sufficient to achieve the optimal
motivation;
motivation can not exist without one of those three factors.
The main contributions of Vroom's theory are that it aims to explain how
individual goals influence efforts and that it supports the idea that individual
choice of behavior depends on how the individual is led to the ultimate goal.
2.2. based on the theory of expectations, Lyman Porter and Edward Lawler (1968)
developed a more comprehensive model of motivation, which was applied in particular to the
managers. This model argues that workplace performance produces satisfaction and the levels
of motivation, satisfaction and performance are determined by individual perceptions of the
results. The authors say that the effort is required, but not enough to achieve good
performance and for this, the employee should also have the required knowledge, skills and
the type of personality. However, performance at work is determined, in particular, by the
effort of the worker. The employee sees performance as an opportunity to receive intrinsic
rewards (professional fulfillment, updating knowledge, etc.) or extrinsic (related to working
conditions and social status), which are kept in balance, leading to a fair reward, and thus
determining satisfaction.
2.3. The theory of equity belongs to J. Stacey Adams (1961) and it is based on the
concept of justice or fair exchange. According to this theory, motivation is a dynamic,
relational process, and it depends on the people’s continuous comparisons between their own
rate of transformation of inputs into outputs and the rates of transformation of others, as well
as the decision on equity. The status of equity can be seen when the rates shown above are
perceived as being equal and the status of inequality when these rates are different.
People consider inputs to the organization on the part of each person: their age, sex,
education, qualifications, skills, etc., and outputs (tangible or intangible): salary, awards,
benefits, prestige, etc.
On the organizational level, employees compare their own efforts at work and the rewards
resulted from these efforts to the same ratio in another person or another group. From these
comparisons, the result can be employee job satisfaction, if the relationship between these
ratios is equal or dissatisfaction otherwise. The appearance of inequity can cause
discouragement and demotivation of workers, and, to restore equity, they may act in one of
the following ways:
• cognitive changing their own inputs or outputs;
• cognitive changing the inputs or outputs of others;
• changing the basis for comparison;
• changing inputs;
• changing outputs;
• abandonment of employment.
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3. THEORIES FOCUSED ON STRENGTHENING focus on factors that determine
repeated behavior, and in this category there are:
3.1. Theory of reinforcement, also known as the theory of operant conditioning, or
the theory of strengthening, developed by BF Skinner, has identified a number of links
between rewards and results. The basic principle underlying this theory maintains that a
positive behavior tends to be repeated and behaviors that have unpleasant consequences tend
to be avoided. Thus, at the organizational level, performance can be enhanced and directed
towards the goals by providing appropriate rewards for good performance, resulting in
reinforcing the behavior that led to these performances, to ensure the likelihood of their
recurrence.
The disadvantage of BF Skinner's theory is that the emphasis is on extrinsic factors,
excluding the idea that work itself can be a motivating factor.
An application of this theory at the organizational level is that managers can reinforce desired
behavior and punish those unwanted by one of four methods (Craiovan Mihai-Petru, 2006, p.
63):
Positive reinforcement is the desired positive result of a certain behavior and it aims to
increase the frequency of that behavior, using material benefits (pay increases,
bonuses, profit participation, etc.) or others (e.g., a note of assessment or a letter from
the Director General, etc.)
negative reinforcement is to avoid unpleasant consequences with a desired behavior
(e.g., employees who are reprimanded by their superiors for a delay or unsatisfactory
performance will realize that they can avoid the unpleasant consequences by being
punctual or by a better performance);
extinction is a sanction consisting of withdrawal of pleasant consequences, due to
unwanted behaviors. Applying extinction takes place in three stages: identifying
behavior that is intended to be eliminated or reduced, identifying the reinforcer which
encourages the unwanted behavior, and eliminating the reinforcer.
punishment reflects an unpleasant consequence, following an undesirable
behavior. Even if the penalty produces fast results and managers often tend to use the
application of penalty, it should be applied only where strictly necessary and
progressively, depending on the frequency and seriousness, because it may have more
serious consequences than the behavior that it is intended to remove (absenteeism,
resignations, sabotage, apathy, hostility, fear, etc.).
3.2. theory of rewards promotes the idea that motivation is a result of environmental
stimuli that cause the individual to perform certain actions to achieve desirable goals or to
avoid unwanted events. According to this theory, the reward is the force that causes the
individual to act and say that some goals are so desirable, that they motivate behavior, even in
the absence of internal needs (e.g., eat a cake that is appetizing, even if we are not
hungry). Similarly, it was found that some objectives have such a low value, that the
individual tends to reject them, even if they could meet certain minor needs (for example,
some individuals will avoid to eat live worms, even if they are hungry and they know they are
considered delicacies in some parts of the world, or that they are an excellent source of
protein).
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CONCLUSION
Addressing the complex issues of performance by those responsible with managing it focuses
on two aspects: the ability of employees to perform their duties according to the job
description, and their willingness to undertake this activity. The aims mentioned above can be
met by organizations, both through a strong and reliable recruitment and selection, which is
necessary to ensure competent people and / or suitable for training and through the capacity of
building programs for employees to enhance the quantity and quality of their activities within
each job, which will ultimately be reflected in the organization's performance.
“Finally a last remark, considered essential by us: the success of substantiation, elaboration
and implementation of a strategy depends on the motivating of the factors involved. By this,
one should consider a decisive conditioning of the strategy to the human dimension of the
institution” (Ovidiu Nicolescu şi Ion Verboncu, 1999, p. 188).
From all of the above facts, we can draw one conclusion: people ought to be motivated!
REFERENCES
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Management. Bucharest: Economic Publishing House, 2005
2. Craiovan, Mihai Petru. Introduction to Human Resources Psychology. Bucharest:
University Publishing House, 2006
3. Currie, Donald. Introduction to Human Resource Management. Bucharest: CODECS,
2009
4. Drăghici, Constantin Victor, Pahonţu, Lucian, Iacob, Adrian, and Constantin, Ciprian.
Motivational Factors in the Activity of Civil Servants in the National Penitentiary
Administration. Craiova: Sitech Publishing House, 2011
5. Nicolescu, Ovidiu, and Verboncu, Ion. The Fundamentals of Organization Management.
Reprint edition. Bucharest: University Publishing House, 2008
6. Nicolescu, Ovidiu, and Verboncu, Ion. Management. Third Revised Edition. Bucharest:
Economic Publishing House, 1999
7. Pânişoară, Georgeta, and Pânişoară, Ion Ovidiu. Effective Motivation. Practical Guide.
Iasi: Polirom, 2010
8. Voicu, Costică, and Prună, Ştefan. Police Organizational Management. Theoretical
Fundamentals. Bucureşti: MediaUno, 2007.
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FOREIGN DIRECT INVESTMENTS AND THE ECONOMIC GROWTH IN
ROMANIA
Magdalena Rădulescu,
University of Pitești, Romania
ABSTRACT:
Most part of the FDI specialists thinks that FDI had a positive impact upon the economic
growth in the receiving countries. They had shown that there is a direct relation between the FDI
fluxes (as percent from the GDP) and the growth GDP/habitant not just for the developed countries,
but also for most of the countries in development. The countries in transition need FDI not just to
produce more goods and a higher quality. Foreign capital investments are the most efficient and safe
way to integrate into the world economy. Concluding, this factor is also very important, only direct
foreign investments would allow us to re-specialize our economy, to overtake the situation when we
maintain on the world market only with food products and raw materials. Indeed, accumulated
experience shows that FDI had substantially enhanced the national economies re-specialization
processes all over the world. The author shares the opinion of those specialists who affirm that FDI
play a determinant role in re-specializing transition economies and increasing the export potential,
production modernization; third, FDI growth leads to the increase of manufactured production
quantity.
Further, we will examine some structural changes, which had been made, under the influence
of FDI, in Romania and using VAR techniques we will examine the impact of FDIs on economic
growth in the short-run and in the long-run.
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GERMAN INFLUENCE ON THE COMPETITION POLICY OF THE EU
FROM THE HISTORICAL PERSPECTIVE
Romana Mikhel
Humboldt University of Berlin
ABSTRACT
This paper attempts to study the influence of German competition law on the
development of the competition law of the European Union from the historical point of view.
Germany was the first country in the European Community that has adopted rules against
restraints of competition that’s why it has had a considerable influence on the development of
the antitrust rules and merger control in the Community.
cartel
Key words: European Union, Germany, competition policy, concentration, merger,
1. INTRODUCTION
The 1950 th are characterized by the fact that during these years there were not only
adopted three major antitrust laws: British Practices Act (1956), German Act against restraints
of competition (1957) (Gesetz gegen Wettbewerbsbeschränkungen (GWH)) and European
Treaty of Rome (Treaty establishing the European Economic Community (EEC)), then the
Treaty of Rome (1957), but also a new active antitrust policy was implemented. Since then,
Europe has experienced rapid changes in the competition policy at the Community level and
Member States level. Most national laws have been amended according to demands of the
European Community to adapt their legislation with the articles 85-90 of the Treaty of Rome
91957) for the purposes of antitrust jurisdiction.
At the initial stage of the European competition policy, the founding Member States,
except Germany, had no clear rules that regulated competition as it was stipulated in Treaty of
Rome. Belgium and Luxembourg didn’t have legislation that regulated the competition; the
Dutch had a weak law on economic competition, developed in 1956. In Italy, monopolies and
restrictive practices were regulated under the Civil Code, while the French law had detailed,
but very weak regulation of restrictive business activities. Thus, Germany at the end of the
1950s was the only country with a strict regime of competition and therefore could participate
actively in forming the competition policy of the European Community. Nowadays Germany
still has a significant influence on the policymaking of the European Union what naturally has
its historical background. This background explains us why Germany is so important not only
in Europe, but also in the world.
2. LITERATURE REVIEW
The competition policy of the European Union was highly approached in the
specialized literature during the last decades. Hildebrandt (2002) pays a special attention to
the history of the European competition policy development. It’s shown the influence of
German social market economy and the development of the European economic thought in
the field of competition and antitrust. Special attention Hildebrand (2002) pays to the
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description of two main articles of the Lisbon Treaty – Article 81 and 82, that regulate the
competition rules in the European Union, as well as to the practices of merger regulation.
Hildebrandt (2002) analyses the activity of the European Commission toward the
improvement of the EU competition law.
Martin (1998) very precisely analyses the competition policy of the European Union’s
Member States. The author takes the main Member States such as Germany, UK, the
Netherlands, France, Belgium, Ireland, Italy, Portugal and Spain. He analyses the role of the
competition policy with the respect to regulated industries as well as the implementation of
the competition policy for the first time in Member States.
Cini and McGowan (1998) state that “European competition policy is one of the
Commission’s flagship policies”. It is no more complex or “technical” than any other
European policies”. The author looks through the history of the European Competition Policy
and remark the role of the German competition policy in it. They analyze the restrictive
practices policy, monopoly policy, restrictive practices, as well as merger policy and state aid.
Johann Eekhoff (2008) states that competition policy has “played a decisive role in the
creation of a more prosperous, competitive and integrated European economy.” The author
studies specific markets, such as labor market, European health care system and transport.
Haidenhain and Schneider (1991) give a very precise description of the German
antitrust law, namely The Art against restrains of competition. Moreover the authors compare
the European and German competition law.
Kokkoris (2011) examines the phenomenon of mergers and “non-collusive
oligopolies”, and their regulation in the EU. The author concludes that the dominance test was
inadequate in capturing non-collusive oligopolies and the reform of the substantive test was
justified and necessary.
Müller (2010) compares competition policies of the United States, Germany and
European Union and their influence on each other. The author highlights the respective roles
and functions of private damages claims in the institutional framework of antitrust
enforcement in the legislative systems of the above mentioned countries.
Sebastian Eyre and Martin Lodge (2000) examine the process of the Europeanization
in the sphere of competition policy on the example of Germany and the UK. The authors
provide a detailed account of the reform processes and responses to the introduction of
European legal instruments in the domain of national competition policy.
Wise (2007) states that “the competition policy of the European Community is now in
transition toward a basis in market-centered economic considerations, as well as on
application through the now-extensive network of national level authorities”.
3. PAPER CONTENT
EU Competition rules are based on the views of the European economic school,
particularly Freiburg School. European School is built into the concept of social market
economy with a focus on consumer welfare. In terms of Freiburg School, the economic order
based on the competition is the only way to achieve sustained economic performance and
stability. However, competition cannot fulfill its integrative function, unless it is in the
appropriate form. The representatives of the Freiburg School headed by Walter Eucken
believed that the market form of perfect competition should be restored and maintained.
The Freiburg school of thinkers shared the concept of early liberalism that set a
competitive economic system as a necessary condition for the prosperous, free and just
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society. They were convinced that a society could develop only when the market is embedded
in the constitutional framework. This framework is important to protect competition from the
distortion.
The model of perfect competition has set basic standards for the European competition
law. This model requires that the law prevented from the creation of the monopolistic power,
abolished the existing monopolistic structures, where possible, and where it is impossible,
controlled the behavior of the monopolies. The prohibition of monopolies was primarily
focused on cartels and other anticompetitive agreements between market participants. This
concept of competition law drew attention to one important problem – the private economic
power. This broad concept of economic power is one of the features of thinking of the
German and European competition law, which distinguishes it from most American
counterparts of the antitrust law.
This fundamentally new concept was applied in German political agenda
(Ordnungspolitik). It is believed that the ordoliberal concept of competition law has played a
key role in the success of Germany's social market economy, the evolution of German thought
and its relation to the economy and society. German ordoliberalism had a significant impact
on competition rules. That’s why some provisions of competition law were incorporated into
the Rome Treaty under German pressure.
The proof of ordoliberal impact on the EU institutions and practices is the
participation of German officials in the creation of European Community. In fact, ordoliberal
effect was particularly evident and direct in the sphere of competition. Germany was the only
country in Europe, which had at that time competition law, became a leader in the
development of the community competition law. Much of the debate on competition policy
took place in Germany, which also influenced the development of competition rules in the
Treaty of Rome and the work of the Commission in the early years of its work. For example
the first president of the European Commission was Hans von der Groeben who was one of
the developers of the so-called “Spaak Report'”, the document on which the Treaty of Rome
was based (Hidebrandt, 2003). Thus, especially in the early years of the functioning of the
European competition law, ordoliberal thoughts set the tone for the Community’s competition
policy.
The negotiation process on the harmonization of procedural regulations of the
competition policy was very difficult. When procedural rules were finally agreed in 1962, it
became clear that they were drawn so that that the policy controls remained in the hands of
the European Commission. Thus, the Commission aimed at the creation of not only
coordinated, but common competition policy, which became “the first truly supranational
policy” (Cini, Lee, 1998). As a result of negotiations in 1962, the European Council adopted a
regulation, known as “Regulation No. 17”. In fact, “Regulation 17” was based on the German
model of notifications, assessments and exclusions: effective central pressure and the
separation of the national authorities.
4. COMPARISON OF GERMAN AND EU COMPETITION POLICY
The influence of Germany on the EU competition law has been observed in the first
article of the Part III Competition Policy of the Rome Treaty (1957). The main idea of Article
1 of German Act against restraints of competition (1957) and Article 85 of the Treaty of
Rome (1957) (now Article 81 of the Lisbon Treaty, 2009) is the prohibition of all agreements
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between undertakings which may affect trade or prevent, restrict or distort the competition in
the domestic market.
Concerning exceptions, there were three groups of exceptions to the general rule in
German Act against restraints of competition (1957). Firstly, some sectors were fully or
partially exempted from the jurisdiction of the law, including telecommunications, which
until recently were under the exclusive control of the Federal Post Office and still are a
subject to supervision of the Federal Ministry. It also applies to transportation, agricultural
cooperatives and their contractual relationships with individual farmers, banking, insurance,
utilities, and associations engaged in the administration of patent rights. Secondly, certain
types of cartels exempted themselves or could be exempted from submission of the Act
against restraints of competition (1957) according to the decision of the Federal cartel office.
This exemption occurred when the activity was aimed at export cartels, i.e. cartels that do not
affect the domestic market. Besides the Federal cartel office could allow activity of the cartels
that have been created to facilitate rationalization and specialization among firms (Martin,
1998). Thirdly, in case of the structural crisis Federal Cartel Office may authorize a cartel, if
it’s necessary for the systematic reduction of capacity and if this arrangement works for the
public interest (§ 4 of the Act against restraints of competition (1957)). This permit was
issued only for a limited period of time and could be extended if necessary. Federal Ministry
of Economics could also allow cartel activity if it is deemed necessary to the further general
welfare (§ 8 of the Act against restraints of competition (1957)). This part of the law was
applied to restrict TV advertising of the cigarettes and pharmaceutical products.
The application of Article 85(3) of the Treaty of Rome (1957) (now Article 81(3) of
the Treaty of Lisbon, 2009) commonly referred to as “exceptions” although the word does not
appear in the context. The application of the exceptions from Article 81(1) requires a quick
decision by the Commission, which is the only authoritative agency with broad powers under
Article 9(1) of the Regulation 17/62. Enterprises and enterprise association should notify the
agreement and may apply for the exemption from the prohibition. Such exemption from the
prohibition is called individual exemptions. The individual exemptions require a formal
notification of the Commission’s approval and the public notice under Article 19(3) of the
Regulation 17, which includes the comments from third parties. Currently, the Commission
may only issue an individual exemption for a particular period of time. Thus, in some cases,
the Commission allows the anti-competitive behavior that otherwise would be prohibited.
Notable is the German influence in Article 82 of the Treaty of Rome (1957) (now
Article 86 of the Treaty of Lisbon, 2009), which prohibits abuse of dominance. Article 22 of
the Act against restraints of competition (1957) regulates the position of dominant firms in the
market. Article 22 gives the basic definitions and assumptions related to the market
dominance, prohibits excessive dominant position of enterprises and their discriminatory
practices. However, it should be emphasized that there is a substantial difference between
national laws and those listed in Article 82 of the Treaty of Rome (1957). The first issue is
related to the relations between the two enterprises and damage inflicted to one of them, while
the second is related to the consequences of the impugned conduct on the relevant market,
where the competitive structure is irreparably weakened by the existence of a dominant
position.
Germany had also a considerable influence in regulating the issue of the merger.
Specific provisions for mergers is contained in the Treaty establishing the European Coal and
Steel Community (ECSC) (articles 66(1) to (6)), which addressed the issue of controlling the
concentrations and dominance. As Kokkoris (2011) remarks, the usage of the term
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“dominance” instead of “monopolization” is due to the influence of German competition law
on the author of the Treaty of ECSC, Jean Monnet.
Unlike the ECSC Treaty, EEC Treaty contains no provisions for the control of
concentrations. The first suggestion of this regulation was submitted to the Council in 1973,
while in Germany in 1973, the same provisions were added to the Act against restraints of
competition. These provisions concerned the merger control and the provision to the Federal
Cartel Office the authority to regulate cartel activity and merger control. This means that
Germany was the only country in Europe, which had considerable experience in applying
competition law and merger control, whereas Council Regulation (EEC) on the control of
concentrations between undertakings (Regulation № 4064/89, the Merger Regulation) came
into force only on the 21 September 1990.
The influence of Germany in concentration can be seen in Article 9 of the Merger
Regulation, which is called “the German case”. According to that Article the Commission
may submit to an examination of the merger, under certain circumstances, the competent
authorities of the Member States in order they applied national law. The rationale behind
Article 9 is to allow the Member State, concerned by the concentration on the Community
market, to ensure effective competition in its own market by applying its national competition
law.
Entry of Article 9 to the Merger Regulation can be explained by the Case 14/68 Walt
Wilhelm vs. Federal cartel office, where the European Court of Justice provided that national
authorities may apply their domestic anti-trust legislation and take measures to intervene
against agreements and practices that limit the freedom of trade, even if such agreements or
practice, is currently being reviewed by the European Commission. Thus, restrictive
agreements or practices which affect trade between Member States and competition on
domestic markets may be the subject of simultaneous proceedings in the European
Commission under Article 85(1) or Article 86 of the Maastricht Treaty 1992 (Treaty on EU)
and national agencies, in accordance with the applicable national competition law. However,
the European Court in the case 14/68 Walt Wilhelm vs. Federal cartel office stated that
articles 85 and 86 of the Treaty on EU has priority over antimonopoly legislation of the
Member States and, accordingly, the application of national competition law shall not
prejudice the full and equal application of the Community law.
Thanks to the decision of the European Court in case 14/68 Walt Wilhelm vs. Federal
cartel office the following conclusions can be drawn: (1) European Commission and German
authorities can simultaneously take measures concerning infringements of Article 85 or 86 of
the Maastricht Treaty (1992) and the Act against restraints of competition. Before applying
sanctions both authorities should take into account the sanctions that have already been taken
in previous procedures.(2) If the Commission has decided not to intervene, the German
authorities have the right to apply their own antitrust laws. (3) If German authorities have
decided to intervene or not to intervene, the Commission is not involved in the decisions of
German authorities. (4) Finally, if the Commission has given an individual permit in
accordance with Article 85(3) the Maastricht Treaty (1992), the German government
intervention may be prohibited because it would jeopardize the full and equal application of
the Community’s law.
Regulation of merger applies only to the concentration in the EU dimension. The
concept of the Community dimension is a tool that allows the Commission to resist the
concentration, which, from its point of view, has a significant size and impact on competition
within the common market.
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The “Community dimension” test is defined in Article 1(2) and (3) of the Merger
Regulation. Paragraph 2 describes that the concentration has Community dimension if: (a) the
combined aggregate world-wide turnover of all the participants exceeds 5 billion; in case of
the purchase of the part of the business, only the turnover of the acquired business is to be
taken into account (special rules apply to banks) and (b) the total aggregate Community-wide
turnover of at least two participants concerned is more than 250 million euros, unless (c) each
of the parties achieves more than two-thirds of its aggregate Community-wide turnover in the
same Member State.
Council Regulation EC 1310/97, which amended the Merger Regulation, entered an
alternative rule that actually reduced the above threshold levels and expanded the scope of
the Regulation. Under this rule,(a) the aggregate world-wide turnover of all undertakings
concerned should exceed 2.5 billion euros and,(b) in each of at least three Member States,
the combined aggregate turnover of all the undertakings concerned is more than EUR 100
million; (c) in each of at least three Member States included for the purpose of point (b), the
aggregate turnover of each of at least two of the undertakings concerned is more than EUR
25 million; and (d) the aggregate Community-wide turnover of each of at least two of the
undertakings concerned is more than EUR 100 million, unless each of the undertakings
concerned achieves more than two-thirds of its aggregate Community-wide turnover within
one and the same Member State.
In 2004, the Commission revised the Merger Regulation and approved the Regulation
№ 139/2004 on the control of concentrations between undertakings in which the dominance
test has been replaced by a test of “the significant impediment to effective competition”
(SIEC).
Adoption of a new test was preceded by considerable debate in the European
Commission. Germany, Italy and the Netherlands fought for the position in favor of the
current dominance test, while the United Kingdom, Ireland and Sweden preferred to the test
of a significant lessening of competition (SLC). Denmark and Portugal supported the
Commission’s proposal, while France and Spain proposed a compromise test based on its
internal tests. Finally, the Franco-Spanish compromise prevailed, although it was amended by
a last-minute German addition which provided that the new test will serve as an effective
assessment of non-collusive oligopolies. While assessing the concentration, the test takes into
account the following factors: market position of the undertakings and their economic and
financial power, the alternatives available to suppliers and users, their access to supplies or
markets, any legal or other barriers to entry, supply and demand trends for the relevant goods
and services, the interests of intermediate and ultimate consumers, and the development of
technical and economic progress provided that it to consumers’ advantage and does not create
an obstacle to competition.
The main difference between SIEC test and the dominance test is a structural and
formalistic approach according to which the dominance test is applied. The SIEC test not just
assumes market conditions after the merger, but detects changes in the market, caused by
merger. Under the dominance test, market definition plays an important role in determining
adverse effects on competition, while the SIEC test focuses on the impact of merger on
existing competitive constraints (Kokkoris, 2011). The SIEC test extends, in a disciplined
way, beyond the dominance, and makes clear that the new test covers non-coordinated effects,
thus rectifying the problem of the gap in the application of the dominance test.
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Contrary to the EU practice Germany continues to use the dominance test as the
substantive test in merger control proceedings. A major argument against the introduction of
the SLC/SIEC test at the time was the extensive and well established case law based on the
dominance test and the legal certainty for businesses resulting from it. Furthermore, there was
a widespread view that the dominance test was broad enough to address all types of
potentially anticompetitive effects of merger projects. But, as Wise (2000) relevantly notices,
it is, however, to be expected that there will be further discussion concerning the legal
standard in German merger control in the future.
Still there are many similarities in the procedure of merger investigation in the Federal
cartel office and the European Commission, such as:
- Before signing the merger agreement, companies must inform the relevant authorities
about it (in Germany it’s the Federal cartel office, the European Union – European
Commission);
- Decision of the competent authorities can be contested in the court;
- Notification of merger should be carried out in case if the aggregate turnover of all
undertakings exceeds certain amount (for Germany in 1973 it was DM 500 million,
for the EU in 1990 – ECU 5 million);
- Both authorities have the period of the merger case review (although the timeframe
significantly differs);
- Authorities should make an official notification of the completion of the proceedings
and publish their decision in a special edition.
Germany was also one of the initiators of the creation of the European cartel office
based on the model of the Federal cartel office in Germany. The establishment of such agency
was intended to delegate the power in the field of competition policy from the European
Commission to an independent agency (Cini, McGawan, 1998). This agency would be
autonomous and independent of the national monitoring and the control of the Commission.
However, this proposal was not supported by the EU Member States, and the idea of creating
such an agency remained under discussion.
CONCLUSIONS
German influence was very significant in the first years of the European Union’s
competition policy formation. In the 1960 th the country had already well developed
competition laws, while other countries only began their development in the field of
competition policy.
European competition policy has gradually expanded and deepened in all spheres of
political and economic life of the community. Since its introduction, the competition policy
was aimed at spreading its influence in new industries with an emphasis on restrictive
practices in the 1960s, monopolistic policies in the 1970s, as well as state aid and merger
control in the 1980 th and 1990 th . The competition policy of the 1990 th has been formed by the
institutional approach and independence, given to IV General Directorate by the Regulation
No. 17; confirmed sphere of the Commission’s discreteness; the activity of individual
Commissioners, and pro-competitive activity of the IV DG. At the same time, a significant
role in the Community’s policy played an Europeanization and harmonization of the
legislation process of the EU Member States. It is dependent not just on an internal matter but
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also on external factors, such as national perceptions about the functions of the competition
policy, and often unpredictable character of the international political economy.
Now we can observe a reverse process of the EU competition policy impact on the
competition policy of Germany. For example, the Act against restraints of competition has
been amended seven times since its adoption in 1957. Recent changes were made in 2005 and
they concerned the harmonization of competition law in Germany with competitive EU
legislation. Thus the Act against restraints of competition was amended in the field of
application of Article 81 and 82 of the EC Treaty. Regulation (EC) No. 1/2003 states that
Article 81 of the EC Treaty takes precedence over national competition laws in cases where
you can apply Community law. From the Act against restraints of competition articles there
were also excluded articles on exceptions to the creation of cartels, which were replaced by
Article 81(3) of the EC Treaty. However, such changes in the EU competition law do not
guarantee that the EU rules in the field of competition will be applied to regional and local
affairs within the country.
However, the influence of Germany in Europe remains significant. Germany is one of
the most influential countries of the European Union. Its influence extends not only over the
EU competition policy, but over the Community’s policy as a whole. German model of social
market economy has been followed by many countries, including the Member States of the
European Union that have committed themselves to strive for “the competitive social market
economy” in the Lisbon Treaty.
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5. Ioannis Kokkoris, Merger control in Europe: the gap in the ECMR and national
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9. Michael Wise, “Competition Law and Policy in the European Union.” OECD Journal
of Competition Law and Policy, 2000, Vol. 9, No.1. (2005): 7-80.
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CONTRACTORS, SUBCONTRACTOR, PAYMENT AND COMPLETION
Chuah San Yu;
School of Housing, Building and Planning, Universiti Sains Malaysia
Abdelnaser Omran;
School of Housing, Building and Planning, Universiti Sains Malaysia
Abdul Aziz Hussin;
School of Housing, Building and Planning, Universiti Sains Malaysia
ABSTRACT
During the past years, Malaysia’s construction industry has expanded and it had
contributed to the country’s economy. But, last year, a negative two percent (-2%) growth has
caused some reactions among the players in the construction industry. There are in fact many
factors and reasons behind this problem. Contactors, sub-contractors, payment and
completion are suspected to be one of these problems that caused a negative growth in the
Malaysian Construction industry. This study has investigated this issue based on previous
studies and a general conclusion are proposed.
Keywords: Construction Industry, Contactors, Subcontractors, Payment, Completion,
Malaysia
1. INTRODUCTION
Malaysia’s construction industry has expanded during these past years and had
contributed to the country’s economy. But last year, a negative two percent (-2%) growth has
caused some reactions among the players in the construction industry. When the government
decided to promptly start the twenty-six (26) projects under the Malaysian Ninth Plan, it was
welcomed by the industry’s players. This would not only give new hopes to the contractors
but to those in the construction’s manufacturing and supplying area as well. It is expected that
the fast act in initiating these project would regenerate the construction domestic sector to a
new level. But nonetheless, there would be some problems that will hinder the progress in
regenerating the industries. Contractors are often blamed when there are problems such as
safety, non-conformance and delays issues at site and people failed to look beyond that. They
failed to recognize the root problem that led to these issues that often caused constant
headache to all the contractors around the world.
2. CONTRACTOR, SUBCONTRACTOR, PAYMENT AND COMPLETION
In the construction industry, payment is the sum of money paid to contractors after
their works or certain projects has been successfully realized. Payments are so important to
contractors that it is a constant headache for them as problems in construction would always
be revolving around the poor payment practices. In a typical engineering and construction
contract, it is apparent that the contractor has promise to carry out all the works under the
contracts. On the other hand, the employer must keep his side of promise by giving necessary
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consideration which in most cases comes in monetary form. There are two basic payment
provisions in virtually every subcontract and in most purchase orders. First is the progress
payment whereby the Contractor generally makes payment based upon percentage of
completion. Second is the completion payment whereby the Contractor generally makes
payment upon completion and acceptance of the work. In order to ensuring the flow of the
work activities under the contract and its eventual successful realization, construction
contracts had been drafted. Most of these standard forms of contracts contain specially drafted
clauses which govern all aspects of the subject of payment under the contract.
2.1 PROGRESS PAYMENTS
In terms of progress payments, the amount to be paid by contractors are usually based
on the certified interim certificate but there are certain clauses provide for situations where the
Employer is entitled to deduct amounts from that certified in interim payment certificates.
PAM98 allows the Employer to make deductions in the following situations:
i. Clause 2.2 Where the Employer employs and pays others to carry out work after failure
by the Contractor to comply with an instruction of the Architect.
ii. Clause 19.5 Where the Employer takes out third party insurance after default by the
Contractor to take out such insurance.
iii. Clause 20A Where the Employer takes out insurance of the Works after default by the
Contractor to take out such insurance.
iv. Clause 22.1 Liquidated damages for late completion.
vi. Clause 25.4 (ii) Where the Employer pays suppliers or sub-contractors directly after
the determination of the Contractor.
vii. Clause 27.4 Where the Employer pays nominated sub-contractors directly after the
Contractor has failed to furnish reasonable proof that they have been paid.
For Contractor’s, progress payments are leverage (Leverage to keep the project
current, leverage to correct deficiencies, leverage to perform extras, etc). In practice, payment
disputes constitute a large percentage of all construction disputes. Contractors typically
withhold payment for one of three reasons (1) they claim the subcontractor’s performance is
deficient in some manner; (2) they have no money (in which case the subcontractor is in a
very tough position); and (3) the Contractor has not been paid by the Owner. Most states will
enforce a “pay if paid” clause. A “pay if paid” clause (often called a “pay when paid” clause
or a conditional payment clause) conditions a subcontractor’s right to receive a progress
payment upon the Contractor’s receipt of the same payment from the Owner. The majority
rule in the United States is that if a payment clause contains clear condition precedent
language, such a conditional payment clause is enforceable.
2.2 COMPLETION PAYMENT
Often times, and in most every industry form (AIA, AGC, etc.), final payment,
including retainage, is conditioned upon the occurrence of numerous items such as, receipt of
final waivers, receipt of close out documents, receipt of written warranties, payment from the
Owner, acceptance of the Work by the Owner/Architect and final or substantial completion of
the entire project.
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3. BACKGROUND OF THE STUDY
Payment is a sum of money paid to someone. In the construction industry, payment is
the sum of money paid to contractors, consultants and suppliers after their works, service or
materials has been successfully realized or accepted. Payments are so important to these
parties that it is a constant headache for them as problems in construction would always be
revolving around the poor payment practices. In cases like this, contractors would be directly
affected as they are the one who receive and spend the most amounts of monetary sources in a
project done. A regular disbursement of interim payment is a critical point for a contractor to
help them survive in the construction field. Late payment to contractors is a common cause of
disputes in the construction industry all over the world. Although there has been a remarkable
progress in Malaysia’s construction industry in the recent years, problems arising from
payment issues are getting more serious. The rapid increase of the late payment issues
nowadays has gone to the point that it tends to decrease the good image of construction
industry in Malaysia. The aims of this study is to investigate the consequence of the late
payments problems confronted by contractors in Malaysia and to proposed strategic actions
that could be taken by the contractors in securing their payments. Impact of late payment that
has the highest index was the negative relationship it created between developers and
contractors. This indicated that most contractors choose to do a follow up using formal
procedure in the case of late payment. In conclusion, it is hoped that these findings will guide
effort to improve the payments problems of the Malaysia construction industry, and will be
useful to draft a better way in seeking right for the contractors in getting payment on the
stipulated time. Whether it is late payment or not being paid in the amounts certified, it all
literally means big problems to the contractors as cash flow will be effected. Some small
construction companies such as Class F contractors would even close business due to late
payments. Many actions have been taken by government to curb the payment problems
among contractors. Datuk Seri S. Samy Vellu in 2004 for instance has proposed to directly
pay the subcontractors client in ensuring they get their payment on time. Datuk Seri Abdullah
Ahmad Badawi (2005) also show his support in ordering departments or government
organization to distribute payment in a period less than one month of the date accepted
invoice. Government officers that delayed the distribution of payments to contractors will be
given surcharge. But that does not stop there. Recently, Datuk Seri Abdullah Ahmad Badawi
shows his concerns over complaints from contractors and suppliers about late payments. He
had instructed that all payments must be made within three weeks of the date of receipts of the
bills. Government is very particular about this matter because it was giving a negative
perception of the current implementation of the 9 th Malaysia Plan that is moving at a slow
pace. Other than, there are also another five measures to be carried out with immediate effect,
following numerous complaints of late payment in Malaysia’s construction industry.
Nonetheless, there are still cases of delayed payment and non-payment in arbitration if not in
the court. Contractors are still facing problems in receiving their payments. Arbitration and
judicature process not only consumed much time and money but could kill the business as
well. As a contractor, what is the most appropriate action should be taken in securing their
payments without effecting their business and cash flow?
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4. PROBLEM STATEMENT
Governments are at their best supporting for the development of construction industry
especially for the Bumiputeras under the New Economic Plan (DEB). Non-government
organizations are needed to put up demand for construction in ensuring the growth of the
construction industry and the other industries linked to it. But despite the growth and support,
construction industry is also facing lots obstacles and problems. Delays, abandonment,
payments and health and safety issues, and payments are among the list of problems
constantly faced. Payments issues nonetheless bring the hardest impact to contractors. Even
though government are giving their full attention throughout the years, this problems does not
seem to dissolve. There are many factors that is said to be causing the late payment problems
in construction industries. Few works on this issue worldwide has stated that the late payment
problems could be contributed by contractors, clients and sometimes the contractual matters
in the contract provision used.
4.1 FACTORS CONTRIBUTED BY CONTRACTORS
Most of the time contractors would blame clients when they receive late payment.
This is not arguable but contractors also contribute to these matters. In construction industry,
the common procedure for a contractor to receive payment is by making claims after they
completed their work. Client representative would then check and certify the claims, provided
that the claims submitted by the contractors are live up to the requirements. Reeves (2003) in
his work stated that one of the main reasons for late payment is when there are errors in
submitting claims. This includes claims without adequate supporting documents, wrongly
calculated claims and those submitted without using the right procedures When this is the
case, contractors need to resubmit the claims after making necessary corrections. Another
factor contributed to late payment is when contractors fail to agree with the valuation of work
at site (Odeh and Battaineh, 2002). This would then results in conflicts between clients and
contractor. No doubt, the claims would not be certified and hence, late payment occurred. The
same thing happened when a contractor did his job as per specified in Bill of Quantities.
4.2 FACTOR CONTRIBUTED BY CLIENTS
Main factor contributed but clients are when they took longer than stipulated time in
contract to certify the claim. This might be because they have become increasingly subject to
claims arising out of their design and construction administration services. The obligation of
the design professional to issue payment certificates has long been a tedious and dreaded task
and one that often creates numerous liability problems. Although the only real purpose of
issuing payment certificates is to inform the owner or lender that the contractor is entitled to
payment, these certificates are often used by potential claimants as a basis for many types of
legal actions. This of course leads to late payments in the industry. There are also cases
where client’s employees are wrongfully withholding the payment. Most of them do this to
obtain some kind of “gift” from contractors once they disburse the payment. Hence,
contractors have to tolerate this action to get their payments which should not be happening.
This bad attitude has gain attention from various personnel in the construction industry and
one of them came from our Prime Minister. He insists that any government servant with this
kind of attitude to be given penalty on any wrong doings (Utusan Malaysia, 2006).
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4.3 FACTORS CONTRIBUTED BY CONTRACTUAL MATTERS
The penultimate question facing the contractor is, after having received the official
certificate of payment from the contract administrator, how can he enforce it, i.e. how and
when he can finally receive his payments? For contractors, the answer lies in the particular
contractual provisions governing the cardinal issues of the honouring period and the remedies
available to the contractor in the event of the employer’s breach of the said obligation.
5. DISCUSSION
The successful execution of construction projects and keeping them within estimated
cost and prescribed schedule depend on a methodology that requires sound engineering
judgment. However, other factors such as late payments also contributed to the extensive
delays of projects. Not only that, late payments can also lead to nonconformance and safety
problems as well as bankruptcy. All the standard forms discussed herein with the exception
of PWD 203 contain a provision that if the Employer does not pay, the contractor is entitled to
bring the contract, of his employment under contract, to an end. Proper procedure however
must be followed. However, terminating a contract is often viewed to be a serious step to
adopt and from a commercial viewpoint this may not be a desirable and conducive for
possible settlement. Most contractors will also fear that if this step is resorted to, their rightful
entitlement may be “stuck” for years and can only be recovered after a successful attempt into
arbitration of litigation. Such a fear is of course not good for any contractors who appreciate
the importance of cash flow to the going concern and health of a company. One possible
remedy to this obvious breach of contract by the employer in not paying in time is to allow for
the contractor to claim for interest (CIDB 2000). This affords some relief to the contractor but
this an be a double-edged sword for the contractor for it effectively allows the employer to
suspend payment and not commit a breach of contract. Another remedy which contractors
can resort to is to suspend further performance of his obligations under the contract.
According to the understanding of the FIDIC, the contractor may either suspend work or
reduce the rate of work, and even has the authority to terminate his employment under the
contract after giving notice to the owner, with a copy to the engineer. This can be a safe
position taken by the contractor and is in fact one routinely taken by the contractor when nonpayment
from the employer ensues. But for late payment, this action might be too harsh and
impose another problem at site such as illegal suspension of work by the contractor. There are
persuasive writings arguing for allowing of contractors to suspend their works because of late
payments, the facts remains that this is currently not the established law. It shall be establish
that in the event of the owner’s or developer’s failure to make a progress payment to the
contractor within the time stated in the contract, by notifying the owner, the contractor may
urge the owner to effect a progress payment. If the owner still fails to pay after receipt of the
contractor’s notice, the owner may negotiate with the contractor for payment on deferred
terms. If the owner and the contractor come to an agreement, the owner shall pay overdue
interest. But if both of them do not come to an agreement and the contractor is unable to
continue his work, the contractor may suspend work and the owner shall bear the liability for
breach of contract.
To safeguard its position in the event of contractor insolvency, an employer should
carry out financial investigations to ensure that the contractor is in good financial standing;
…. obtain a performance bond (preferably on-demand) and/or a parent company guarantee;
…. obtain bonds before paying for offsite materials;
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. keep alert for early indications of possible insolvency (for example, contractor’s
subcontractors often complain on site about not being paid); and
…. if making direct payments to a subcontractor for works completed before termination of
the main contract, get the subcontractor to agree that they would repay the relevant sums if the
direct payment is subsequently found to be unlawful under insolvency law. If the
subcontractor does not agree to this, get the subcontractor to assign over its right to be paid
for those works under its subcontract with the insolvent contractor.
. ensure that the building contract contains suitable provisions to deal with insolvency and its
consequences, for example:
- no payment obligation on the employer following insolvency;
- no automatic termination of the main contract on insolvency (to provide flexibility and
allow the employer to liaise with the insolvency practitioner);
- early insolvency triggers to give the employer more time to consider his position;
- provisions in the main contract and subcontracts that deal with the passing of title to
the employer for on and offsite materials;
- if the employer forgoes the right to hold a retention, the provision for a retention bond
to be provided on an ondemand basis; and/or
- collateral warranties/third party rights from subcontractors that contain ‘step-in rights’.
6. CONTRACT NEGOTIATING ON PROGRESS PAYMENT METHOD
(1) Attempt to negotiate simple 30 day payment terms.
(2) A second strategy is to set a time limit for receipt of payment from the Owner. For
example, “As a condition precedent to making progress payments otherwise due
Subcontractor, Contractor shall have reasonable time to receive payment from the Owner on
account of Subcontractor’s Work. Such “reasonable time” shall not exceed ___ days.” Insert
the number of days you feel is reasonable for your market.
(3) If the Contractor requires a pay if paid clause, review your state’s law to determine
if such clauses are enforceable. If the Contractor is demanding an enforceable conditional
payment provision then seek to retain an express right to stop work. Additionally, it is
advisable to seek the right to file and foreclose a lien claim or bond claim without regard to
the conditional payment clause. To explain: as a condition to recover on virtually every bond
and every lien claim, a Subcontractor must prove the right to be paid. If the Contractor has
not been paid because the Owner has not paid the Contractor then the conditional payment
clause may prohibit the Subcontractor from successfully recovering under the bond or
foreclosing its lien. As a practical matter, if your state prohibits the waiver of a lien in
advance of payment, then arguably, a conditional payment clause could not be used to defeat
a lien claim because if it could that would be tantamount to waiving a lien in advance of
payment.
(4) Another strategy is to rely upon standard industry forms for payment terms. For
example, the AGC 650 document provides a “pay if paid” clause for the final payment only.
If you incorporate a standard form term by reference (i.e. without inserting the provision in
writing in to the subcontract you are negotiating) be certain to expressly exclude all other
terms of the form document.
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7. CONTRACT NEGOTIATING ON COMPLETION PAYMENT METHOD
(1) Try to negotiate that final payment shall be due upon substantial completion. If
required, define substantial completion as completion of your subcontract work excluding
warranty items.
(2) If you find a Contractor who will not budge on conditional final payment of
retainage based upon the “pay if paid” condition, offer the Contractor a bond in lieu of
retainage.
(3) If the Contractor will not accept a bond in lieu of retainage then consider offering a
letter of credit. Be careful with this suggestion, the terms upon which a Contractor can draw
upon a letter of credit is critical.
(4) “Acceptance by Owner/Architect” should at least be tempered to provide that
Owner/Architect will not unreasonably withhold approval. As a practical tip, if you find
yourself in a project with an overzealous Architect, review your state’s case law to determine
if a cause of action is recognized for “over inspection”. In states were such is recognized, it
can be a useful tool in speeding receipt of payment.
8. SAMPLE OF SUBCONTRACTOR AGREEMENT
IN CONSIDERATION OF the covenants and conditions hereafter expressed this Agreement
is
made This______day of ___________, 20__, between:
The Contractor: (Insert contractor name, address, phone number and license #)
And the Subcontractor: (Insert contractor name, address, phone number and license #)
For the following project: (Insert Project name and address)
1. Scope of Work.
a. The Subcontractor shall furnish all of the material, and perform all of the Work on
the Project as shown on the Drawings and as described in the specifications, all in accordance
with scope described herein and the terms of the Contract Documents.
Description of Work: (enter work description)
2. Payment Terms.
a. The Contract amount shall be $_________________
b. The Subcontractor shall, on his time and expense, submit to the Contractor a release
of all mechanics and material liens and manufacturer warranty and materials information for
all materials installed prior to final payment of the consideration set forth hereafter.
c. Final payment, constituting the entire unpaid balance of the Contract Sum, shall be
made by the Contractor to the Subcontractor when the Contract has been fully performed by
the Subcontractor and when final payment is received from the owner. Such final payment
shall be made not more than fifteen (# of days) days after approval by Contractor and receipt
of final lien waivers and a final inspection from the respective building inspector approving
the Work.
d. Subcontractor may make application for progress payments to the Contractor each
month. All Requests received by the twenty-fifth day of the month will be paid by the tenth
day of the following month. Those requests received after the twenty-fifth day of the month
will be considered part of the following month’s requests. A certificate of Workers
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Compensation Insurance shall be delivered to the Contractor prior to the first request for
payment or the Contractor may withhold a percentage to cover the labor costs.
The payment application shall include an original of the following:
(1) invoice describing the Work that was performed;
(2) the payment amount requested; and estimate of percentage of the Work completed.
(3) a partial release of any mechanic’s or materialman’s lien for all Work completed
and materials used.
3. Time of Completion.
a. The Subcontractor shall employ persons of competence and skill to complete the
project within (Number of days). The Work shall commence by (date).
b. If the Subcontractor fails to complete the Work as agreed herein, the Contractor
may declare the Subcontractor in default by providing written notice to Subcontractor by
registered mail. If Subcontractor fails to remedy such within fifteen (15) days of such notice,
Contractor shall have the right to select a substitute Subcontractor. If the expense of
completing the Work exceeds the unpaid balance on this Contract, the Subcontractor shall pay
the difference to the Contractor.
c. In agreeing to complete the Work by the agreed Time of Completion, Subcontractor
has taken into consideration and made allowance for ordinary delays, and hindrances incident
to such Work, whether growing out of delays of common carriers, delays in securing material
or workers, changes, omissions, alterations, or otherwise.
9. CONCLUSION
Negotiating a construction subcontract can be a frustrating endeavor, but it is an
important one. Many construction disputes are lost before they get to court because a
Subcontractor signed an onerous subcontract without thought. Subcontractors often adopt a
“everybody else is doing it mentality” about agreeing to unfair subcontract terms. The bottom
line is that negotiating subcontracts is an exercise in risk management. Determine your risk
tolerance as an organization and negotiate your subcontracts accordingly.
REFERENCES
1. Odeh, A.M., & Battaineh, H.T. (2002). Causes of Construction Delay: Traditional
Contracts. International Journal of Project Management. 20: 67-73.
2. Artidi, D., & Chotibongs, R. (2005). Issues in Subcontracting Practice. Journal of
Construction Engineering and Management, 8: 866-876.
3. Construction Industry Development Board Malaysia (2006). Consultation Forum On
Construction Industry Payment And Adjudication Bill. Malaysia. Unpublished.
4. Hong-Long Chen, William J. O’Brien, and Zohar J. Herbsman (2005). Assessing the
Accuracy of Cash Flow Models: The Significance of Payment Conditions, 6: 669-
676.
5. The Star, (2006). Pay Within Three Weeks. Malaysia. (from starbiz.com.my)
6. Utusan Malaysia (2006). Akta Baru Tangani Masalah Bayaran. Malaysia. (from
http://www.utusan.com.my/)
7. Utusan Malaysia (2006). Kerajaan Lantik Terus Subkontraktor Atasi Masalah
Pembayaran Lewat. Malaysia. (from http://www.utusan.com.my/)
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THE IMPORTANCE OF BRAND IN CONSUMER’S DECISION MAKING
Sandu Mihaela;
University of Bucharest
ABSTRACT
A brand is an element that distinguishes two businesses, the name or the logo for
example, or can symbolize what people fell about the company. A brand is often considered
as a decisive factor in consumer’s decision making and it influence the perception on the risk
also. A brand is attracting the clients and maintains the relationship with them. In this paper
we will see how a re-branding process can significantly influence the trajectory of a company
and for this we will discuss about Doncafe case.
Key words: brand, consumer’s decision making, brand loyalty
1. INTRODUCTION
Brand is an important element of our lives which help people to make decisions, small
ones as well as big ones. For example, it helps building the trust in the wine you drink, the car
you drive, the airline company you choose for travelling. Brands are a perfect blend of the
ideas, perceptions, expectations and beliefs of a potential consumer.
A brand is an intangible asset of the company. Very often this concept is assimilated
with the more tangible assets like advertising, logo and the main message that the company
wants to associate to the product, but brand is more than that. A brand is a promise, is the
totality of perceptions about the product, is the element that holds in consumer’s mind a
particular position of the product related to others, help the consumer in decision making
process.
When you are the owner of a brand you can be sure this can differentiates your
business of the competition and can attract customer loyalty. Branding is not specific only for
multi-national companies which have huge budgets, it’s also for small and medium business
which can create brands by analyzing market needs, customers desires and needs and by
taking the best decision based on information obtained.
In this paper I will speak about some general aspects about brand and its importance
for the company. I will bring into discussion the Doncafe case, company which recorded
significant losses in the process of re-branding.
2. SOME GENERAL ASPECTS OF BRAND AND ITS IMPORTANCE
According to The Oxford American Dictionary (1980) brand is "a trade mark, goods of
a particular make: a mark of identification made with a hot iron, the iron used for this: a piece
of burning or charred wood, (verb): to mark the hot iron, or to label with the trade mark ".
Another definition of brand is found in The Oxford Pocket Dictionary of Current English
(1934), the brand is "1. n Piece of burning wood or smoldering, torch, (literary), sword
(poet.), iron stamp used red - hot to leave indelible year mark, mark it left by, stigma, trade -
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mark, particular kind of Goods (all of the best bb.). Two. v.t. Stamp (mark, object, skin), with
b, impress indelibly (is branded on my memory)."
We can observe in those two definitions above that although a brand had a completely
and totally different meaning 50 years ago, today the term has a purely commercial utility, but
there is a common part that can be watched passively as an instrument which is forming
opinions and actively can be viewed as the process by which those opinions are formed.
A brand is a perfect combination of letters, numbers, symbols, signature, logo, slogan,
color, different individual items. Of all these elements, name is the most important, is
something that should not be changed ever. Generally, companies change their name just
when their assets are bought by another company or when they merge with another company.
“Branding is about taking something common and improving upon it in ways that
make it more valuable and meaningful” 16 . Branding is when the idea or image is to be
marketed so that people recognize and associate it with a product or services from the industry
when many other companies offer the same thing. Also, the process of branding is an
important element in building a good reputation for the company.
As consumers we are not thinking at the importance of branding. What we are
frequently do is to choose certain names that are synonymous with our lives. The importance
of branding is reveled when we promote our business. For example, if we think at the
company that produces the most famous sport shoes from the market, Nike, the importance of
branding is exemplified by its logo “Just Do It”. A great brand name and association has
catapulted Nike to the top of its industry.
When a company choose its name should take into consideration the importance of
branding. The decision on the choice of name is a serious process in which are analyzed
different variants, the significance of these possible names that customers retain it easily. The
company’s name should be associated with something positive because people like names
which can assign positive qualities. Positive images can be created by words, fonts, colors and
background.
Another important aspect is that the name should be different and unique so that the
public can not confuse it with another. It is also recommended the name to be short in order to
be read quickly and easily retained.
It is extremely important for the company to be known about the public. In other
words the company name must be known and must appear everywhere. The company should
use the same font, color and style for being recognized by the clients.
Companies name and brand represents a test of time for the company. Although
people say they like new products, in fact they often focus their attention and interest to those
that are already on the market and are extremely popular. After all, brand and reputation are
elements which define the consumer, elements that confirm his value.
James Dettore, President of the Brand Institute in Boston says, “First, the name of the
company should be able to communicate on its own without a lot of advertising. It has to be
easy to pronounce and have neutral to positive associations around the world, or at least in
various languages. Because of the ethnic influences, you have to have a name that crosses
over many ethic and language barriers.” 17
The brand has a particularly importance for the company and have several roles:
Help differentiating a company from the other – for a customer who had a pleasant
experience regarding a company's products, the brand will be an oasis in the desert
which will draw again and again;
16 Scott Bedbury, Stephen Fenichell, A New Brand World, Viking Penguin, Inc. 2002, ISBN-13: 978-0670030767, p. 14
17 http://brandbysocial.com/branding/the-importance-of-brand-name/
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Reduce risks to consumers - brands promise quality and that reduce significantly the
consumers fear: Is the product worth?, Will I be satisfied (quality / price)?; Will affect
the product my health?;
Companies which owns a brands have a significant advantage over the other - brand
offers greater financial stability, high prices, market dominance;
Brands are unique and are protected by law;
Brands bring important benefits for the company and attract customers loyalty - the
cost of attracting new customers is much higher than keeping the existing ones;
Brands show the social status of the consumer - a consumer of a particular brand of
car do not buy just a 4-wheel vehicle but buys a certain social status offered by the use
of that machine, he buy notorious, he buy quality inspired by the manufacturer.
For a better management of the brand the manager of the company should follow
some important steps:
The brand must be protected - the brand's components are protected by the copyright
law;
Compliance with business partners - customers want product and services with a good
quality; employees want to work in a thriving company with innovative ideas;
shareholders want the successful managers to increase assets value; business partners
expect respect and fairness;
The brand must be treated as an investment and not as a cost - the brand is one of the
most important assets of a company and must be relevant, timely and appealing to
customers, which means we must invest in advertising and marketing as well as we
invest in the production process;
The financial potential of the brand needs to be explored – by franchise or cobranding,
for example.
3. THE IMPORTANCE OF BRAND – DONCAFE CASE
The name is the most important element of brand. This is what will determine the
market position in the eyes of buyers. This is more than an array of characters; a strong name
will permit the company to withstand market for a long time. Similarly, a weak name can
neutralize or even crumble your hard work to build the brand and to obtain the market
position. Also, a weak name is very easy to forget and so your opportunities and possibilities
of expansion are limited.
The name change has a number of consequences and significant costs. If we think at
those reasons which worth to change the company name, we include: changing to get away
from a negative event, to clarify a misleading name or one which does not describe very well
the idea that the company wants to transmit, a better expression of the idea that needs to be
transmitted and a better expression of the marketed products.
The costs involved by name changes are not insignificant. Starting from the elements
of the corporate identity such as business cards, banners, promotional materials; sales
literature and tools like web sites, presentation materials, companies brochures, testers;
interactive tools such as mail addresses, the company’s blog.
Customer loyalty for a brand refers to the action of a consumer to return for buying
products from a certain company or to undertake business with it. Usually, companies attract
consumer’s loyalty by intense advertising campaigns and by providing high quality products.
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Customer’s loyalty will have positive effects for the company and will bring significant
profits.
Elite Romania S.R.L. entered on the Romanian market in 1995. Strauss Group has
Elite since 2004 and in 2008 decided to take the entire control of the company becoming very
active in the life of Elite. Thus, Israeli group Strauss invested 6 million of euro in promoting
the largest re-branding process of the coffee market in which Elite become Doncafe. The costs
involved in the change process and rolling out Doncafe were approximately 15 million of
euro and went as in communication, as in manufacturing, pack and distribution.
Immediately after the re-branding process it seems that changes have not proved to be
very good for the company, the manufacturer cashing in 2009 were about 66,8 million euro,
with 8,7 million euro less than the year before. In the middle of 2008 the company had a
market share about 33% and tended to 50%, but after the re-branding process the things have
not stayed the same. The company said it was the result of the lower purchasing power of
Romanian customers. Sources of the company said that the re-branding was a long term
investment and the important results are expected in the future; also, the same sources said
that the idea of re-branding came before the installation of the economic crises.
Table 1: The dynamic of turnover of Strauss Romania (ex company Elite Romania) (mil.
euro), source Ziarul Financiar, April 20, 2010
Thing seems to be better for Strauss Group and after 3 years after the re-branding
process the company works quite well. In 2011 the company recorded total sales of 212
million lei, a market share of 31,5% for roasted coffee segment and 20,8% for soluble instant
coffee segment of the total Romanian coffee market. Of course this couldn’t be possible
without a good marketing campaign. With the re-branding process two strong advertising
campaigns started: one was addressed to retail public and the second one was focused on
Doncafe mixes and was designed for adolescent public. Frequently Strauss Romania invests 3
– 3,5 million of euro in infrastructure, 7 – 10 million in marketing activity and 3 – 4 million in
direct marketing campaign.
CONCLUSIONS AND IMPLICATIONS
In the example that we discussed before we can see how important is the brand for the
smooth running of a business. According to data collected we may notice a decrease in
Strauss Group sales. Although the company finds difficult to recognize, name change was an
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important cause in sales decrease. It was necessary a good advertising campaign and an
important investment for maintaining the company on the top of Romanian coffee market.
The brand has a very high importance on product quality and consumer risk perception
that may occur following the acquisition and use of a product. For Strauss Group a good
marketing campaign and an important investment in new and qualitative products and in
advertising was the key to the success of the re-branding process.
REFERENCES
1. Scott Bedbury, Stephen Fenichell, A New Brand World, Viking Penguin, Inc. 2002, ISBN-
13: 978-0670030767, p. 14
2. Philip Kother, Waldemar Pfoertsch, B2B Brand Management, Springer Berlin Heidelberg
New York, 2006, ISBN – 13 978-3-540-25360-0,
http://www.google.ro/books?hl=ro&lr=&id=bcmo-
WZtOvQC&oi=fnd&pg=PP5&dq=brand+brand+OR+loyalty+%22company+brand%22&o
ts=mqrTK6GPmX&sig=bpxj-
5yKby5EiYDbTnnj4XBcPcU&redir_esc=y#v=onepage&q=brand%20brand%20OR%20lo
yalty%20%22company%20brand%22&f=false
3. Moisescu I., The importance of brand awareness in consumers’ buying decision and
perceived risk assessment, http://www.mnmk.ro/documents/2009/10_Moisescu_FFF.pdf
4. Radici Cristina, Buglea Alexandru, Modalităţi de creare de valoare într-o societate
comercială,
http://mastermrufeaa.ucoz.com/Cristina_Radici-Modalitati_de_creare_de_valoare_in.pdf
5. Tom Blackett, What is a brand? The Economist book Brands and Branding, Interbrand,
2004
6. Guide to creating a brand, Green Communication, 2006,
http://www.greenblog.co.uk/files/guide-to-creating-a-brand.pdf
7. Rolurile pe care le joacă brandurile, http://www.safilar.ro/articolBranding.aspx?aID=22
8. http://old.standard.money.ro/tag/doncafe.html
9. http://www.zf.ro/companii/strauss-a-pierdut-cota-de-piata-dupa-rebrandingul-cafelei-elitain-doncafe-5974136
10. The importance of Branding – Can It Really Make a Difference?, Charles Fuchs,
http://ezinearticles.com/?The-Importance-of-Branding---Can-It-Really-Make-a-
Difference?&id=56697
11. http://www.forbes.com/sites/prospernow/2011/01/10/the-power-of-a-name-brandingyour-company-for-the-future/
12. http://www.marketingmo.com/how-to-articles/branding/when-to-change-your-brandname/
13. http://www.wisegeek.com/what-is-the-importance-of-brand-loyalty.htm
14. http://brandbysocial.com/branding/the-importance-of-brand-name/
15. http://www.revistabiz.ro/cafea-cu-aroma-de-succes-504.html
16. http://www.businessmagazin.ro/printare/lideri/negustorul-modern-4074469
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MULTINATIONAL VERSUS LOCAL ROMANIAN
ENTERPRISES - DIMENSION AND PERFORMANCE
DUMITRESCU Corina
Academy of Economic Studies, Bucharest
SCALERA Francesco
University of Bari “Aldo Moro”, Italy
ABSTRACT
Both the multinational enterprises and the local ones bring along with their activity, a
series of advantages. On the same time, they are a source of imbalance, subject to
controversy over the economic, social, political environment where they implement their
activities. In this article, we propose a comparative study in order to derive what category of
enterprise is the most efficient and provide the most advantageous impact on the development.
We find that multinationals are much more efficient than local enterprises, but the latter ones
have the volumetric advantage, outnumbering the multinationals. We also suggest some
possible solutions for the small and medium local enterprises that represent the pillars of the
Romanian economy.
Key words: subsidiary, small and medium enterprise, performance, dimension,
solutions
1. INTRODUCTION
Economists agree that small and medium sized enterprises have the prevalent weight
in total active enterprises in all economies, largely contributing mainly to GDP formation and
employment. Nevertheless, bigger companies, especially multinational enterprises impact
positively, creating a synergetic effect with the local business environment. Yet, toward what
direction should the governmental policy focus: attracting and encouraging the development
local enterprises (usually composed of small and medium sized ones) or multinationals? What
category of enterprise would provide the largest economic benefits for the regional
development and on what time horizon? In the current paper we proposed to answer these
questions and find some possible solutions for the small and medium local enterprises that
represent the pillars of the Romanian economy.
2. LITERATURE REVIEW
Multinational enterprises possess a series of advantages derived by size, financial
power and backup, better management and technological capability, larger investments and
efficiency. They carry on complex activities, coordinating the economic activity of an amount
of enterprises of diverse nature located in various regions, and concentrating it in a single
organizational structure, unlike other types of enterprises that only deploy export and import
transactions.
Financial liquidity held by multinational enterprises, ongoing corporative and
industrial restructuring, positive assessments on the stock market, all these constitute
supportive measures during a period of crisis in order to create new investment opportunities
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for the multinational enterprises all around the globe. Multinational entrance can produce the
diminution of the market share of the local enterprises but can also spread expertise amongst
them.
Nevertheless, enterprise dimension can create along a series of inefficiencies.
Researcher John Child, considered that ”while stores without a syndicate, with 10 up to 25
employees, lose on average 15 days with disputes connected to work, the units with at least
1000 employees lose 2000 days on average or a multiple of 133 days a year”. Another
research highlighted the fact that ”research efficiency is inversely proportional with the size of
the group”. Besides, one of the executives of Motorola company, John Mitchell, did not allow
factories to have a greater number than 1000 employees (Peters and Waterman Jr. 2010).
The importance of SMEs is unanimously recognized, often representing ”the basis for
economic renewal of a large number of cities or regions”, first of all through jobs creation.
Unlike multinationals, ”SMEs are favored by a narrower specialization of production
factors and by a more centralized administration”. SME flexibility has been suggestively
depicted within a study based on a sample of 856 American enterprises of all sizes during
1970-1980. It was highlighted that flexibility was inversely proportional to the dimension of
the enterprise.
Additionally, the flexibility depends on the dynamism of the enterprise and on its
capacity to innovate (Someşan 2010).
Innovation capacity is often found within local small enterprises. Notwithstanding the
national SMEs rising from the ranks internationally by promoting their own inventions and
innovations, (like the Geneva Inventions Fair), are only a few in number, their achieved
performance can be surprising.
As such, the portfolio of MB Telecom (local) company contains inventions, software
applications, projects with a “strong component of technological designing and development”
(Oancea 2009). At the end of 2008, the company MB Telecom had 65 employees, a turnover
of 16 million euro and a net profit of 5 million euro, being on the rise.
Furthermore, local enterprises develop business models in emerging economies,
surpassing obstacles in key sectors, obstacles that usually impede the implementation and
extension of subsidiaries: governmental restrictions, slow speed of internet, obsolete
infrastructure and even an uncertain basis of consumers.
More and more local producers chose not to invest anymore in perfecting and
improvement of production lines, stressing more on promoting their own products instead. On
the cosmetics market from Romania, the visibility of local companies (like Farmec) began to
increase in media, along with multinationals like Nivea, Vichy or Rocher. The marketing
budget allotted for Gerovital in 2011 was double compared to the one in 2010, of over 2
million euros comparable with the budget allotted by a multinational in cosmetics field, of
medium category, of 1-3 million euros. In the first months of the year 2011, the turnover of
Farmec company had grown by 15%, to 19 million euro, with positive expectations
afterwards. The strategy was based on restructuring the portfolio of products: giving up the
underperforming ones and launching new products or re-launching others. With all the
adopted strategies, the business of local enterprises rise up to only 10% of all the cosmetics
market, estimated by Euromonitor at 600-650 million euros (Ilie 2011).
On the one hand, even though the multinationals operating in a certain country have a
clear advantage of lower production costs, this advantage can disappear in a crisis period. The
new local enterprises, smaller and more flexible, can represent a considerable competition.
These are based on human capital, on organizational flexible structures and on client
proximity.
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On the other hand, national enterprises can extend their activity to a global level,
becoming successful multinationals. “In oilfield, traditional leaders like Exxon and Shell have
confronted with serious challenges due to smaller enterprises that focused on industry niches
in exploitation or lubricants. The success of Enron within its transformation from a local
Texan operator of pipes in an international force of gas and generating electricity, show the
force of this new challenge” (Stopford 1998).
An interesting result was found by M. Desai, averring that 10% increase in foreign
direct investments leads to a 2.6 % of additional domestic investment. Thus, their impact over
the local economy is major.
Given the increasing importance of the multinationals, the main major global players,
it is crucial that governments compete to attract them both at home and abroad or to enable
the creation of new ones (Scalera and Dumitrescu 2012).
3. DISCUSSIONS AND RESULTS
During 1990 - 2003, the volume of foreign direct investments had slowly grown,
reaching 7.682 billion euro for the entire period, meaning an average of 548.7 million euro a
year. This was due to the transition period that Romania underwent. Until 2003, most of the
investors activating in Romania were composed of small and medium businesses, focused
mainly in commerce and services (Zaman, Vasile, Matei, Croitoru and Enescu 2011).
Beginning with the NATO membership of Romania in 2000, going on with a series of large
privatizations as well as its adherence to European Union in 2007, the business environment
became increasingly attractive for foreign investors, except the crisis period after 2008.
As we can see in the following figure, from 2003 to 2006, the total annual flows of
foreign direct investments grew 4.6 times, reaching a total value of 9 billion euro in 2006.
This can be explained by the large privatizations in industrial and banking field. The year
2008 registered the maximum volume of foreign direct investments, of 9.5 billion euro,
continuing the privatizations in energy and utilities, as well as the banking field. In 2009 as
well as in 2010, foreign direct investment flows decreased by 63% and by 36% respectively,
as compared to the previous years, as a direct consequence of unfavorable impact of the
financial and economic crisis (Fig. 1).
Figure 1: Evolution of Foreign Direct Investments Flows, mil. euro, Romania, 2003-2010
Foreign Direct Investments Flows , mil. euro,
Romania, 2003-2010
10000
8000
6000
4000
2000
0
2227
4623
699
3703
1361
6832
4484 4873 1759
683
3852
3547
396
1263
1729 1824
2003 2004 2005 2006 2007 2008 2009 2010
Capital participations
Net credits from foreign direct investors
Source: Direcţia Statistică - BNR and INS 2011
Not only do multinationals have to face global competition but they also are sensitive
to changes in global economy being linked to the global business network (Scalera și
Dumitrescu, Perception and Facts on the Activity of Multinational Enterprises 2012). As we
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stated above, they greatly influence the local economy through their linkages with local
industry, investments, employment, taxes to the local budget and so on. Despite the positive
impact, what happens when they take their operations overseas? Indeed, nowadays, the trend
of multinational evolution is to migrate towards the developing countries to third ones that
offer better regulation systems and low cost workforce. This is a frequent case within
automotive and textile industry (Scalera and Uruci 2011).
In order to capture the durability of the foreign direct investments made by the
subsidiaries (of the multinational enterprises) on the Romanian territory, we computed the
weight of the tangible and intangible assets per value of foreign direct investments (FDI)
balance at the end of each year, between 2003-2010. The weight average is 51%, and the
balance of FDI for 2010 reached 24309 million euro after a steady growth, which proves a
relative high degree of stability of the foreign direct investments (Fig. 2).
Figure 2: Evolution of tangible and intangible assets for 2003-2010 displaying the total value
and their percentage from the total foreign direct investments, Romania
Tangible and intangible assets, total value and
% from the total FDI, Romania
Mil. euro
30000
% from the total FDI Value (mil. euro)
70%
25000
20000
15000
10000
50.7%
60.4% 59.0%
49.8% 50.0%
60%
45.2% 46.6% 46.2% 50%
40%
30%
20%
10%
0%
5000
0
2003 2004 2005 2006 2007 2008 2009 2010
Source: BNR, INS 2003-2010
In what follows, we compare the statistics of the subsidiaries of multinational
enterprises implemented over the Romanian territory (for simplicity reasons, we will denote
them by SMRT) to the rest of the active enterprises, for the year 2009, latest year with
available data from the Publication of the General Direction of Enterprises Statistics of the
Romanian National Institute of Statistics. The data does not include the results of the
enterprises from financial institutions and insurance companies.
‣ With regard to dimension, we can notice from the figure below, that the weight of
subsidiaries implemented over the Romanian territory in the total active enterprises from
Romania, for the year 2009, reached a very low value, of 5.26%. The majority of
subsidiaries over the Romanian territory activate in the field of services (9,504), even
though, as a whole, the most part of enterprises, activate in the commerce field (197,462)
(Fig. 3).
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Figure 3: The number of active enterprises and of foreign subsidiaries from Romania
(SMRT) per industry, end of 2009
Number of active enterprises and subsidiaries from
Romania by sector of economic development 2009
200000
197462
174866
491107
150000
100000
50000
0
58853
59926
25835
5238 8247 9504
2846
Industry Commerce Services Constructions Total
Total Active Enterprises
Subsidiaries in Romania
Source: Vlădescu 2011
From the total SMRT operating in Romania in 2009, the most part of them activate in
services (37%), followed by commerce with a weight of 32%. In constructions the lowest
weight of SMRT was registered (of only 11%), a sector hardly hit by the economic and
financial crisis (Fig. 4).
Figure 4: The weight of SMRT by field of activity, Romania, 2009
The weight of SMRT by sector of activity, 2009
11%
20%
37%
32%
Industry
Commerce
Services
Constructions
Source: Vlădescu 2011
SMRT have a significant positive impact on the labor market, even though they have a
low weight less than 10%, representing the number of SMRT in total active enterprises from
the main fields of economic activity. Thus, as we can notice in the figure below, SMRT hired
in 2009: 39% of the total workforce in industry, 18% in the field of services, 17% in
commerce and 6% in constructions (Fig. 5).
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Figure 5: The weight of the number of SMRT employees in the total number of employees
and the weight of the number of SMRT in total enterprises by field of activity
Weight of employees of subsidiaries in total employees in the respective
sector of economic activity (Romania, 2009)
Weight of the number of SMRT in total active enterprises in the
respective sector of economic activity (Romania, 2009)
39%
18% 17%
9%
5% 6%
4% 5%
Industry Services Commerce Constructions
Source: Vlădescu, 2011
Insuring employment in the industry sector in 2009 had been essential, taking into
account the context where, in the first quarter of the year 2010, economy declined with 1.5%
compared to the previous similar period from the last year and only the industry was the only
sector that positively contributed with 1.3% at the dynamic of GDP, deterring even a sharper
decline.
‣ From the performance point of view, the impact is major:
The National Institute of Statistics reports a weight of the turnover of SMRT in the
total turnover of active enterprises for 2009 of 44.61%, in the following sectors: industry,
services, commerce and constructions. That means almost a half of the total turnover achieved
by enterprises in the key sectors for Romanian economy, having in view that, as we
mentioned above, SMRT represented 5.26% from the total active enterprises.
Moreover, SMRT attained 40.33% of total gross value-added at factor costs, a very
high value considering the small number compared to the rest of the enterprises, most of them
national SMEs (small and medium enterprises).
For the year 2009, comparing the weight of SMRT turnover in the total turnover of the
concerned sector, with the one of the rest of the enterprises, we find that the largest weight
was achieved in industry (58.8%), followed by commerce sector and services with close
values (40.5%, respectively 39.3%). In constructions instead, the largest weight (of 79.3%)
was attained by the rest of the enterprises.
The weight of the gross value added (at cost factors) followed the same tendencies in
2009, contributing with weights between 35% and 50% in industry, commerce, services
fields. Only in constructions, the contribution was of only 18.8% (Fig. 6).
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Figure 6: The weight of turnover and of gross value added achieved by the subsidiaries from
Romania and by the rest of active enterprises, on sectors of economic activity, 2009
The weight of turnover achieved by SMRT and
by the rest of the enterprises by sector,
Romania, 2009
The weight of gross value added achieved by
SMRT and by the rest of the enterprises by
sector, Romania, 2009
Industry
48.9%
51.1%
Industry
58.8%
41.2%
Comerce
35.9%
64.1%
Comerce
40.5%
59.5%
Services
40.3%
59.7%
Services
39.3%
60.7%
Constructions
18.8%
81.2%
Constructions
20.7%
79.3%
0% 20% 40% 60% 80% 100%
Subsidiaries
Rest of enterprises
0% 20% 40% 60% 80% 100%
Subsidiaries
Rest of enterprises
Source:(Vlădescu, 2011
If we divide the total turnover of the SMRT by the number of SMRT from 2009, we
will obtain a medium value of the turnover per subsidiary, of 14.58 million RON, far above
the medium turnover realized by the rest of the enterprises, of only 1.01 million RON.
Additionally, the gross unitary value added achieved by SMRT is 12.17 times bigger than the
one obtained by the rest of the enterprises, of 240 thousands RON (Tab. 1).
Table 1: Comparison between the unitary turnover and gross unitary value added achieved by
SMRT and by the rest of the enterprises
Million RON, Romania, 2009 Subsidiaries (SMRT) The rest of the enterprises
Unitary turnover 14.58 1.01
Gross unitary value added 18 2.94 0.24
Source: Vlădescu 2011
The highest values of the turnover and of the gross value added at cost factors
achieved by SMRT in 2009 by geographical region of origin of the parent company were
achieved by the absolute majority of multinationals from the members’ states of European
Union (73.7%) (Fig. 7).
18 The gross value added is calculated at cost factors; the unitary value refers to the total absolute value of the
turnover, respectively, of the gross value added divided by the total number of foreign affiliates, respectively by
the rest of the enterprises
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Figure 7: Structure of turnover and of gross value added at cost factors obtained by SMRT,
by geographical region of origin of the parent company, 2009
The structure of the SMRT turnover by
geographical region of origin of the parent company,
Romania, 2009
The structure of gross value added at factors cost
of SMRT by geographical region of origin of the
parent company, Romania, 2009
6.6%
19.7%
73.7%
17%
6%
77%
E.U. member states Other countries from Europe Other countries
E.U. member states Other countries from Europe Other countries
Source: Vlădescu, 2011
In a report published by International Business Promotion and Ernst &Young, the
biggest 2500 companies from Romania in 2010 are assessed, based on quantitative and
qualitative indicators. This report represents a benchmark for Romanian business environment
for 12 years. The companies analyzed cover the most important 24 industries in Romania and
112 fields of activity and were represented in majority by multinational enterprises.
(International Business Promotion, Ernst&Young 2011).
Selecting the first 10% (or 30) companies from top 300 non-financial companies by
reported turnover in 2010, we can derive the following conclusions:
13% (or 4 companies out of 30) are national, the rest being multinationals;
the cumulative turnover of the 26 multinational enterprises represented 1,199,903 billion
RON in 2010, namely 91.35% of the total 30 from the considered top;
37% (the first 10) of them have a turnover over 45,000 billion RON and represent only
multinational enterprises (Fig. 8).
Figure 8: Distribution of the first 30 companies from Romania by the size of the turnover
obtained in 2010 (billion RON)
Distribution of the first 30 companies in Romania by
the size of the turnover obtained in 2010 (billion RON)
30%
37%
CA over 45000 billion
RON
CA ϵ [30000,45000)
33%
CA ϵ [15000,30000)
Source: International Business Promotion, Ernst&Young 2011
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We can notice from the figure below the fact that the 4 national enterprises (from the
first biggest 30 companies by turnover for the year 2010), are positioned in the second half of
the top. Moreover, one of them occupies the last position. Therewith, the 4 values of the
turnover are below the average of 43,784 billion RON.
Figure 9: Distribution of the first 30 non-financial companies from Romania by the reported
turnover in 2010
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Distribution of the first 30 non-financial companies after their anual
turnover (billion RON), Romania, 2010
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000
19,692
25,457
35,742
32,737
In blue : multinationals
In green: local enterprises
Source: International Business Promotion, Ernst&Young 2011
Multinationals surpass the performance of the national enterprises by having the
following advantages:
owning an initial capital and substantial commercial means;
high capacity to invest, especially in research-development-innovation;
benefit from the experience within international operations and managerial expertise and
technological transfer for the whole organization;
their cover market is larger as compared to national enterprises;
diminishing global financial risk by compensating the losses with profits of other
subsidiaries and affiliates;
once new multinationals are established, new business opportunities are created in the
local environment (within the production, distribution and commercialization chain);
high financial and non-financial benefits for employees of SM (subsidiaries of
multinational over the Romanian territory) compared to the ones of national enterprises,
especially of SMEs (small and medium-enterprises);
capacity of relocation depending on the competitive advantages offered by the region of
implantation. This latter advantage should be regarded from the point of view of the
subsidiary itself.
When the local conditions determine a decline of its transactions or a worsening
performance of its financial indicators, the multinational can decide the relocation or closure
of the subsidiary. That translates in a downturn for the region where it was implemented:
unemployment, lower investments, lower contributions to state budget and other series of
disadvantages.
In Romania, in non-ferrous metallurgy field, excepting the national company Alro
Slatina which after privatization remained profitable, the rest of national enterprises were sold
after only few years. For example, the largest producer of non-ferrous metals, Phoenix Baia
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Mare, bought in 1998 by RBG Resources from London was sold to AVAB (Authority for
Banking Assets Revaluation) for the sum of 3.5 million dollars (Boariu 2012). The promised
investments in environment were not performed and thousands of persons from the locality of
Baia Mare lost their jobs.
The most numerous national enterprises are small and medium (SME) ones. An
enterprise enters the micro category, small or medium, depending on the levels of 3 categories
of variables: annual number of employees and annual turnover or total annual balance (Tab.
2).
Table 2: SME definition
Enterprise category
Annual number of Annual turnover
Total annual balance
employees AND
OR
Medium < 250 ≤ 50 million € ≤ 43 million €
Small < 50 ≤ 10 million € ≤ 10 million €
Micro < 10 ≤ 2 million € ≤ 2 million €
Source: Comisia Europeană 2003
SMEs form the so called “vertebral column of the economy“, because they insure the
creation of an important number of jobs and generate economic growth. Thereby:
SMEs represent approximately 90% of the companies in Romania, employing
approximately 84% of the total staff employed;
42% (250.000) of SMEs out of the total of 611.000 obtained profit in 2009 (Tab. 3).
Table 3: Statistics for SMEs in Romania, 2011
Statistics/Region North-West North-East South-East Center
Number of
SMEs
Profitable SMEs
86.483 64.969 70.292 74.283
35.726
(13,89%)
Average
turnover per 589.711 RON
enterprise
Source: (Ernst & Young Publication 2011)
29.006
(11,28%)
566.424
RON
29.366
(11,42%)
645.877
RON
31.586
(12,28%)
592.329
RON
The National Institute of Statistics reports ascending tendencies for the percentage of
the turnover achieved and for the employees of the small and medium sized enterprises in
total active enterprises, which denotes a greater importance of the category of small and
medium sized category in the total economy:
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Figure 10: Evolution of weigth of turnover and perosnnel from the active small and medium
enterprises in total active enterprises, Romania, 1992-2009
%
70
The evolution of the weigth of turnover and of
personnel from the active small and medium
enterprises in total, Romania
60
50
40
30
20
10
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Weight of total turnover
Weight of total personnel
Source: Anuarul Statistic al României 2010
We can see that beginning with 2005, respectively 2007, the weights of the turnover
and personnel employed by SMEs surpass 60%.
Among the advantages held by SMEs as compared with the multinationals, we can
mention:
the flexibility in production, the rapidity in changing the production process and the
availability to accept small commands and fast adaptability to the local environment and
to market changes;
assign the market the atomicity character by means of their increased number, thus
stimulating the competition and counteracting the power of the biggest multinationals;
the simplified structure of internal organization leads to a faster circulation of information
and decision making, and at the same time to costs reduction;
shorter production cycles and lower operating costs;
probable better knowledge of the local market;
offering specialized products;
personalized relations with a certain client segment.
The problem of local Romanian enterprises reside in reduced production and
unsupported by internal consume weighing against the products / services of external
companies, especially that of the biggest multinationals.
Under a constant pressure of diminishing costs, local producers are thrown upon
gradually decreasing quality. In order to exit the vicious cycle, a solution for them would be
the partnership with multinationals in what concerns supplying, externalizing services,
commercializing so on. An example is the local production of products under international
renowned brands (Louis Vuitton, Roberto Cavalli, Versace, Zanussi, Coca-Cola, Tuborg so
on).
Other negative aspects specific to SMEs refer to: insufficient reserves, increased
dependency of a reduced number of specialists, a much lower technical level compared to the
biggest enterprises.
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Unable to face the competition from the big multinationals, the local enterprises tried
to reorganize, to reduce their losses and focus on a smaller niche of the market.
Finding suitable financing is essential in supporting a company’s investments.
Companies usually use the following financing sources: banking institutions, strategic partner,
accessing irredeemable funds, listing at the stock exchange. Small and medium sized
enterprises, as well as micro local ones can be supported by a partnership with the
government and with the biggest companies (multinational and locals) by constituting a risk
fund, after the German model that had been implemented since 2004. Thus, the micro and
small enterprises are credited through a risk fund, granting shares to sponsors (i.e. to the state
and to the big participating companies), being afterwards sold in profit.
Other more general solutions for local enterprises include: becoming a multinational
themselves, technological innovation, cost optimization, launching and developing new
goods/services, improving the management (of personnel, client relationship, of performance,
reorganization and restructuring, internal automation of processes and workflow, reporting
and monitoring of main financial indicators, creating a business plan on several years ahead).
Internationalization theories focus mainly on large multinational enterprises, while
small and medium sized ones are increasingly going global and should be given due
importance. Enterprises have had to permanently adapt to market conditions, to identify the
resources, use them efficiently, to be flexible enough so as to gain the competitive advantage
on the market on a long term. They therefore have had to find the optimum strategy and
redirect it depending on the economic context at the time being. A successful strategy is based
on the added value it brings, on the way it makes a difference, on the sector’s attractiveness
and on the market maturity phase, so that it helps the enterprise gain a profitable and
competitive position (Dumitrescu and Scalera 2012).
Increasing the degree of automation within the company itself is already common
knowledge for the biggest companies. ERP (enterprise resource planning) systems have been
introduced by a half of the companies from Fortune 1000 in the ’90 (Ernst & Young
Publication 2011).
With the help of CRM system (customer relationship management), the enterprises
reduce the costs by increasing the efficiency of sales representatives. In the same time, they
insure the basis of information for supplying the best services. “More than six out of ten
companies augment their revenues between 10% and 25% as a result of using a CRM
system.” (Ernst & Young Publication 2011).
Solutions include but are not limited to: business intelligence, enterprise performance
management, business process management, product lifecycle management, addressing a
selected segment of clients by satisfying some specific needs.
4. CONCLUSIONS AND IMPLICATIONS
The purpose of the current paper was the comparison of the dimension and
performance of the national Romanian enterprises and the subsidiaries of multinationals
operating over the Romanian territory. We sought to derive their strong and weak points and
studied which category has the most advantageous impact on the development. In the end we
provided some practical solutions for supporting the survival and development of local
enterprises.
In conclusion, both categories of enterprises bring their considerable contribution to
economic growth, and the relations between them are both complementary and synergetic: 1)
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multinational enterprises from the point of view of efficiency (wide impact and very good
financial results although they have a low weight in the total active enterprises) and by
multiplication effect over the local environment, and 2) the local enterprises, through their
prevailing number, insure the most part of the total employment from the economy and
contribute to the GDP of each country (weight estimated by the White Book of SMEs from
Romania to be between 55% - 95%).
The payoffs of multinationals include: high financial means, investment in research
and development, better management and technological equipment, larger cover market,
capability to develop local environment, relocation in case of difficulties. SMEs have the
following convenes: larger flexibility and adaptability, simplified internal structure of
organization, shorter production cycles, personalized relations with clients and a more
specialized offer.
Last but not least, although multinationals do have a higher performance as compared
to the local enterprises, do not offer stability. Their volatility is higher and they can relocate or
narrow down their activity when local circumstances do not favor a profitable activity
anymore.
ACKNOWLEDGEMENTS
This article is a result of the project POSDRU/6/1.5/S/11 „Doctoral Program and PhD
Students in the education research and innovation triangle”. This project is co funded by
European Social Fund through The Sectorial Operational Programme for Human Resources
Development 2007-2013, coordinated by The Bucharest Academy of Economic Studies.
REFERENCES
1. BNR, INS. 2010. "Investitiile Străine Directe în România." Cercetare Statistică
Anuală, BNR, INS, 2003-2010.
2. Boariu, A. 2012. "Patronii Sometra, executati silit de AVAS." Capital, Aprilie 2.
3. Bucureşti: Institutul Naţional de Statistică 2010. Anuarul Statistic al României.
4. Comisia Europeană 2003. The new SME definition. User guide and model declaration,
Enterprise and Industry Publications.
5. Direcţia Statistică – BNR, INS 2011. "Investiţiile Străine Directe în România în anul
2010." Direcţia Statistică, BNR; Direcţia Statistici Structurale ale Întreprinderii şi
Direcţia Registrului Statistic al Întreprinderilor, INS, BNR, INS, Bucharest, 2011.
6. Dumitrescu, C., Scalera, F. 2012. "Strategies of Multinational Enterprises."
International Journal of Business and Commerce, Vol. 1, no. 7, pp. 12-26.
7. Ernst & Young Publication, 2011. "Antreprenor & Viitor Durabil." Bucureşti.
8. Ilie, I. 2011. "Efectul de face-lifting al mărcilor româneşti." Capital, Decembrie 4.
9. Institutul Naţional de Statistică, 2010. Anuarul Statistic al României. Bucureşti.
10. International Business Promotion, Ernst&Young 2011. Major Companies in Romania.
Bucureşti: International Business Promotion, p. 284.
11. Oancea, D. 2009. http://www.cariereonline.ro/articol/triumf-romanesc-la-genevamircea-tudor-presedinte-mb-telecom.
12. Peters, J., T., Waterman Jr., R. H. 2010. În căutarea excelenţei. Lecţii de la
companiile cel mai bine administrate din America. Translated by Eugen Damian.
Bucureşti: Editura Meteor Press.
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13. Scalera, F., Dumitrescu, C. 2012. "Perception and Facts on the Activity of
Multinational Enterprises." International Journal of Business Management and
Economic Research, Vol. 3, no. 1, pp. 417-424.
14. Scalera, F., Uruçi, E. 2011. "Internationalisation strategies of SME in Albania. The
influence of business climate. Developments and prospects." International Journal of
Economics and Research, Vol. 2, no. 4, pp. 162-176.
15. Someşan, C. 2010. "Strategii Competitive ale Întreprinderii.".
16. Stopford, J. 1998. "Multinational corporations." Foreign Policy.
Washingtonpost.Newsweek Interactive, LLC.
17. Vlădescu, M. 2011. Activitatea Filialelor Străine în România. Direcţia Generală de
Statistică a Întreprinderilor, I.N.S., Bucureşti.
18. Zaman, G, Vasile, V., Matei, M., Croitoru, C. and Enescu., G. "Aspecte ale impactului
ISD din România asupra exporturilor si dezvoltarii durabile." Romanian Journal of
Economics, Vol. 33, no. 2 (42) pp. 1-60.
ANNEXES
FDI Flows mil. euro, Romania, 2003-2010
An Capital participations Net credits from foreign
direct investors
2003 1263 683
2004 4484 699
2005 3852 1361
2006 6832 2227
2007 3547 3703
2008 4873 4623
2009 1729 1759
2010 1824 396
Source: Direcţia Statistică – BNR, INS 2010
Number of active enterprises and subsidiaries in Romania, total and by sectors of activity,
end of 2009
Sector Total Active Enterprises Subsidiaries in Romania
Industry 58853 5238
Commerce 197462 8247
Services 174866 9504
Constructions 59926 2846
Total 491107 25835
Source: (Vlădescu 2011)
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Sector
The weight of subsidiaries in Romania by sector of activity (%),
2009
Industry 20.27
Commerce 31.92
Services 36.79
Constructions 11.02
Source: Vlădescu 2011
Sector
Weight of subsidiaries’ employees in
total employees by sector of economic
activity
Industry 0.385 0.089
Services 0.176 0.054
Commerce 0.173 0.042
Constructions 0.061 0.047
Source: Vlădescu 2011
Weight of number of
subsidiaries in total
number of enterprises
by sector of economic
activity
Turnover and gross added value, total and subsidiaries, Romania, 2009, (mil. RON)
Turnover
Gross value added at factor costs
Sector of activity Total Out of which
Out of which
Total 2009
2009 subsidiaries:
subsidiaries:
Industry 284313 167169 75052 36691
Constructions 79736 16500 21868 4101
Commerce 343648 139307 37763 13542
Services 136807 53763 53717 21665
Total 844504 376739 188400 75999
Source: Vlădescu 2011
The first 30 non-financial companies from Romania by reported turnover (CA), 2010
Rank Name of the company
Annual CA
(2010, RON)
Productivity
(CA/employee,
2010)
1 OMV PETROM SA 13,953,092,655 554221.98
2 AUTOMOBILE DACIA SA 11,403,296,221 824950.89
3 ROMPETROL RAFINARE SA 7,099,249,720 6716414.11
4 NOKIA ROMANIA SRL 6,762,563,129 4357321.60
5 ROMPETROL DOWNSTREAM SRL 6,136,677,366 2273685.57
6 METRO CASH & CARRY ROMANIA SRL 5,277,738,631 923327.26
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7 PETROTEL - LUKOIL SA 5,000,090,715 4854457
8 BRITISH AMERICAN TOBACCO 4,828,646,080 16650503.72
(ROMANIA) TRADING SRL
9 KAUFLAND ROMANIA S.C.S. 4,670,911,828 467418.37
10 OMV PETROM MARKETING SRL 4,576,267,705 31131072.82
11 LUKOIL ROMANIA SRL 4,563,161,531 1246765.44
12 ORANGE ROMANIA SA 4,161,195,667 1523131.65
13 ARCELORMITTAL GALATI SA 4,145,230,367 447890.9
14 CARREFOUR ROMANIA SA 3,918,829,019 550165.52
15 GDF SUEZ ENERGY ROMANIA SA 3,763,931,527 4464924.7
16 SOCIETATEA NATIONALA DE GAZE 3,574,215,704 614971.73
NATURALE ROMGAZ SA
17 VODAFONE ROMANIA SA 3,467,894,085 1170004.75
18 Real - HYPERMARKET ROMANIA SRL 3,280,051,062 435597.75
19 SOCIETATEA COMERCIALA DE 3,273,700,089 626305.73
PRODUCERE A ENERGIEI ELECTRICE IN
HIDROCENTRALE HIDROELECTRICA SA
20 SELGROS CASH & CARRY SRL 3,219,210,721 747436.89
21 ROMTELECOM SA 3,027,936,160 340561.93
22 MOL ROMANIA PETROLEUM 2,675,591,532 14947438.73
PRODUCTS SRL
23 COMPANIA NATIONALA DE 2,545,724,630 1165091.36
TRANSPORT AL ENERGIEI ELECTRICE
“TRANSELECTRICA” SA
24 OMV PETROM GAS SRL 2,499,111,953 49982239.06
25 E.ON ENERGIE ROMANIA SA 2,467,772,502 6263381.98
26 RENAULT INDUSTRIE ROUMANIE SRL 2,429,410,979 8098036.59
27 MEDIPLUS EXIM SRL 2,330,223,572 2500239.88
28 GRUP SERVICII PETROLIERE SA 2,307,764,811 4569831.3
29 PHILIP MORRIS TRADING SRL 2,024,457,594 7525864.66
30 SOCIETATEA NATIONALA DE 1,969,188,641 129731.11
TRANSPORT FEROVIAR DE CALATORI
CFR CALATORI SA
Source: International Business Promotion, Ernst&Young 2011
Distribution of the first 30 companies from Romania after the size of the turnover
obtained in 2010 (billion RON)
Interval for the turnover (CA), billion
RON
Number of companies
CA over 45000 billion RON 11
CA € [30000,45000) 10
CA € [15000,30000) 9
Source: International Business Promotion, Ernst&Young 2011
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THE IMPACT OF INFORMATION TECHNOLOGY IN THE DECISION MAKING
PROCESS IN HIGHER EDUCATION, WITH PARTICULAR EMPHASIS AT THE
UNIVERSITY OF PRISTINA
Osman Sertolli
Arta Tafili
ABSTRACT
This document gives some information about an information system in higher
education and in University in Pristina
Project as the impact of information systems at the University of Pristina are very
important for the digitalization of our University.
Key words: management, investment, project, risk, capital.
1. INTRODUCTION
There are several goals which aim to achieve in this paper, we consider that some of
the main goals are to provide a good basis to meet the theoretical knowledge on the use of
computing systems and their impact on decision making.
To determine the level of meeting the needs of managers with information processed
by the computing system
1. Knowing the process of six stages of decision making.
2. Identifying the types of decisions.
3. Difference of qualitative and quantitative factors of decision making.
4. Identifying potential problems of decision
2. LITERATURE REVIEW
Century XX, especially the last two decades recorded an exponential growth in the use
of information technology and information systems.
Information systems are tools without which there can be thought of the business of
enterprises. This technology is being applied in the field of education and making decisions
today can not be assumed and is not successful without the support of information systems.
Use of information systems in order to support the process of making management decisions
will be our main objective, we focus particularly on Higher Education with special emphasis
on the University of Pristina.
In the first chapter provided an introduction to paper and presented research goals and
hypotheses. Also, access is provided within the methodology used in preparing this paper.
In the second chapter will talk about using information system and its importance. Provides
basic notions about computing system, the concept of computing system, computing system
components, types of computing systems and will present the role and importance of
information system as a processor of information
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3. ANALYSIS OF THE PROBLEM
Advantages of using computing system in Higher Education and the University of Pristine
This chapter specifies the main features that will have higher education system in
order to realize the vision and mission and to meet the challenges presented above
Are defined six key aspects which will be subject to transformation, reform and development,
and six main objectives?
It is believed that transformation, reform and development provided in these areas will
bring a more quality, more efficient and that will be comparable and harmonized with
European standards.
The issue of quality assurance and its monitoring has become an important element in
higher education policy at the present time
Quality issue in higher education is dictated by national needs and the trend to
internationalization of higher education.
This interest and concern about quality assurance stems from a broader context of
social, political, economic.
Higher education institutions are responsible before to society and must demonstrate
that they are making possible efforts to better use resources effectively entrusted.
In this context quality is foreseen as one of the key principles that will support the
development of higher education in Kosovo in the next decade.
The ultimate goal of the proposed measures for this area is to achieve a quality
comparable with European standards
Investments in physical and academic infrastructure by international donors and
financial means in the postwar period resulted primarily offer enriching academic programs in
quantitative terms, but not in increasing the quality of work in higher education institutions.
Considered that such a disagreement between the investments made and results
achieved is largely caused by the evident weaknesses in the management of higher education
institutions and of the higher education system.
Nowadays, the operation of a changing environment and requirements, in terms of
competition at national and regional level, it is necessary that higher education to have an
entrepreneurial and market oriented approach
Without an effective coordination and management can not imagine the development
of a higher education system that functions to increase the welfare of society.
Implementation of an Integrated Management Information System on the campuses of
universities and higher education has become very important in the XIX st century, for
contributing to sustainable development and affects the institution to increase the quality
levels of all campuses the university.
Integrated Management Information System not only affects the constant
improvement of the institution, but also increases public awareness about the new
management system which would be a good model to use effective rules and efficient
management.
So, Integrated Management Information System is a management system which
integrates all the institution's systems and processes them into a comprehensive institution
giving such an opportunity to work as a cohesive unit objectives.
The integrated system makes a completely unified organization, with each function
listed after a single goal, thus improving the presentation of the whole organization.
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Integrated Management Information System is designed in a way which provides a clear
overall picture, of all aspects of the university, as these aspects affect each other and their
associated risks.
Integrated Management for University Computing System is designed in order to
bring solutions and measurable results by developing appropriate and state of the art
applications in flexible collaborative approach to students, teaching staff, and workers in
general and all persons involved in the university.
Integrated Management Information System as the university has developed into a
way to integrate a suite of applications and databases that allow the university to perform
administrative and educational duties in a very effective, efficient and very organized way.
Integrated Management Information System can modernize the university system,
may enable to reduce the burdens of daily day to improve the quality of services for students,
to bring new digital services that are relevant to the university, and last but great importance
brings a full integration with all applicable systems.
ISM also offers data and systems with very fast connection possibilities, also has an
automation of the administrative work of students, academic and administrative things,
simplifying the form of parameters and finally the system provides support to technical
things.
The Campus management system is considered to be the perfect solution for creating
an administrative system management platform for students and academics to communicate
and express their thoughts
The Campus management system is designed in such a way that the university provide
solutions portfolio also provides a system which integrates all the functions and activities of a
university in a single platform.
RESULTS OF PROJECT
Empiric research results on the impact of information technology in the decision
making process in higher education, with particular emphasis at the University of
Pristina
In order to research the impact of MIS in Higher Education with special emphasis on
the University of Pristina for the purpose of this paper is a survey conducted by different
respondents of different levels at the University of Pristina. Of the total 10 respondents
interviewed all respondents answered positively.
1. When asked, a University of Pristina uses computing system in work processes, the
10 questionnaires that were made with 70% of respondents have answered yes, while 30%
have answered NO.
2. When asked, Do you know about the impact of information processed by the
computing system in making decisions and how you use them at the University of Pristina,
90% of respondents answered regarding the importance of using the information processed by
the computing system the decision making process, while a small percentage (10%) resulted
to have had no knowledge regarding the impact of information processed by the SIM in
making decisions
3. On the question, What is the nature of the works in which the use computing
system, provided these answers: 50% of respondents answered that the computing system
technology used in daily activities, 20% of them said they used the routine work, 30% of
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respondents answered that the computing system used in finance and accounting, and 10% in
decision making.
4. When asked, What are your acquaintances on the application of information
technology in UP, 80% of respondents answered that possess good knowledge in terms of
technology use informatics while 20% of them responded well know that on average use of
this technology, since there has been no response to their acquaintances are weak.
5. When asked, By what year you started to use computer system at the University of
Pristina?, Research shows that: 20% of respondents answer that the use of IS in University of
Pristina has begun since 2006, and 80% of respondents answered that the use of IS University
of Pristina began in 2010.
6. The question, Do you think that the computing system allows performing more
effectively and making quality decisions, the respondents ranked this way: 90% of
respondents think that the computing system enables the effective execution of the works,
while 10% of respondents answered no, not sure about this attitude of the respondents
7. On the question, What use management structure computing system at the
University Pristina, 10% of respondents answered senior management, (40%) of them
responded middle management. And 50% consider how low management use this system
shows that the use of computing at the University of Pristina little used by senior management
while the other two management levels such as middle management (50%) and low (40%) use
more of this technology.
4. PAPER CONTENT
The current situation of using computing system at the University of Prishtina
The Office of Information Technology at the University of Pristina has key role to set
standards and to provide electronic services, arranges and coordinates the process of
regeneration and investment in information technology in all academic units and
administration central.
However, the use of computing systems at the University of Prishtina was
accompanied by several problems and difficulties which are usually present in the initial
stages of information system development.
Not forgetting the previous period in which we have been in the past we can not say
that these obstacles were overcome after each period has its own challenges.
Especially, we should mention that in the field of Information Technology has the problems
inherited from previous periods.
CONCLUSION
Working paper is based on scientific and professional literature in the field of AS and
decision making are also used methods of analysis, with methods of analysis, methods of data
comparison and tabular and graphic presentations.
In the first paper provides an introduction to and definition of the problem presented,
the purpose of research and methodology used.
Based on interviews and survey results we can conclude that the practice of using
computing system at the University of Pristina in terms of 10 years has begun a major
application of information system. While the level of computing system development in
recent time steps begin development soon.
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In general browsing interviews conducted in the relevant respondent have observed
that the University of Pristina after the application of computing systems have been:
a. management easier
b. facilitation of work and
c. internal organization of work.
University funding should be based on clear, consistent and transparent.
Universities should be informed of their budget at least eight months ago to create
certainty and to enable forward planning.
It is not possible to increase the number of students without expanding the human and
physical capacities of institutions of higher education. While some sources may be raised by
student contributions, additional resources must come from the other state higher education
system will be seriously threatened
Universities should be encouraged to develop alternative sources of funding and
should have full autonomy in the use of these funds. Faculties should have autonomy in the
use of funds that they generate.
ACKNOWLEDGMENTS
The authors would like to thank the Ministry of education and science and University
of Pristina for help in realizing the project, from which the results presented in this paper were
ensued.
REFERENCES
3. Berisha-Namani,M.(2004): Sistemi informatik i investimeve, Disertacioni i
doktoraturës,Prishtinë.
4. Berisha-Namani, M.(2003): Informatika e biznesi-Ushtrime praktike në Excel,2003,
Prishtinë,
5. Berisha –Namani, M.(2004): Informatika e biznesit-Ligjerata, Prishtinë.
4. Gjorgjijovski, B.(1989): Menaxhment informacion sistemi, Fakulteti
Ekonomik,Shkup.
5. Koontz, H, Heinz, Weihrich. (1990): Essentials of Management, Fifth Edition, Mc
Graw- Hill Publishing Company, New York, USA.
6. Kenneth,L.& Jane, K.(2003):Management Information Systems, Eighth Edition,
Prentice
7. Hall, USA
8. Kotler, Ph.(2003):Marketing Management” Eleventh edition, Pearson Education LTD
New Jersey, USA
9. Murdock , RG & J.C Munson.(1986): MIS-concepts and design, New Jersey.
10. Mehmeti, ASh.(2006):Fjalorë enciklopedik nga teknologjia e informacionit,
Prishtinë,Kosovë.
11. Parker C.S.(1989): Management Information System: Strategy and Action, New
York.USA.
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DEINDUSTRIALIZATION AND ITS IMPACT ON POPULATION
Sima Cristian;
Centre for Industry and Services Economics, Romanian Academy;
Bonciu Cătălina;
University of Bucharest
ABSTRACT
The Romanian economy began its transition to the market-oriented model in
unpropitious conditions, more difficult than in other Central and Eastern European countries.
The economy’s evolution after 1990 took place according, generally, to the model „stop and
go” and registered, so far, outcomes far from expectations. Objective and, especially,
subjective explanations are multiple, on their identification focusing numerous surveys
carried out after 1990 by international organizations, governmental bodies, international
consultancy firms, domestic and foreign prestigious research institutes. The main conclusions
of these surveys, even they are quite different, converge toward the essential idea that the
actual condition of the Romanian economy and industry is, first of all, the result of a clear,
coherent and judicious oriented strategy’s absence, accompanied by adequate policies
devoted to different sides of the economic and social development. In the context of absence
for a long period of these strategies and policies set up on a consensual basis and consistently
applied, the manner in which reform was managed proved to be deficient, oscillating and
purposeless.
Together with the deindustrialization also changed the configuration of the active
population. Restructuring the economy left a negative mark on the standard of living, by
reducing the family incomes of most of the country’s inhabitants. If the study was to analyze
the nation’s health, the conclusions would have been really demoralizing. But the concern of
this analysis was to present the economic reconfiguration in the past two decades, as well as
the multivalent influences on the population, compared to the human and work conditions, the
health of the population, the standard of living and the educational and cultural standard.
Key words: deindustrialisation phenomenon, causes of the deindustrialisation,
poverty
1. INTRODUCTION
In Romania, the industry was the national economy’s sector that deeply experienced
the errors made in establishing the main co-ordinates of the economic reform and in applying
the necessary policies. This reality is convincing mirrored by the sharp contraction of the
industrial activity, the loss of foreign traditional markets with considerable absorption
capacity for Romanian industrial goods, the incapacity of some industrial sectors to adapt
their offer to domestic and foreign markets’ demand, the bankruptcy or precarious financial
situation of numerous well-known enterprises.
The dramatic decrease of the industrial production in the first years of the economic
reform, the incapacity a long period to reach the level attained in 1989, that was one modest
for the centralized economy period, progressively induced the idea that the Romanian
economy entered a deindustrialization process, with long term unfavorable effects.
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This process is very concerning for decision makers and specialists, who see it either
as integrating in the logics of the economic development (as a transition stage to the postindustrial
society, in which the third sector, services, is developing very fast on the account of
the other two sectors decrease and is becoming prevalent), or as an evolution with unfavorable
effects on future economic development of the country.
In order to correctly appreciate whether the Romanian economy is committed itself in
a deindustrialization process, should be beforehand clarified the foundations of such a
process, outlined on the basis of the world experience and interpreted from the angle of the
Romanian industry’s realities.
The effects of this process rapidly appeared and manifest in many aspects of the
existence of the country and of the Romanian nation. The consequences can be noticed at
economic level, with structural changes in the economy.
But, maybe just as painful is the process of uprooting of the population by pushing the
potential employees to those areas of the world where they can find jobs. Separated families,
children left in the care of the grandparents or other relatives (even though relatively
abandoned), impoverished households are the foundation of the negative demographic
evolutions in the recent years, as well as of the negative evolution of health and living
standards.
This study shall present the theoretical aspects, explained or explainable by the logic
of causality, in order to highlight the significant gap between what should happen and what
we can observe in reality.
In full economic crisis, when the W-shape evolution seemed very unlikely, the most
important part of the European population began to show signs of prolonged suffering. 2009,
2010 and 2011 represented, in the history of the European construction, years of ordeal for the
EU citizens. Particularly, our country, contrary to what internal or external politicians
affirmed – on the success of the economic and social policies adopted in the past three years –
is positioned in the Eurostat statistics on very low positions in what concerns the economic
situation. There shall be presented charts comparative at European level, serious cases of
survival at the limit of subsistence, in order to determine topics of reflection and directions for
future actions.
2. LITERATURE REVIEW
After the extensive and prolonged process of industrialization, the deindustrialization
came as a ruthless mace, killing not only economies, but also the hope of the active
population. It is not a surprise the fact that this blow to the national economies weakened
some of them, others where rapidly brought close to bankruptcy. The phenomenon,
manifested with national peculiarities, has been investigated by numerous experts, wellknown
are the works of the authors Richard Arena, Jacques de Bandt, Laurent Benyoni,
Frank Thomas Blackaby, Glenys J. Ferguson, Paul R. Ferguson, Richard B. Feeman, Robert
Frank, Alexis P.Jacquemin, Henry W de Jong, Lloyd Rodwin, Paul Marie Romani, Hidehiko
Sayanami… In our country are the works of Cornelius Russu.
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3. PAPER CONTENT
I. CLARIFICATIONS ABOUT DEINDUSTRIALIZATION
A. Deindustrialization is the process of significant and progressive restriction of
industrial activity in a country’s economy.
The suitable use of this definition supposes specifying the containing of industrial
activity, some specialists considering it as limited to the manufacturing industry, others
including also the extractive industry, while others referring to it as the second sector,
therefore including industry and constructions.
Restriction of the industrial sector is materialized in the continue and visible decrease
of the level of some indicators relevant for its dimensions, such as the manpower used in the
sector, the output value, the weight of contribution to the country’s exports. For instance,
from the angle of the indicator “manpower occupied in the industry”, deindustrialization
process occurred steadfastly, during the period 1960-1990, with pace and amplitude variations
between countries: in the USA and the UK very accented (in the USA the level diminution of
the mentioned above indicator was from 35,3% to 26,2%, in the UK from 47,7% to 29,0%),
in France and the Federal Germany more attenuated (France – reduction from 38,4% to
29,0%, the Federal Germany – from 47,0% to 39,8%), and in Italy and Japan the evolution
was fluctuating , after an increase in 1970 due to bulky investments in industry following an
easy diminution in Japan (from 35,7% in 1970 to 34,1% in 1990) and stronger in Italy (from
39,5% to 32,4%).
The conclusions of analysis concerning this indicator are but not concordant with
those resulted from analysis of the same countries’ weight in world manufactured products
exports. Thus, the USA and the UK weight in those exports sensibly diminished (from 17,8%
in 1970 to 14,8% in 1990, and, respectively, from 9,2% to 7,5%), that of France varied
limited (about 8,8%), but those of Japan especially (from 9,7% to 12,8%), Italy (from 6,5% to
7,3%) and the Federal Germany (from 16,6% to 17,5%) increased, as a result of their exportoriented
industries.
From the divergent evolutions to a certain extent of the analyzed indicators’ level one
can draw the conclusion that the correct assessment of deindustrialization or
reindustrialization trends’ in different countries can be carried only out from the angle of
multiple criteria, searching the explanations of sense and amplitudes’ differences among
evolutions.
In the same sense, the use of statistical data should be made taking into account some
logical correlations. For instance, the production modernization by introducing new
equipments brings about the reduction of employment, but, also, the production increase and,
in certain conditions, the manufactured goods’ exports. At the same time, it should be taken
into consideration the fact that in certain countries national statistics groups firms by sectors
(industry, services) depending on their main activity (according to this rule, a specialist who
works in a firm from manufacturing industry is considered as working in industry, and a
specialist with the same profile who works in a consultancy firm is considered as working in
the third sector). Also, if the firms from manufacturing industry do not cover their services
needs with own specialists but appealing to specialized services firms, this will bring about
the reduction of employment in industry and its increase in the third sector.
All these aspects demonstrate that the deindustrialization phenomenon can not be
rigorously measured, because of imperfections of statistical registration system or certain
specific situations distorting the outputs and inducing deformed conclusions.
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B. Causes and effects of the deindustrialization
Attentive analysis of the process and its manifestation forms gives the possibility to
identify its causes.
a) Deficient managerial activity in a number of industrial firms leads on long term to
worsening their economic-financial performances as far as the threshold of bankruptcy, thus
diminishing the number of firms in industry. The deficient managerial activity is reflected by
large production costs, low quality of products/services, insufficient restructuring of activity
or postponing its start in order to adapt supply to market needs, unfavourable brand of the
firm, etc.
In Romania, the Law no. 66/1993 concerning the management contract, judicially
sanctioned the profession of manager, triggering the efforts to improve managerial activity in
commercial societies with majority public ownership and autonomous administration (such as
they existed at the time), by making managers responsible for the achievement of precise
outcomes. The measure was, beyond doubt, beneficial, but it did not attain its envisaged
purpose because go on to exist a large number of industrial agents whose market behaviour is
characterized by: reluctance as for the production list restructuring, production re-launching
and conclusion of profitable contracts and orders, given the uncertainty of raw material supply
and the solvability of some customers burdened by financial arrears; rigidity of supply, its low
competitiveness that did not allow the desired improvement of exports; prevalent use of
financial means for wages and salaries payment; existence of over-sized stocks; reluctance to
invest brought about by the regulating framework instability; marginal concern for costs
reduction, in circumstances given by the small role of customers in settlement of production
list; maintaining the employers’ number, even when the production decreased dramatically;
postponing the payment of suppliers, the arrears representing a very cheap credit source, that
can be used for financing un-efficient activities; persistence of financial stopping, due to a
large number of enterprises with primary insolvability spread in the whole industrial system,
characteristics of existing banks system, banks’ practice to linger in their own interest the
discount flows, giving up to contracts concluded by some beneficiaries, conditions required to
obtain short-term credits.
The role of managers of enterprises which lie in these situations is crucial, their
contribution to generating and perpetuating these dysfunctions being evident, in spite of
responsibilities assumed by the management contract.
Moreover, the managerial tools they use – respectively methods, techniques etc. of
scientific nature (for decision optimization, activities scheduling, optimization of business
portfolio etc.) – continue to be very limited and appealed with reduced frequency for
optimization of major decision concerning enterprises’ activity. The explanations are
numerous: insufficient managerial formation of several managers; precarious available
information in many enterprises for decision substantiating; reluctance of many managers to
use apparent complicated techniques and methods; short available period to make major
decision; formal attendance to training programs of many managers and specialists
susceptible to be promoted.
b) Competitive disadvantages of industry as a whole and of some industrial sectors –
high production costs, poor diversification of products, low quality of some products /
services, precarious distribution channels, deficient post-sale service – is a frequent cause of
deindustrialization. Mentioned competitive disadvantages can be considered as an equivalent
at the level of industry of managerial deficiencies highlighted as previous cause.
Removing these competitive disadvantages is possible either by a strategy aiming at
reversal of negative tendencies (costs rising, quality worsening, productivity diminution) by
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modernization, waste eliminating etc., or by giving up to uncompetitive firms and sectors and
resources re-allocation by investments in high-rate increase industries, with favourable
prospects.
c) Reaching a superior stage of economic development, that of transition from
industrial to post-industrial society, in which the weight of secondary sector diminishes
considerably in favour of the third sector, as shows in the next picture.
Level of
employment
by sectors
Secondary sector
Pre-industrial
stage
Industrial
stage
Postindustria
l
Figure 1. Employment variation by sectors, depending on economic development stages
The mentioned passage is linked to economy’s maturity level and change occurred in
population demand of goods / services, the demand becoming predominant in the services
sector. The level of services demand is correlated with that of economic development,
respectively that of the GDP. The increase of services sector’s weight is due, at least at the
beginning of the post-industrial stage, to: lower productivity of this sector as compared with
that of industry, so allowing to the first sector to absorb more labor force than that become
available in industry; rising of population education and instruction level, more and more
people preferring, in these circumstances, to work in the service sector and not in the
industrial sector; increase of population life expectancy (that brings about further needs of
social services), and living standard (elasticity coefficient of services demand is superior to
that of industrial products).
d) Reinforcement of the national currency as compared with foreign currencies
contributes, also, to deindustrialization by raising the price of exports and, thus, determines
own products / services competitiveness decrease on foreign markets. In this sense, for
instance, the American researchers highlighted the fact that the strong US dollar
reinforcement during the period 1982-1985 brought about a significant loss of American
goods’ competitiveness on foreign markets.
By and large, the negative effect of this cause on state indicators level (employment)
and performance indicators (production, exports’ weight in the world trade) of industrial
sector lasts approximately as much as is maintained a high rate of the national currency in
relation with other currencies (OECD, 1992).
e) Existence of multinational companies and expansion of their activity outside
borders of the origin country determines the deindustrialization of respective country by the
simple fact of transferring abroad some activities, more frequently those of production, sales
and distribution. These companies present some competitive advantages (economy of scale,
products diversification, superior management and marketing capacity etc.) and host countries
in which these companies extend their activities present specific location advantages (low
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wages costs, qualified manpower, adequate infrastructures, favorable business environment
etc.). On the basis of these advantages analysis, the multinational companies make the best
decisions as for the most profitable form to turning them to account, respectively products /
services’ export, conclusion of patent or franchise contracts with local producers or transfer of
some activities outside borders of the origin country.
Because the great majority of multinational companies proceeded from the
manufacturing industry, it is evident that the third mentioned expansion form, more recently
adopted, has major effects on the deindustrialization. It was demonstrated, for instance, that in
the second half of the eights decade of the last century, foreign direct investments of 1 billion
USD made by American firms brought about a loss of more than 26,000 jobs in the American
economy, only in 1970 American multinational companies arousing a loss of about 116,000
jobs in the manufacturing industry (Frank and Feeman, 1978).
f) An interesting cause by their effects on deindustrialization is the intensification on
large-scale exploitation of a new natural resource. When a new resource enters a country
economic circuit, this brings about significant appreciation of the national currency of that
country as compared with those of other countries and, consequently, the products’
competitiveness decrease of the respective country on international markets. It is the
Netherlands’ case, that began the very profitable gas exploitation in the North Sea by ’60
years (whence the cause’s denomination of “Dutch disease”), and of the Great Britain that
began oil’s exploitation in the same sea by ’70 years.
g) A last cause of deindustrialization lies in the specific dynamic of different
industries in different countries, making that the same industry be founded in circumstances
varying considerable from one country to another and, consequently, presenting performances
which are displayed on a large range. The differences are explained by influences of
determinative factors such as the industrial policy of the country, the driving forces which
spur industries development (export, domestic demand, large scale modernization of the
technologies, etc.), specific conditions as factors endowment. In this sense, Table 4 shows the
position in some developed countries of some industries depending on production increase,
during periods encompassed between 1968 and 1986, specifying the main driving forces that
brought about this increase. (Frank and Feeman, 1978).
The table points out the different action’s intensity of four factors on industrial
production increase in some developed countries. So, the industry’s expansion of the industry
with the highest pace of development in all the countries considered – computers and office
means -, has been stimulated, in the periods referred to in the table, by the changes that
occurred in the domestic final demand in the United States and Japan, and by the export in the
Federal Germany and the Great Britain.
Table 1
Industries ranked by growth in output, showing principal explanation
USA
Period 1972-1985
Japan
Period 1970-1985
West Germany
Period 1970-1986
UK
Period 1968-1984
A. Industries with the highest output growth
1. Computers and
office equipment
(a)
Computers and
office equipment
(a)
Computers and
office equipment
(b)
Computers and
office equipment
(b)
2. Electronics (a) Pharmaceuticals (d) Aerospace (b) Real estate and
business services
(d)
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3. Communications
(a)
Electronics (a)(b) Communications
(a)
4. Instruments (a) Motor vehicles (b) Real estate and
business services
(d)
5. Social services Communications Finance – Insurance
(a)
(a)
(a)
6. Finance – Instruments (a) Rubber and plastics
Insurance (a)
products (b)
B. Industries with the lowest output growth
1. Ferrous metals Mining (d) Wood and furniture
(d)
(a)(d)
2. Other
transportation
equipment (a)
3. Other
manufacturing
industries (c)
4. Non-ferrous
metals (d)
Electronics (b)
Finance -
Insurance (a)
Mining (b)
Government (a)
Other
transportation
equipment (d)
Shipbuilding (a) Ferrous metals (d) Fabricated metal
products (d)
Wood and furniture
(d)
Textiles (c)
Shipbuilding (a)
Textiles (d) Mining (d) Non-ferrous metals
(c)
5. Mining (d) Agriculture (d) Shipbuilding (b) Motor vehicles (c)
6. Stone, clay, glass Other transportation Petrol refining (c) Ferrous metals (c)
(d)
equipment (d)
The main determinative factors of industrial increase:
(a) – Changes in domestic final demand; (b) – Export performance; (c) – Import performance;
(d) – Change in technology
Source: OECD, Industrial Policy in OECD Countries, Paris, 1992
The table analysis occasions also the interesting observation that in the four countries
which referred to the range of industries with the highest output growth, as well as of
industries with the lowest output growth, there are ubiquitous industries (computers and office
means), and, especially, industries which are founded only in one, two or three countries; this
aspect highlights, once again, the determinant importance of each national economy’s specific
conditions.
II. STRATEGIES TO COMBAT DEINDUSTRIALIZATION PHENOMENON
Reduction of industry’s weight in the whole national economy, determined by the
showed causes, is a logical process of the economic development, in which the weight center
of the economic activity is moving faster or slower from the primary and secondary sectors to
tertiary sector. The anxiety frequently expressed in the literature as for the deindustrialization
phenomenon has, however, no foundation, in light of some undeniable reasons.
a) Interdependence among the national economy’s sectors is deepening according as
its maturation and entering a superior development stage, fact pointed out in an OECD
reference document: “…..the net lines separating economy’s sectors will probably loose their
significance. In place of emphasizing a sector in detriment of other (for instance, “the
manufacturing is important”), the focal point of economic development policy should be
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made up by the systemic gains that maximize the efficiency of different industries’
integration”.
According to this view, the essential matter is that of economy’s sectors synergistic
articulation in order to maximize, depending on existing specific factors which influence the
different sectors and industries’ rise, their contribution to general development.
b) The fear generated by lower productivity of services’ sector compared with that of
industry becomes more and more unjustified because of modern information and
communication technologies (ICT) that brought about spectacular productivity’s increases in
the third sector. For instance, consumer goods’ distribution services are carried out according
to the scale economy’s principle (by supermarkets networks); the same thing is occurring in
banks activities, insurance activities, fast food restaurants etc.
c) In last decades, in developed countries, the services sector proved to be able, in
many respects, to create a number of jobs superior to that of number lost in declining
industries. Empirical evidence convincingly demonstrates this issue and, according as the new
technologies penetrate in other categories of services, the setting up of new jobs in the third
sector will be amplified.
d) Interdependencies between manufacturing industry and services is emphasizing
continuously, so that, on one hand, fade away differences between them, and on the other
hand, made them more sensitive to changes occurred in this zone. For instance, tourist
services’ spectacular development occurred in the last decades has stimulated expansion of
many connected industries (touring cars, complex installations for tele-cabins and ski lift,
hotels and restaurant furniture, camping articles, souvenirs etc.). Another example, in retort,
development of audio-video electronic equipment spurred organization of distribution
specialized networks for equipment and information-supports (CD, DVD), testing,
maintaining and reparation etc.
Moreover, more and more industrial firms are appealing to specialized services –
accounting, financial engineering, technological, management, marketing, data processing,
insurance consultancy, that emphasize the interdependencies between secondary and tertiary
sectors. Resorting to external services (outsourcing), that means activities’ externalization
according to transaction costs’ theory, tends to intensify according as firms’ needs of more
specialized and exacting services are amplifying.
According to these reasons, the services’ sector, on one hand, interferes the most with
industrial sector, and on the other hand, is able to absorb quickly and efficiently capitals,
manpower and available activities following the manufacturing industry’s restriction. In these
circumstances, it is suitable to adopt a strategy aiming at countering determining causes of
deindustrialization or a strategy intended to stimulate the market mechanisms’ functioning
and, consequently, structural adjustments required by economic development ?
This question, as well as the industrial policy matter, founds the scientific community
divided, between those ones who support the necessity to adopt a supportive and deceleration
strategy intended to hinder deindustrialization and to recover declining industries, and those
ones who plead for a neutral, supportive strategy, which does not favor an economy’s sector
or an industry and allows market mechanisms to play their regulative and stimulating role for
structural adjustments.
Supporters of the first answer plead for subsidies and taxes reduction in order to
stimulate modernization and innovation, convenient tariff’s’ endorsement, interest rates and
exchange rates’ endorsement in favor of the industrial sector, imports’ control etc.
Supporters of the second view consider that creation of a favorable business
environment, stimulating structural adjustments of industrial sectors and enterprises, is the
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single way able to offer advantageous conditions for achievement of change and adaptation’s
natural processes, respectively for carrying out an organic equilibrium of economy, able to
stimulate its development competitiveness. In such environment, the enterprises which have
competitive strategies and a high adaptive potential could thrive even in declining industries,
contributing to restriction’s stopping of these industries and to their rejuvenation in order to
become competitive. By adequate modernization and better adaptation to dynamic market
demands, these enterprises can turn to account, with superior efficiency, all advantages
offered by favorable business environment, playing, on this basis, a stimulating effect on the
other firms from the respective industry and so provoking its recovering.
For the Romanian industry, that knew a sharp decline after 1990 and began, after
2000, a steady recovering process, it should be a non-sense to adopt for its whole only one or
another of the two showed strategies, absolutist and exclusivist. Explanation is given by
diversified circumstances in which different industrial sectors are found, what require
contingency and shaded answers, able to ensure taking into account of specific conditions of
each sector.
Endorsement of a strategy mix is justified by the fact that, on one hand, some
industrial sectors maintained or acquired during the reform process significant competitive
advantages which ensured them thriving prospects and, consequently, can be let on the
battlefield of market forces; on the other hand, there are also industrial sectors which present a
special interest for the national economy (sensitive or strategic sectors), and, in spite of a
current precarious position, possess potential competitive advantages, what makes necessary
to adopt and implement supportive industrialization strategies. These final strategies consist in
limited interventionist measures aiming at improvement of market mechanisms functioning
and correcting their distortions. This second strategy acknowledges the market forces’
superiority but admits, at the same time, the insufficiency of available information for
economic agents and existence of transaction costs; consequently, the re-industrialization
supportive strategy feasible for certain sectors should be based on limited and temporary
interventionist measures aiming at assignment and respect of property rights, research &
development and personnel training stimulation, entrepreneurship encouragement with view
to maintain continuous structural adjustments.
CONCLUSIONS AND IMPLICATIONS
What is there to notice at the end of the analysis?
The economic restructuring, caused by the deindustrialization, profoundly affected the
whole productive system, including at world level.
The psychological impact is devastating, by the visible and tangible consequences on the
individual’s situation – prone to poverty, low standard of living and level of payment
(EUROSTAT).
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Figure 2. Population Poverty risk (threshold 60%)
Figure 3: Minimal wage in Europe
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Figure 4: Population at Risk 2007-2010 – Pct points
Table 2: 2010 - In work poverty and part time (60%)
Total Males Females Part time (60%)
European Union (27 countries) 8,5 9,0 7,8 12,5
Belgium 4,5 4,8 4,2 5,8
Bulgaria 7,7 8,4 6,8 30,3
Czech Republic 3,7 3,7 3,6 6,7
Denmark 6,6 7,3 5,9 10,0
Germany 7,2 6,4 8,2 11,2
Estonia 6,5 5,0 7,9 13,0
Ireland 7,6 10,1 4,7 8,5
Greece 13,8 16,4 10,2 29,4
Spain 12,7 14,0 11,1 18,3
France 6,6 6,8 6,3 11,4
Italy 9,4 10,8 7,3 15,1
Latvia 9,7 9,5 9,9 22,7
Lithuania 12,3 10,3 14,0 22,7
Luxembourg 10,6 10,8 10,4 12,4
Hungary 5,3 6,0 4,6 14,0
Netherlands 5,1 5,6 4,6 4,5
Austria 4,9 5,0 4,8 6,8
Poland 11,5 12,2 10,6 20,6
Portugal 9,7 10,0 9,3 32,7
Romania 17,3 19,3 14,7 50,7
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Slovenia 5,3 6,2 4,2 7,4
Slovakia 5,7 5,9 5,4 11,6
Finland 3,7 4,0 3,3 6,7
Sweden 6,5 6,3 6,7 9,3
United Kingdom 6,8 6,8 6,8 11,4
Sources: OECD, Eurostat and National Statistics.
Table 3: Rate of poverty (60%)
AGE Less than 16 years From 16 to 64 years 65 years or over
European Union (27 countries) 20,2 15,6 15,9
Belgium 18,5 12,3 19,4
Bulgaria 26,4 16,5 32,2
Czech Republic 13,6 8,5 6,8
Denmark 10,7 12,9 17,7
Germany 17,2 15,8 14,1
Ireland 19,9 15,7 10,6
Greece 22,3 19,3 21,3
Spain 25,3 19,4 21,7
France 18,4 13,0 9,7
Italy 24,3 17,2 16,6
Lithuania 22,1 22,1 10,2
Luxembourg 21,5 14,2 5,9
Hungary 20,1 12,3 4,1
Netherlands 13,5 10,3 5,9
Austria 14,7 10,7 15,2
Poland 22,1 17,2 14,2
Portugal 20,9 16,3 21,0
Romania 31,3 19,6 16,7
Slovenia 12,6 11,0 20,2
Slovakia 18,5 11,5 7,7
Finland 11,2 12,3 18,3
Sweden 12,4 12,2 15,5
United Kingdom 20,0 15,3 21,4
Sources: OECD, Eurostat and National Statistics.
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Table 4: Severely materially deprived people, 2010
European Union (27 countries) 16,4
Belgium 14,6
Bulgaria 20,7
Czech Republic 9,0
Denmark 13,3
Germany 15,6
Estonia 15,8
Ireland 16,1
Greece 20,1
Spain 20,7
France 13,5
Italy 18,2
Latvia 21,3
Lithuania 20,2
Luxembourg 14,5
Hungary 12,3
Netherlands 10,3
Austria 12,1
Poland 17,6
Portugal 17,9
Romania 21,1
Slovenia 12,7
Slovakia 12,0
Finland 13,1
Sweden 12,9
United Kingdom 17,1
Sources: OECD, Eurostat and National Statistics.
REFERENCES
1. Frank Thomas Blackaby, (ed.). Deindustrialization, Heinemann Educational, London,
1979
2. Paul R. Ferguson and Glenys J. Ferguson, Industrial Economics. Issues and
Perspectives, Second edition, The MacMillan Press Ltd., Houndmills, Basingstoke,
Hampshire and London, 1994
3. Alexis P. Jacquemin and Henry W. de Jong, European Industrial Organisation,
MacMillan, London, 1977
4. Lloyd Rodwin and Hidehiko Sazanami, (eds.). Deindustrialization and Regional
Economic Transformation: The experience of the United States, Unwin Hyman,
Boston, Mass., 1989
5. Corneliu Russu, Economie industrială, Editura Economică, Bucureşti, 2003
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6. Robert Frank and Richard B. Freeman. "The Distributional Consequences of Direct
Foreign Investment", în: W. Deward (ed.), The Impact of International Trade and
Investment on Employment: A Conference of the US Department of Labour, US
Government Printing Office, Washington DC, 1978
7. Richard B. Freeman, R. B., and Robert S. Gibbons, “Getting together and breaking
apart: the decline of centralized collective bargaining”, in Differences and Changes in
Wage Structures, edited by R. B. Freeman and L. H. Katz. Chicago: University of
Chicago Press, 1995.
8. Sonia McKey, Precarious work, in conference Europe 2020: Fighting with Poverty
and Social Exclusion of Workers, Conference in Warsaw, 20-22 April
9. Stephan Portet, La pauvreté et consommation intérieure, dans la Conference Europe
2020 : Combattre la pauvreté et l’exclusion sociale des travailleurs, Conférence en
Varsovie, 20-22 Avril, soutenuée par la Commmunauté Européenne
10. Wielislawa Warziwoda-Kruszynska, Pauvreté et l’exclusion sociale: conséquences
pour la societé, dans la Conference Europe 2020 : Combattre la pauvreté et
l’exclusion sociale des travailleurs, Conférence en Varsovie, 20-22 Avril, soutenuée
par la Commmunauté Européenne
11. Organisation for Economic Cooperation and Development, Industrial Policy in OECD
Countries, Annual Review , 1992, 2000 - 2005, Paris
12. Traité d’Économie industrielle, 2 e édition, sous la direction de Richard Arena, Jacques
de Bandt, Laurent Benzoni, Paul Marie Romani, Collection Économie,
ECONOMICA, Paris, 1991
13. http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database#
“This work was supported by the project "Post-Doctoral Studies in Economics: training
program for elite researchers - SPODE" co-funded from the European Social Fund through
the Development of Human Resources Operational Programme 2007-2013, contract no.
POSDRU/89/1.5/S/61755.”
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CONSIDERATIONS ON SIMPLE CONTRACT OF ASSOCIATION,
UNDER THE NEW CIVIL CODE
Spasici Camelia
University of Bucharest
Gheorghe Anca Nicoleta
Nicolae Titulescu University
ABSTRACT
According to art. 139 par. 1 of Law no. 71/2011 civil societies established under the
Civil Code of 1864 may turn into any of the types of company governed by the new Civil Code
and other laws (under the conditions imposed by law). Documents executed under the rule of
the previous law remain subject to applicable law on their end.
The company contract is governed by the Civil Code, Book V "On duty", Title IX
Various special contracts, Chapter VII (art. 1881-1954).
The above legislative context, new contract the company has the main characteristic
simple lack of legal personality (art. 1892 par. Civil Code).
The lack of legal personality and is not the essence of simple company. Thus, if
associations want acquire legal personality, "the act amending the company contract shall
state expressly its legal form and will agree to its terms with all applicable laws newly
established society" (art. 1892 par. 2 Civil Code).
Acquisition of legal personality by the company simply has to be without its dissolution.
In this case, associations and newly created company will be severally liable for all debts of
the company and indivisible born before acquiring legal personality (art. 1892 par. 3 Civil
Code).
According to art. Civil Code 1893, are treated as single companies, companies subject
to the condition of registration under the law, but remain unregistered and companies
actually.
Key words : contract of association, contribution, manager, interest.
1. TRAINING VALID SIMPLE SOCIETY
To be validly concluded, simply contract the company must comply to the conditions of
validity laid down in art. 1179 Civil Code, and some special conditions: pooling of
contributions, participating on bonuses and losses, must be an affectio societatis.
The essential elements above simple society differ from other contracts (deferentio
specifico). Without these essential elements, the contract will be void, but will not be a
contract company (but will be another contract).
For a valid contract, associations must be able to make documents available. This clause
is required so the contribution obligation, transmitting ownership or use of goods and other
obligations involved participation in a community of people and interests, and assuming the
risk of possible losses.
The company contract can not be applied to any provisions regarding the ability of the
minor 16 years to conclude an employment contract, even if he would bring the company only
a consideration in employment. In contrast, for married minors before age of 18 years (they
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gain full legal effect of marriage), they may conclude available documents and so they can
join.
In doctrine and practice is allowed and the contract of the company between spouses
(although the matter is debatable, because matrimonial community of property which may
turn into a corporate possession).
Externalize their determination to conclude the contract on the association of volitional
element which distinguishes the company is simply no other joint intention to create a society.
To be valid, consent of the parties must be expressed by a person with discernment,
with the intention to produce legal effects, externalized and uncorrupted.
When combined with others, spouses may bring as input share their own property or on
the common (with the consent of other spouse - art. 1182 par. 1 Civil Code).
According to art.347 par.1 Civil Code, the contract concluded by the association
without the express consent of the other spouse is punished with relative nullity.
Subject of civil society means all the operations the company will meet to achieve the
associated benefits and contributions to which they undertake mutually (evidenced by
contributions to the society for the authorized capital, the aim in view).
Purpose company established to be "determined and lawfully, in accordance with public
order and morals" (art. 1882 par. 2 of the Civil Code).
Although the art. 1888 of the New Civil Code provides that in form, companies may be:
simple, in participation, in partnerships, etc.., consider that the nomination is more about the
object of the contract.
Company contract goal is "to share the benefits or use the economy that might result"
(art. 1881 Civil Code).
We specify that, in general, is inappropriate to talk about "to contract", because
everyone serves a specific purpose (and therefore there is no common goal or purpose of the
contract parties but only individual interests).
As an exception the above rule, if the company contract associations pursuing the same
goal: getting the "benefits" or economic use (common goals).
Society simply can be the mere agreement of the parties (consensus solo), "without
being subject to special formalities' to condition the valid conclusion of contract (art. 1890
Civil Code).
Requirement of a document has only ad probationem meaning of the contract between
the parties (according to art.1884 par.1 Civil Code).
As an exception, if the contribution in kind is to immovable property rights (eg
ownership of land), notary and registration in the land is imperative (art. 885 par.1, art.1883
par. 2 and 3, art. 1890 Civil Code).
In matters of the contract of association, may result in ignoring invalid general
conditions of validity of contracts (shown above) but also specific violation of mandatory
provisions (art.1932 par.1 Civil Code).
Thus, the special legal regime established company contract provides that invalidity
cover and will not be found or declared invalid if the cause was removed before he pleads to
the court fund (art. 1933 par. 1 Civil Code).
The court hearing an application for a declaration or a declaration of invalidity, is forced
to question the parties can address the causes of invalidity affect the company contract and to
set a good time to cover cancellation, even if the parties are against (art.1933 par.2 of the
Civil Code).
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If cancellations society consent to fraud or failure of a partner when regulation is
possible, any interested person may make the delay one who is entitled to avoid or to make
regulation, or to perform the action for annulment within 6 months when he was in default,
under penalty of forfeiture (art. 1934 para. 1 Civil Code).
The company or any associated company may propose to the court vested with any
action for annulment nullity coverage (especially of redeeming social rights which belong to
the applicant).
In the above case, the court may either declared invalid, be required to declare the
proposed measures, if these were previously adopted by the company under the conditions
required for alterations made by the company (art. 1934 par. 1 and 2 Civil Code).
Under the New Civil Code, the special effects of nullity company derogate from
common law. Thus, the contract "ceases from the date of the final decision that was found or,
if applicable, declared invalid" and society enter into liquidation patrimony (art.1935 par.1
Civil Code).
Note that, in the above case, any company or association may not invoke the void as
against third parties in good faith (art.1935 par.3 Civil Code).
Right to action for compensation for damage caused by the declaration or, where
appropriate, prescribe nullity company within 3 years period starting from the date of the final
judgment or declaration finding of invalidity (art. 1936 par. 1 Civil Code).
The disappearance of the cause for revocation or adjustment company shall not preclude
the right of action for compensation for damages suffered by the intervention of nullity.
2. THE EFFECTS OF SIMPLE COMPANY CONTRACT
Like any simple society validly concluded contract and effect, below the obligations and
rights of members. Particularities of the society in matters relating to (sensu lato) is that rights
and obligations of members overlap (converge).
Associations contribute to the company's share capital by cash contributions in goods,
services or specific knowledge.
Capital thus formed is divided into equal parts, called parts of interest, which is
distributed to the partners, usually in proportion to contributions that either (art. 1894 par. 2 of
the Civil Code).
The main obligations of shareholders are required contribution obligation and duty of
loyalty is borne losses.
Social contribution, specific element of civil society, each associate's contribution
expresses the composition of common stock (as determined by association).
Contribution is required and assumes that each member company under contract to
contribute to the pool, by making a contribution asset value or service.
Intake also has legal significance that effective teaching supplies or promised benefits
(in terms of contractual clauses).
According to art.1895 Civil Code, each of the partners responsible to society and the
other partners for payment of contributions to that obligation. By paying contributions to
capital, the rights of parties of interest are suspended.
If a company without legal personality, contributions are co-owned affiliates, unless
they have agreed, expressly, that will go in their common use (art.1883 par.1 Civil Code).
The contribution must be determined or determined, lawful, according to public order
and morals. Content intake should consist only of civilian goods in circulation.
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Social contribution can be: a sum of money, other goods, services or specific knowledge
(art. 1882 par.3 Civil Code).
If the contribution is "cash" is required shareholder in an amount of money, set the
parties to the contract (art. 1898 Civil Code).
In failing to file the amount of money subscribed, associate at fault due to legal interest,
"as being in default" (dies interpellat pro hominem), the day had to pay.
When the partner brings a contribution with something, it can be: a movable or
immovable, tangible or intangible, known or generic goods interchangeable or fungible,
consumable or nonconsumable.
In principle, the contribution in kind (other than fungible) is performed by transferring
their rights and handing over of the goods in running the intended social (art. 1896 par.1 Civil
Code).
Scope of the rights conferred on the company's social contribution of members various
things as they were brought to the property or use only.
Partner contributing property contribution or other real right on immovable is
responsible for conducting intake just a seller to buyer, and associate that is responsible for
conducting intake contribution use just a lessor to lessee. (art. 1896 par.2 Civil Code).
Note that, contributions consisting fungible or consumable can be written as a
contribution in use, but are, in all cases, property associations, even in the partnership
agreement did not expressly so stated. (art. 1896 par. 3 Civil Code).
When the partner providers of a claim, he is responsible for its existence at the time of
intake but, and for receiving them at maturity, being obliged to cover: amount, legal interest
which commences the due date and any other damage that would result if claim is not charged
in whole or in part (art. 1897 par.1 Civil Code).
Under the same conditions liable contribute association or other credit bills circulating
in trade (art. 1897 par. 3 Civil Code).
In this context we mention that goods are in the public domain can not be made as a
contribution to the property, because they are inalienable. However, if the contract provides
that the transfer of public property contribution, the act will be sanctioned by absolute nullity
to evade the law (contribution to public property is illegal).
Instead, public property that may be brought into society as a contribution, since it does
not prejudice the exclusive right of public property by the state or territorial administrative
units.
Features have the goods brought by spouses as contribution to the formation of the
company.
Either, one of the spouses can make social contribution assets as its own. Thus, each
spouse may use, administer and dispose freely of his own property (art. 342 Civil Code).
The contribution of common goods is allowed "with the consent of both spouses" (art.
346 par. 1 and art. 348 Civil Code). Thus, a spouse may bring as social contribution and
common property, but only with the consent of other spouse (art. 1182 par. 1 Civil Code).
Otherwise, the association agreement concluded without the express consent of the
other spouse is punished with relative nullity (art. 347 par. 1 Civil Code).
Please note that in cases of acts of disposition of the spouses should be obtained and the
distinction between movable and immovable property.
As an exception, common goods can be made that social contribution by one spouse
without the other spouse. Thus, "any of the spouses may have one, with title consideration,
the movable joint" (art. 346 par. 2 of the Civil Code).
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In contrast, common property estate that can be made only with the contribution of both
spouses and the conditions on the forms required by law ad validity and advertising (art. 1883
par. 2 and 3 Civil Code).
In conclusion, summarizing the problem assets that can be made that contribution in
civil society, we rally to the view that "anything that has an associated utility is likely to be
brought into society".
The contribution of benefits or specific knowledge is due to continuously as long as
associate member of society (art. 1899 par. 1 Civil Code).
Doctrine known as "industry contribution", the contribution of benefits or specific
knowledge consists in carrying out specific activities and by providing the information
society, the terms and conditions specified in the company contract (art. 1899 par. 2 Civil
Code).
In exchange for this contribution, participating associations, according to the articles of
association to pay losses and benefit-sharing and decision making in society (art. 1894 par. 3
Civil Code).
According to art. 1899 par.3 Civil Code, non-specific knowledge contribution in
benefits or only give rise to an exclusion action against the shareholder (with damages, if
any).
In doctrine, the industry contribution was described as an activity that a shareholder is
obliged to perform manual or intellectual work, to obtain benefits (but not supplies).
The contribution of the use of intellectual property rights or industrial society is
reflected by bringing in a patent license.
In the above context, the services must meet two conditions:
- Exceed the normal joint activity by virtue of special skills or professional association
in question (carpenter, painter, electrician, architect, etc.)
- It must be to associate personal and therefore can not be performed by others on his
behalf.
According to art.1899 par.1 Civil Code, all association which give its industry, must
answer "for all earnings from activities covered by the contribution.
Supports associations with loss of society, but in a particular way (due to lack of legal
personality).
The relations between members, scope of the duty of each associate will be determined
by the terms of the company, which provides generally that the association will meet with
their heritage only in proportion to the contribution made to society (art. 1894 par. 2 and 3
Civil Code).
When the contract establishes only the win, "the same proportion as the place and loss"
(art. 1902 par. 4 Civil Code).
It added that in dealings with third parties will divide debt between members in
proportion to their numbers and regardless of the social contribution made by each (because
third parties are not obliged to know from each partner).
When a contract binding on all members, the creditor may pursue the fund and from the
personal assets of shareholders, but only if the creditor has social as well off shaft of the
common property of the partners (art. 1920 par.1 Civil Code).
According to art.1902 par. 5 Civil Code, a clause by which one partner is excluded from
benefit-sharing or participation in losses is deemed unwritten.
As an exception the above rule and the assumption that losses are proportional to the
benefits, associate whose contribution is to benefit or specific knowledge can be free to
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participate in losses, if the exemption was expressly provided the contract (art. 1902 par. 6
Civil Code).
In addition to his economic obligations, associate also has an obligation derived from
the principle of good faith and the existence of affectio societatis that identifies and defines
society as a legal entity.
Breach of duty of loyalty can be detrimental to civil society, in this case, the reason for
closing down (selling) it, and for economic losses, the guilt is liable to pay damages.
In the wider context of the duty of loyalty is also included non-compete obligation
provided by art. 1903 the new civil code. Thus, the partner company can not compete on their
own or a third party account and can not own expense or the expense of any other transaction
that could be damaging to society.
Similarly, the partner can not participate on their own or on behalf of a third person in
an activity that would result in depriving society of goods, benefits or specific knowledge that
the partner has committed.
According to art.1903 par.3 Civil Code, the benefits resulting from competitive
activities prohibited by law, be entitled to society, and "partner is taken for any damage that
might result".
Mutually binding nature of civil society and the obligations associated with the
particular similarity determines the appropriate rights for contracting parties.
Associates impart a property right, which is manifested in the form of dividends.
Associates are entitled to benefits but only if they are actually paid to the company.
Thus, participation in company profits involved and contributing to its loss in terms of the
agreement ( art.1902 par. 1 Civil Code).
Benefit-sharing between partners is distributed, usually "in proportion to the
contributions of each", whether by law or contract agreed otherwise (art. 1894 par. 2 and
art.1902par. 2 Civil Code).
As an exception, profit participation can be different contribution to loss (but within the
limits imposed by law ( art.1902 par.3 Civil Code).
Clause in which one partner is excluded from participation in earnings "is deemed
unwritten" (and exclude the contribution of the losses).
As an exception to the rule of proportionality, the profit contribution of the partner
whose knowledge is specific benefits or is equal to the associate who helped with the lowest
intake "(art. 1902 par. 2 of the Civil Code).
Similarly, the partner whose contribution is exempt benefits or specific knowledge is
the appropriate extent of this contribution, to participate in losses, if this exemption was
expressly provided in the partnership agreement (art. 1902 par. 6 Civil Code).
According to art. 1904 par. 1 Civil Code, "every member can use social goods in
society's interest, according to their destination without interfering with other associated
rights".
The analysis of text above the law no doubt that associations can use the company's
property with respect to two conditions: to not prejudice the other associates and not change
the destination work.
In some cases, the right to use the company's property becomes an obligation to
shareholders. For example, according to art. 74 of Law no. 18/1991 of the land, all owners of
agricultural land are required to ensure cultivation and soil.
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Association, without the written consent of other shareholders, employ social goods for
its own or another person shall return to society resulting benefits and to cover damages that
might result (art. 1904 par. 2 of the Civil Code).
According to art.1905 par. 1 Civil Code, "No partner can take more than common funds
was secured for those expenses incurred or to be made in the interest of society".
Associate using social goods beyond the above provisions is liable for the amounts
taken and all damages that might result (art. 1905 par. 2 of the Civil Code).
If a debtor pays a common part of its debt to society and to associate with the same
maturity, the partner in whose hands will allocate the payment was received extinguish its
debt and corporate debt in proportion to the ratio between them (art.1906 Civil Code).
The associate has the right to reimbursement they made to society and to be
compensated for liabilities or losses it has taken or suffered in good faith acting in the interest
of society (art. 1907 par. 1 Civil Code).
The associate can not offset expenses and losses incurred or Slate its debts to society
and any damage caused by company negligence to use those and brought them through the
various operations (art. 1907 par. 2 Civil Code).
Note that, according to art. 1907 par.3 Civil Code, is prohibited compensation from a
third party debt to society and its claim on a partner.
According to art. 1908 par. 1 Civil Code, a shareholder "may assign its rights to a third
party without consent of the other social partners. In this case, the third person can not
become member of society without the consent of other partners (given by law).
As the company is of a simple intuitu personae partner can not guarantee or give any
personal obligations or social rights of any third party without the consent of all other partners
(art. 1908 par. 2 and 3 of the Civil Code).
According to art. 1909 Civil Code, any promise made by an associate (without consent
of the other partners) to give, sell, or guarantee in any way giving up his social rights it
confers only the right to damages resulting from breach.
Associates are entitled to participate in collective decision making meeting of members
(art.1910 par.1 Civil Code).
Typically, decisions about the entity are taken by majority vote of shareholders. As an
exception, decisions on the contract of partnership or appointing a single administrator to take
the consent of all shareholders (art. 1910 par. 2 and 3 of the Civil Code).
To note and that the obligations of a partner can not be increased without its consent.
Any contrary clause "is deemed unwritten" (art. 1910 par. 4 and 5 of the Civil Code).
According to art. 1911 Civil Code, corporate decisions are taken in general meeting.
Decisions may result and "the consent of all members of society expressed in the document
drawn".
The justice court can challenge the decision by a disgruntled shareholder decision taken
by the majority, can be made within 15 days after it was taken (or the communication, if it
was missing).
If the decision was not communicated, time runs from the date of aware of it, but not
later than one year from the date on which it was decided.
Term of 15 days is a limitation period (art. 1912 Civil Code).
If the partner company only brought right to use the property, as the owner thereof, he is
entitled to seek reimbursement from the cessation of civil society good or its withdrawal from
society.
The right to return will not be recognized but also associate who brought the
contribution to the setting up of asset ownership.
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If, however, made good in setting up property is shared from the cessation of mass
society, consider that it could be returned to the shareholder who has previously belonged (to
pay any compensation, if any).
According to art. 1908 par. 4 Civil Code, associate a company can not ask for an
indefinite period, before the end of society, return or value that is rightfully part of the
common good of society, unless the withdrawal or exclusion.
Please note that the above was only on the basic rights (under the new civil code).
Mention that the doctrine mentions the other shareholder rights such as to remain associated,
control and information, to withdraw from society, etc.
3. A PART OF INTEREST
Subscribed share capital is divided into equal parts, called parts of interest (shares),
which is usually distributed to the partners in proportion to individual contributions (art. 1894
par. 2Civil Code) and are indivisible.
Parties of interest paid or credited to give full voting rights in general meeting (art. 1900
par. 2 Civil Code).
According to art. 1900 Civil Code par. 3 and 4, as part of interest is the joint property of
several persons, they are obliged: to appoint a representative to exercise rights related social
and severally liable to make payments owed.
As the company simply has intuitu personae character of the transmission parts of
interest to people outside the company simply is permitted only with the consent of all
shareholders (Art. 1901 par. 1 Civil Code).
According to art.1901 par. 4 Civil Code, transfer inter vivos free parts of interest is
treated as a transfer for consideration. In terms of form, free transfer is under the jurisdiction
of the donation.
Parties of interest may also transmit by inheritance (if the contract specifies otherwise).
Note that any associate can redeem, substituting in acquiring rights, parties of interest
acquired for consideration by a third party without the consent of all shareholders, within 60
days from the date he knew or should have known assignment (art. 1901 par. 2 Civil Code).
If the parties of interest assignment is required by law, the value is set by an expert
approved by the parties assignment (or, failing agreement, the justice court).
4. MANAGING SOCIAL HERITAGE
Company management consists in performing the acts necessary for the purpose of
society.
To function, civil society needs its heritage and its own organization for administering
the activities included in the memorandum.
Heritage Society members consists of contributions (to the company during formation)
and of the rights and obligations (after establishment) of the newly formed company. In this
way, the company holds its own assets, distinct from that of each pair.
Even if the company simply has no legal personality (and therefore is not subject to
law), it can achieve the purposes for which it was established only if it has a heritage.
As legal, simple business assets has the same legal "and not division the succession".
The aim of the social heritage should be permitted. If society was formed for the simple
is illegal (eg production of weapons), the contract will be sanctioned by absolute nullity.
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Company management issues include aspects of appointment of directors, limits and
revocation, responsible managers, legal representation etc.
According to art. 1913 par.1 Civil Code, the appointment, the organization of their term
limits and any other aspect of the management company is established by contract or by
separate acts.
Managers can be associated or unassociated, natural or legal person, Romanian or
foreign.
Simple society is administered usually associates who have a mandate to manage each
"one another" in the interest of society. Thus, "The operation made by either of them is true
for the others, even without prior consent to be taken" (art. 1913 par. 3 Civil Code).
With all the above, any of its managers, partners may object in writing, "operation"
before it to be completed. But the opposition does not produce effects against third parties in
good faith (art. 1913 par. 4 and 5 of the Civil Code).
In the absence of opposition members, manager do any act in the interests of company
management (art. 1914 par. 1 Civil Code).
Limiting the powers and revoke manager is usually under company contract (by default
the applicable provisions of the mandate).
According to art.1914 par. 3 Civil Code, clauses that limit the powers of management
conferred by law are not binding on third parties in good faith.
In general, the founding and first managers appointed by agreement jointly liable for
damage caused by failure of the formal requirements of the company contract or formalities
necessary for formation of the company (or, where appropriate, to acquire legal personality by
the - art. 1886 par.1 Civil Code).
Simple society, shall be liable personally to the company for damages caused by
violation of law, the mandate or misconduct in the administration (art. 1915 par. 1 Civil
Code).
In case of plurality of managers who have worked together, the liability is joint and
several. However, the relations between them, the court may determine the proportionate
liability of each fault to commit tort (art. 1915 par. 2 Civil Code).
When there are more managers, without the authorization powers to determine each or
be forced to work together, each one may receive the benefit of society, in good faith.
When it was stipulated that managers decide unanimously or by majority, if necessary,
they can not perform acts of administration than with, except in cases of force majeure, the
absence of a decision could cause serious damage to the company (art. 1917 Civil Code).
Note that, acts of company management and disposition of its assets are prohibited
associates who are not manager, failing to cover damages that might result.
Conversely, any pair is entitled to inspect documents, records and financial statements
of the company operations to ascertain this, "not hamper operations affect society and other
associated rights" (art. 1918 par. 2 Civil Code).
Annually, managers compile a report on the progress of society, which will be
communicated to shareholders.
Debate on the report when requested by all the partners, managers are obliged to
convene reunion shareholders at the registered office (art. 1918 par. 3 Civil Code).
Legal representation by the company is authorized managers (or failing appointment by
any of the partners - art. 1919 par. 1 Civil Code).
As the company simply has no legal personality and therefore not
is a matter of law separately, it can not go directly and independent legal relations with third
parties.
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Thus, the associated obligations of third parties (even if it was stipulated that contracted
by society) shall be responsible for contracting members only.
In carrying out its obligations to creditors society, each member responds with its own
assets proportional to its contribution to social property, only if the creditor could not be
socially well off the common property of the shareholders (art. 1920 par. 1 Civil Code).
Personal creditor of a partner who could not satisfy from its own assets, will be
required, as appropriate, to return or to separate and to attribute his debtor to be paid by its
shareholders of common goods "(art . 1.920 par. 2 Civil Code).
According to art.1921 par. 1 Civil Code, any person "claiming to be associated or others
deliberately created a convincing appearance this (apparently associated) is responsible to
third parties in good faith just as an associate."
Note that, in the above case, the company will not respond to such third party misled
"unless it has given sufficient reasons for regarding the alleged associated with or as if,
knowing the alleged maneuvers associated not take reasonable steps to prevent the induction
of third party in error "(art. 1921 par. 2 Civil Code).
Associations occult (secret) respond to third parties in good faith and other associates
(art. 1922 Civil Code).
According to art. 1923 par. 1 Civil Code, the company can not issue financial
instruments, in both absolute nullity of acts signed for this purpose, and financial instruments
issued (unless the law provides otherwise).
Associations, managers or unmanagers, "jointly liable in the alternative, in the
company, for any damage would cause injured third parties in good faith" by issuing financial
instruments prohibited by law (art. 1923 par. 2 Civil Code).
In relations with third parties, managers of the company are obliged to inform them
about their powers envisaged before the end of act (art. 1924 Civil Code).
5. LOSS OF ASSOCIATED
Associated loss of their causes can be subjective or objective depending upon the person
or legal situation of the company.
The general causes loss of associated causes are: assignment of parties in society, their
enforcement, death, termination of legal personality, bankruptcy, placing under legal ban,
withdrawal and social exclusion (art. 1925 Civil Code).
In principle, one partner may withdraw voluntarily from the company, under different
conditions, as it was done on fixed or not.
According to art. 1926 Civil Code, a company with permanent partner may withdraw
from the company notifying the company with reasonable notice.
Withdrawal from society for an indefinite period is to fulfill two conditions: the partner
is in good faith and does not produce withdrawal imminent damage society.
Similarly, and associate a company with a fixed object or can not be achieved only in a
certain time to withdraw, but only for good reasons and in agreement with most other
associates (art. 1927 par. 1 Civil Code).
If, that majority is not met, the partner may appeal, which, acting upon withdrawal, will
appreciate the legitimacy and validity of the reason, whether withdrawal in relation to the
circumstances and good faith of the parties (art. 1927 par. 2 Civil Code).
At the request of a shareholder, the court, for good reasons, may decide to exclude from
any of the associated company (art. 1928 Civil Code).
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The loss of his (other than by assignment or enforcement of its parts in society), the
partner is entitled to the value of its parts from the date of termination of association, and
other associates are held to pay immediately the set, with legal interest the date of termination
of associated (art. 1929 par. 1 Civil Code).
In conclusion, we consider that the intervention provisions of the New Civil Code of the
old civil contract agreement gave rise to a simple modern society but will cause many
disputes in the theoretical and practical.
REFERENCES
1. D. Alexandresco, Theoretical and practical explication of Romanian civil law,
Typography "medical card", Bucharest, 1926
2. O. Capatina, Companies, Lumina Lex Publishing House, Bucharest, 1991
3. D. Clocotici, Gheorghiu, Delimitation of acts of civil legal papers from a commercial
character, in the DRC no. 9/1998
4. Fr. Deak, Civil law treaty. Special contracts, Actami Publishing, Bucharest, 1999
5. I.L. Georgescu, The Romanian Commercial Law, Vol II, Companies, Socec Publishing,
1948
6. Ph. Malaurie, L. Aynès, P.Y. Gautier, Cours of droit civil. Les contrats spéciaux. Civils
et commerciaux Publishing Cujas, Paris, 2001
7. Fl. Motiu, Special contracts, Legal Publishing House, Bucharest, 2011
8. I Mustata, M.K. Guiu, If common property of spouses may be the company capital, the
law no. 8/1992
9. Gh. Piperea, Commercial Law. The company, House CH Bech Publishing, Bucharest,
2012
10. D.A. Popescu, Contract company, Lumina Lex Publishing, Bucharest, 1996
11. Safta E. Roman, Civil contracts. End. Run., Polirom Publishing, Iasi, 1999
12. R. Sanilevici, Civil. Contracts, University "Al.I. Cuza ", Iasi, 1982
13. L. Stănciulescu, Civil. Contracts and succession, Hamangiu House Publishing,
Bucharest, 2009
14. C. Toader, Civil. Special contracts, All Beck Publishing House, Bucharest, 2005
15. I Turcu, New civil code. Law no. 287/2009. Book V. obligations Art. 1164 to 1649.
Comments and explanations, CH Beck Publishing House, Bucharest, 2011
16. I Zinveliu, Civil contracts, instruments meeting the interests of citizens, Dacia
Publishing House, Cluj Napoca, 1978
17. Collectively, The new civil code. Comments, doctrine and jurisprudence,
Hamangiu Publishing, Bucharest, 2012
18. Collectively, The new civil code. Comment on articles, CH Beck Publishing House,
Bucharest, 2012
19. The new Civil Code, Law no. 287/2009 and Law no. 71/2011 application.
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THE ROLE OF ENVIRONMENTAL ACCOUNTING IN ENVIRONMENTAL
REPORTING: CASE OF THE REPUBLIC OF SERBIA
Danka Stefanovic
Singidunum University
Marko Milojevic
Singidunum University
Vladimir Dzamic
Singidunum University
ABSTRACT
Environmental protection is one of the most important issues in globalized economy.
The process of globalization especially actualized the issue of environmental protection.
Hence, today’s economy emphasizes the special fields of economic science, such as
environmental accounting.
The significance of environmental issue resulted changes in accounting and creating a
new concept – environmental accounting. One of the problems environmental accounting
deals with is financial and environmental reporting. Transparent and relevant reporting
system is especially important to the users of financial information, which can be found in
financial statements. Therefore, it is necessary to establish reporting system that will be
design to disclose review of environmental information and to ensure that all business
processes are fairly documented.
This paper aims to present the key environmental accounting elements and problems it
has to deal with. In this paper, we provide empirical evidence on the environmental reporting
practice in the Republic of Serbia. We analyzed the financial, environmental and auditors’
reports of the biggest polluters. The results indicate that the number of companies following
the environmental approach, realizing business activities that consider environmental
protection and making an environmental report additionally continues to increase. Hence,
because of the lack of environmental standard and obligation to make provisions for
environmental protection, the biggest polluters abuse and do not disclose their environmental
information. In conclusion, we are providing some thoughts how to improve environmental
reporting system.
Key words: environmental accounting, financial reporting, environmental reporting,
provisions, financial statements
1. INTRODUCTION
The environmental protection issue, recovery of damages and prevention of new
ecological disasters are some of the worldwide most represented topics in the last few
decades. Besides the consequences of the world economic crisis, which occupies the
population, environmental protection have become one of the major social, political and
economic topics.
Nowadays all of us can witness the climate changes that happen every day. The
ecological disasters affect not only the environment but also national and global economies.
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Over recent years, the necessity of environmental information disclosure in financial and
environmental reports has become a significant factor in business decision-making.
Environmental accounting system shall collect and measure all environmental costs and
benefits, and disclose any quantitative or qualitative information as well.
Company’s flexibility to energy efficiency technological innovations, pollution
reducing and environmental protection make it more reliable to stakeholders, i.e. company’s
shareholders, management, employees, government and society in general. Planning,
controlling, posting and financial reporting processes need to be continuously improved, in
order to satisfy stakeholders’ requirements regarding information relevance. Stakeholders
shall make the best estimation based on information disclosed in financial and other
statements, like environmental reports. Therefore, it is especially important to ensure
disclosure of highly credible information.
In this paper, we will summarize key environmental accounting terms and concepts.
We will provide legislation and accounting standard reviews as well. In the second part of the
paper, we are going to present the results of our research that primarily deals with the
environmental information presented in financial statements and environmental reports, and
auditor’s reports as well. The selected analyzed companies belong to the group of the biggest
polluters in the Republic of Serbia. The conducted study aimed to examine the financial
reporting practice in the Republic of Serbia, with special regard to disclosures of
environmental information and reports. It will be emphasized the significance of laws,
standards and accounting treatment rules in creating and improving the good environmental
accounting practice. The government, legislatures and accounting professionals will have to
play a major role in environmental reporting system developing and in the Republic of Serbia
in the near future.
2. ENVIRONMENTAL ACCOUNTING
Environmental accounting is relatively new concept established few decades ago as an
answer on increased social awareness of need to protect the environment and the pollution
consequences. United Nations Conference on Sustainable Development in 1992, hosted in
Rio de Janeiro, made a big contribution in developing the environmental accounting. Three
years later United States Environmental Protection Agency (EPA) published An Introduction
to Environmental Accounting as a Business Management Tool: Key Concepts and Terms,
which is one of the first publications considering sustainable development and environmental
accounting.
Environmental accounting deals with environmental protection assets and its sources,
expenditures and revenues, as well as their influence on companies and government business
activities. It represents the unique joint of financial and managerial accounting together with
the active function of government as an important factor (figure 1).
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Figure 1: Environmental accounting elements
Pollution and sustainable development are key issues in environmental accounting
[Fortes, 2002]. According to Japan's Ministry of Environment (2002) it consists of
environmental resource accounting, which attempts, as best as possible, to consistently and
comprehensively record information on environmental pollution and natural resources using
an accounting framework. One of the environmental accounting goals is making procedures
for costs gathering and classification in order to estimate the effectiveness and investment
profitability. With the intention to satisfy the requirements of internal users of accounting
information, information provided by managerial accounting is required. It presents a basis
for business planning and decision-making. Thus, companies use different accounting costing
models. Nevertheless, the common used model is Activity-based-costing (ABC).
Management of the companies has not easy task to manage investments effectively
and to show its capability in dealing with environmental protection issues and cost
controlling, as well as to be familiar with developing contemporary environmental policies. A
successful environmental management system should have a method of accounting for the full
environmental costs, and these should be integrated into capital budgeting, cost allocation and
other decisions [Fortes, 2002].
The role of environmental accounting is not only external, but also internal reporting.
Given that internal users of accounting information are particularly interested in expenses
amount and structure, environmental reporting system shall provide these information
principally. On the other hand, external accounting information users request a full range of
information, such as information disclosure of green investment amount, expected and
realized profits, good business practice, certificates that company and its employees own,
social responsibility of the company, investments that are planned in the future, etc.
As Li, Richardson and Thornton (1997) suggest, if a significant decline in stakeholder
tolerance of pollution occurs, the expected proprietary costs of disclosing increase and
companies become less likely to disclose. Lack of mandatory disclosure claims leaves
managers with discretion to decide what information to disclose, in accordance with their
business strategy. Even though environmental accounting and environmental auditing have an
increasing attention in several last years, there is still not much that have to be disclosed.
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3. LEGISLATION REVIEW OF ENVIRONMENTAL PROTECTION ISSUE
IN THE REPUBLIC OF SERBIA
The government’s role in promoting and regulating the issue of environmental
protection and sustainable development is very important. Similar to European Union member
states, the Parliament of the Republic of Serbia has passed in recent years several laws, which
regulate environmental issues. The Law on Environmental Protection ("Official Gazette of the
Republic of Serbia", No. 135/04 and 36/09) directly regulates this highly important subject.
This law comprises measures, conditions and instruments for regulation the integral system of
environmental protection. The key principles of this law are polluter pays and user pays.
Polluters shall pay charges for environmental pollution. The persons who utilize natural
values also shall pay cost for their utilization. Regarding environmental issue, there is also
Law on environmental impact assessment, Law on strategic environmental impact
assessment, Law on Air Protection, Energy Law, etc.
Particular regulations and statutes set down taxation, custom and other facilities for
companies that use renewable energy sources (sunlight, wind, biogas, geothermal heat, water
energy, etc.) or equipment that contributes greatly to the protection of environment. Specific
regulations prescribe the possibility of charge for environmental pollution reduction or even
charges write off entirely. Those regulations set down charges for pollution that companies
must pay. The charges amount, as well as penalties amount, is lower than the prescribed
charges and penalties in the EU member states. Consequently, there is a gap for setting more
serious penalty policy for all environmental polluters.
3.1 THE KYOTO PROTOCOL
The Kyoto Protocol is an international agreement adopted in 1997 in Kyoto, Japan,
linked to the United Nations Framework Convention on Climate Change. The goal of this
protocol is achieving the reduction and stabilization of greenhouse gases (GHG gases, i.e.
carbon dioxide, methane, nitrous oxide, sulphur hexafluoride) concentrations in the
atmosphere. According to the Kyoto Protocol, which established principal concepts and
mechanisms for GHG emissions reduction, countries that ratified it committed to accomplish
pollution reduction requirements in the period of 2005-2012. Industrialized countries
committed themselves to a reduction of GHG emissions by 5% at least, on average, regarding
the base year of 1990.
The Republic of Serbia has ratified the protocol in 2007, showing its willingness to
participate in pollution prevention and reduction. Even though the Republic of Serbia has no
obligation to ratify this agreement, since it belongs to low-income group of countries,
government of Serbia decided to give a contribution to pollution reduction realization. This
decision has been important then for the Republic of Serbia, as potential EU candidate, to
receive EU candidate status in the beginning of this year.
Unfortunately, the Kyoto Protocol has failed to fully resolve the issue of greenhouse gases
emissions. Multilateral international dialogue on this issue has continued, first in Copenhagen
and Durban, with no binding decisions. Nevertheless, the dialogue continues in Qatar in 2012
in anticipation of legally binding decisions for all subjects in the international community.
3.2 ENVIRONMENTAL PROTECTION STANDARDS APPLICATION IN
THE REPUBLIC OF SERBIA
International Organization for Standardization (ISO), as the world’s largest developer
and publisher of international standards, has developed the ISO 14000 family, which
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addresses a range of environmental management aspects. Local environmental protection
standards set in the Republic of Serbia are in accordance with international standards.
Management of the companies must meet requirements of the ISO 14001 – Environmental
management systems. The ISO 14001 has been translated into Serbian language and accepted
by the local standard setting organization.
Analyzing the disclosures of information presented in financial and environmental
reports, we determined that more than 50% of analyzed companies in the Republic of Serbia
did disclose environmental report. This information shall be considered as particularly
optimistic indicator, especially because there is no legal obligation to provide such statement
and present any environmental information.
4. ACCOUNTING STANDARDS AND OTHER PROFESSIONAL
REGULATIONS REVIEW
Accounting system in the Republic of Serbia is based on International Financial
Reporting Standards (IFRS) and International Accounting Standards (IAS) adopted by the
International Accounting Standards Board (IASB). Serbian accounting practice is also based
on the Law on Accounting and Auditing ("Official Gazette of the Republic of Serbia", No.
46/2006 i 111/2009) and other regulations. In the Law on Accounting and Auditing is not
mentioned any environmental protection or accounting matter, neither directly nor indirectly.
4.1 IAS APPLIANCE
The environmental protection issue is not regulated directly by any IAS. In IAS
environmental accounting is not stated directly as well. Hence, standards do not set any
specific requirements considering disclosure of environmental protection information and
statements.
IAS 37 – Provisions, Contingent Liabilities and Contingent Assets is the only IAS that
mentions environmental protection issue. However, this standard does not deal directly with
environmental issues, it just cites environmental examples in which situation is possible and
allowed to make provisions.
Nevertheless, indirectly, it can be said that IAS 16 – Property, Plant and Equipment
deals somewhat with environmental assets. This standard prescribes the accounting treatment
for property, plant and equipment, among which there are also plants that use or produce
renewable energy, special green equipment and similar. There is no special accounting
treatment provided for such environmental assets. Recognition and measurement criteria
prescribed in this standard shall be applied also on renewable energy assets and equipment
that need to be installed in order to protect air, water and land.
The problem of obvious lack of environmental accounting standard existence can be
solved by expanding the existing standards. With the aim of meeting the requirements of
financial and environmental reports users, it is necessary, or at least desirably, to set down the
essential information that should be disclosed in companies environmental and financial
statements. For example, US Securities and Exchange Commission (SEC) has prescribed
some requirements regarding environmental disclosure. The SEC mandates that corporations
file a report if pollution expenditures have a material effect on their earnings (Hutchison,
2000).
Bearing in mind the significance of this issue in Europe and great EU intention and
devotion to sustainable development and green energy production planning, possible
suggestion may be prescription of mandatory environmental report disclosure. Some of the
analyzed companies already make report like aforementioned one and disclosure it, mostly on
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their websites. However, we need to notice that environmental reports disclose only
companies that take care of environment and have not been involved in ecological disaster
scandals.
4.2 LOCAL ACCOUNTING REGULATIONS IN SERBIA
Serbian chart of accounts, known as the List of Accounts for enterprises and
entrepreneurs, does not point out directly any special group of accounts specialized for
posting environmental accounting transactions. There is only one account in the group of
accounts that deals with provisions, 401 – Provisions for land restoration. Provisions for land
and forest restoration, in accordance with IAS 37 requirements, shall be post on the account
401.
Existence of no more than one account in chart of accounts is not sufficient to record
all transactions and provisions on the subject of environmental issues. Some expands in
Serbian chart of accounts can be made by adding various new accounts for environmental
accounting transaction posting. These alterations would make posting process more precise
and ensure better, more consistent and transparent disclosure.
Bylaw, which regulates the content and form of financial statements, also does not
prescribe special accounting treatment of green assets or investments in environmental
protection. Making some new report, which shall provide disclosure of expenditures, revenues
and environmental investments, would make disclosure system more relevant and faithfully
represented. Lehman criticized existing capitalism accounting, questioning whether the
accounting goal is only resource allocation disclosure, not environmental accounting (1999).
Environmental information managing and reporting can make significant business advantages
to the companies, which recognize that as an opportunity to differentiate itself in the
globalized marketplaces.
4.3 ENVIRONMENTAL AUDIT
In the Republic of Serbia, all companies are divided into three categories: small-sized,
medium-sized and big-sized companies, according to the prescribed criteria in Law on
Accounting and Auditing. Before mentioned criteria for companies classification relate to the
amount of revenues, average number of employees and average value of assets. Considering
the fact that the biggest polluters are mostly medium-sized or big-sized companies, they have
an obligation to engage an independent external auditor once a year. External independent
auditor shall perform the audit of financial statements of the company and he/she need to
provide the auditor’s opinion on financial statements as a result of his/her work.
There is no an auditing standard that deals particularly with environmental auditing.
Hence, according to International Standard on Auditing 620 – Using the Work of an Auditor’s
Expert, the auditor may use the work of an expert, if that is necessary. This standard allows
the engagement of an expert if auditor estimates the need for such engagement. Experts in a
field of expertise other than accounting and auditing are engaged often in environmental
auditing. However, the auditor shall understand the principles used by expert, since the
auditor is responsible for auditor’s opinion.
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5. ANALYZE OF FINANCIAL REPORTING PRACTICE IN THE REPUBLIC
OF SERBIA – ENVIRONMENTAL ACCOUNTING VIEW
For the purpose of this paper, we analyzed seven companies, 6 classified as big-sized
companies and 1 as medium-sized one. All companies belong to the group of the biggest
polluters in Serbia. We analyzed their disclosures of financial and other reports, like
environmental and auditor’s reports, in the period of three years 2008-2010.
In realizing this study, we used secondary data collection. The content of all collected data
and documents had been analyzed. The content analysis had included questions presented in
tables 1 and 3. Since all companies are categorized as medium or big-sized, their auditor’s
reports had been also analyzed. Auditor’s reports were analyzed in accordance with
environmental issues. We considered any qualitative or quantitative information presented in
financial, auditors’, environmental or other disclosed report with reference to environmental
protection and sustainable development. Financial statements are compliant with IFRS/IAS
standards and consist of Balance sheet, Income Statement, Cash flow statement, Statement of
changes in equity and Notes.
Table 2 – Content analysis of financial and environmental reports
No. Questions
1. Does the company disclose all financial statements on its website?
2. Does the company disclose any environmental report on its website?
3.
4.
5.
Does the website of the company have any section devoted to environmental
protection issue or sustainable development?
Does the company state ISO 14001 certificate compliance in any report or on its
website?
Does the company disclose publicly, in printed or e-form, sustainable development
policies and strategies, and/or environmental management system and
environmental protection as well?
6. Did the company post provision for land and forest restoration?
7.
8.
Did the company disclose any contingent liability regarding environmental issue in
its Notes?
Did the company disclose any information regarding investments in environmental
protection in its Notes?
9. Are disclosed environmental information quantitative (1) or qualitative (2)?
10.
Do any of the disclosed reports contain information about having Quality Control
Management Sector, as organizational unit, inside the company?
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Table 2 – Findings of the financial statements, environmental reports and website content
analysis
C 1 C 2 C 3 C 4 C 5 C 6 C 7
10 09 08 10 09 08 10 09 08 10 09 08 10 09 08 10 09 08 10 09 08
Q 1 + + + + + + - - - - - - - - - + + + + - -
Q 2 + + - - - + +
Q 3 + + - - + + +
Q 4 + + - - - +
Q 5 + + - - - + +
Q 6 + + + + + + + + + - - - / / / - - - - -
Q 7 + + + + + + - - - + + / + - / - - - - - -
Q 8 + + + + + + - - - + + / + - / - - - - - -
Q 9 1,2 1,2 1,2 1,2 1,2 1,2 / / / 2 2 / 2 / / / / / / / /
Q10 + - - - - + +
Legend: Q – question; C – company; 10/09/08 – 2010/2009/2008 year
The findings of financial statements and website content analysis (table 2) point out
that 50% of selected companies did not disclose its financial statements on their websites.
When it is about disclosing the auditor’s report, situation is even worse – the companies that
disclosed auditor’s report are extraordinary (table 4). There is neither time limit prescribed by
law, nor place where the company shall disclose financial statements and auditor’s report. It
may disclose annual reports on its website, someone else’s website or they may be publicized
in some daily journal. This situation is unfamiliar to consistent and transparent financial
reporting system, which shall be one of the basic goals of each economy. It is obvious that the
biggest polluters, which invest at least in environmental protection, are avoiding the
disclosure of financial, environmental and auditor’s report on their officially websites.
Table 3 – Auditors’ reports content analysis
No. Questions
1. Is the company categorized as small (s), medium (m) or big-sized (b) company?
2.
Have financial reports been auditing in 2010, 2009 and 2008 by independent
external auditor?
3. Did the company disclose full auditor’s report on its website?
4. What kind of opinion did the auditor give?
If auditor gave qualified opinion on financial statements, did the environmental
5. protection activities of the company, presented in financial statements, cause that
kind of opinion?
6.
Did the auditor reference to the work of an expert in environment issues in his/her
report?
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Table 3 –Findings of the auditor’s report and website content analysis
C 1 C 2 C 3 C 4 C 5 C 6 C 7
10 09 08 10 09 08 10 09 08 10 09 08 10 09 08 10 09 08 10 09 08
Q1 b b b b b b b b b b b b b b b b b b m m m
Q2 + + + + + + + + + + + + + + + + + + + + +
Q3 + + + + + + - - - - - - - - - - - - + - -
Q4 uq uq uq q q q / / q / / / / / / uq / / q uq q
Q5 - - - - - - / / - / / / / / / - / / - - -
Q6 - - - - - - / / - / / / / / / - / / - - -
Legend: Q – question; C – company; 10/09/08 – 2010/2009/2008 year; b – bigsized
company; m – medium-sized company; uq – unqualified opinion; q –
qualified opinion
Analyzing disclosed auditor’s reports (where applicable) we have been unpleasantly
surprised. Just few of examined companies revealed auditor’s report publicly on their
websites. We determined that none of the environmental issues did cause qualified auditor’s
opinion. The auditors did not point out any material misstatements regarding environmental
assets and investments. Environmental incidents, in which some companies had been
involved, did not result qualified opinion.
Even though these companies were committed to make provisions for land and forest
restoration, they mostly avoided this obligation. The same happened with disclosures
regarding environmental contingent liabilities or any investments in renewable energy plants
and assets. Although there were some omissions in posting the provisions, the auditors did not
determine those misstatements, their size and nature as material in aggregate.
However, we may conclude that disclosures of companies regarding environmental
matters are continuously increasing. Following the companies operating in EU countries,
Serbian companies began with making environmental reports. Some companies even have
special website section dedicated to sustainable development and environmental protection.
More than 50% of analyzed companies presented in public their development and protection
strategies on the subject of environment.
CONCLUSION
Environmental protection is one of the key issues that Serbia has to deal with,
especially now when Serbia gained EU candidate status. Increased social consciousness,
about the significance of environmental protection issue and the consequences of
environmental incidents, have resulted the increased need for disclosure of more detailed and
relevant information in financial reports with reference to environmental protection and
making of special environmental report.
Environmental data are not mandatory part of financial reports, which harmfully
affects the environmental reporting. Continuously managing and controlling of environmental
expenditures, revenues, liabilities and investments are key factors in creating environmental
reporting system. Accounting professionals and national government need to participate
actively in the process of making appropriate reporting system.
Financial reporting system in the Republic of Serbia has to adjust to the needs of
financial statements users. Environmental accounting shall not be considered as separate
accounting, but integral part of all financial and managerial accounting procedures. Although
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the progress in environmental reporting is evident, there is still much to do with aim to
improve it. Management of the companies calculates with presenting their relationship to
environmental protection, especially when it is about giving bad or quantitative information in
public. Lack of obligation to disclose environmental information gives companies the choice
whether to reveal environmental information or not.
Financial statements are still the heart of financial reporting system that is directed
primarily to investors. Since the investors and other financial information users rely on
general-purpose financial reports, these reports shall also contain as much as possible,
qualitative and quantitative environmental information. The possibility to overcome abovementioned
problems may be bringing on the special environmental report, compulsory to
fulfill and disclose, or extending and adjusting of existing financial reports with
environmental information section. These changes shall make Serbian environmental
reporting system more consistent and reliable for reports users and, finally more attractive to
foreign investors’ who want to place their investments in the Republic of Serbia.
REFERENCES
1. Fortes, H. (2002): The Need For Environmental Reporting by Companies: An
Examination of The Use of Environmental Reports by Swedish Public Companies,
Greener Management International, Greenleaf Publishing, No.40
2. Hutchison, P. (2000): Environmental Accounting: Issues, Reporting And Disclosure,
The Journal of Applied Business Research, Volume 16, Issue 4
3. Lehman, G. (2001): Reclaiming the public sphere: problems and prospects for
corporate social and environmental accounting, Critical Perspectives on Accounting,
Volume 12, Issue 6
4. Li, Y., Richardson, G. and Thornton, D. (1997): Corporate Disclosure of
Environmental Liability Information: Theory and Evidence, Contemporary
Accounting Research, Volume 14, No. 3
5. Ministry of the Environment (2002): Q&A For Understanding Environmenatal
Accounting Guidelines, [online] Available at:
http://www.env.go.jp/en/policy/ssee/eag_qa.pdf [Accessed April 19, 2012]
6. Ministry of the Environment (2005): Environmental Accounting Guidelines, Japan,
[online] Available at: www.env.go.jp/en/policy/ssee/eag05.pdf [Accessed February
03, 2012]
7. United States Environmental Protection Agency (1995): An Introduction to
Environmental Accounting As A Business Management Tool: Key Concepts And
Terms“, Office of Pollution, Prevention And Toxics, Washington, D.C.
8. www.ifrs.org [Accessed February 07, 2012]
9. www.mfin.gov.rs [Accessed February 07, 2012]
10. http://www.iasplus.com [Accessed April 17, 2012]
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EMPOWERING PEOPLE COOPERATION.
SOCIAL INNOVATION & SOCIAL NETWORKS
Suciu Marta-Christina;
Academy of Economic Studies Bucharest
ABSTRACT
The main purpose of the paper is to illustrate how empowering people mostly by the
use of social media networks may help people to realize how important is to cooperate in
order to achieve common goals. The most important objective pursued by the author of this
paper is to look for ways to study and research how people can solve some problems relevant
to today’s society via the Internet and mostly via the social media networks. Many studies
have revealed the fact that the main reasons for persons to be involved actively on Social
media networks regard, on one hand communication and socialization and, on the other
hand, the creation of an image. Social media networks make communication much easier as
people don’t necessarily have to meet face to face in order to communicate. Besides this in the
context of the global world, social media networks had made communication around the
world much easier. By using the social networks, people can create a certain image of
themselves, which is sometimes much easier to develop in the virtual world than in the real
world and which can be really helpful for developing possible co-operation with other people.
In order to reach the objective a survey had been specially design such as to help the author
to analyze how people belonging to different age groups use the Internet and whether they are
part of an online community or not. As the main result of our paper the author found that
based on social networking, mass collaboration may provide an easier method of cooperation
within an online community where people tend to influence each other and to
contribute for better results.
Key words: social innovation, collaboration, social media networks, synergic
behaviour.
1. INTRODUCTION
Social innovation is generally defined regarding the new type of answers that might be
given to the social, technological, economic and environmental constraints that influence a lot
the process of social interactions in an attempt to improve the quality of people life (Cloutier,
2003). As defined today this concept refers to the development of new and innovative
solutions and of corresponding new forms of organization such as to stimulate people
interactions and their co-operation. The concept of „social innovation” represents a real
challenge for cross disciplinary research because, on one hand, it benefits on a large
popularity among scientific communities, and, on the other hand, it refers to a complex and
extremely diverse reality (Lévesque, 2005). Yeung M. (2007) considers that to define social
innovation is not an easy task not only because the term had been used relatively recent, but
mostly because of its complex and diverse meaning. As a concept social innovation had been
used such as to include a variety of approaches with respect mostly to social entrepreneurship,
social networking and new ways of social interactions among people that realize more and
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more that no one is as smart as everyone and that co-operation is more important than strong
competition. That means that people realize the complexity of our society and of its evolution
and consider that to co-operate (mostly among cross disciplinary teams of experts that
induced a synergic behaviour) is much better than to compete each other.
A synergic behavior asks for a holistic vision according to which I deal with complex
problems that ask for simultaneous priorities where people realize that they have common
goals and interest and in order to better solve problems they need to co-operate. Cyberspace
and mostly the web /social networks assure a new framework for co-operation where people
can interact on Internet no meter time and distance.
The beginning of the new millennium has marked a rapid evolution and widespread
use of a specific content mostly generated on the web (or social media). The Internet is not a
mere publication tool for companies any more – it has undergone the change to a selling and
buying platform in the late 1990s and eventually to a platform for users to communicate,
publish and interact at the beginning of the 2000s. As Agichtein et al. state (Agichtein 2008),
“more and more users participate in content creation, rather than just consumption”. Popular
user-generated content domains include blogs and web forums, social bookmarking sites,
photo and video sharing communities, community-driven question/answering portals, and
social networking platforms such as Facebook and LinkedIn.
The paper tries to provide proper answer to questions such as: What matter does the
paper cover?; Why is the studied matter important?; How does the author intend to answer to
this matter?; What is the relation between the paper and the already existent specialized
literature.
What matter does the paper cover?
The main theme of our paper is mass collaboration. It researches how people solve problems
relevant to today’s society via the Internet. Mass collaboration is a form of collective action
that occurs when large numbers of people work independently on a single project. Such
projects typically take place on the Internet using social software and collaboration tools such
as wiki technologies. A wiki is a website where users can add, modify, or delete its content via
a web browser using a simplified markup language or a rich-text editor. Wikis are typically
powered by wiki software and are often created collaboratively by multiple users. In every
corner of the globe, businesses, organizations, and individuals alike are using mass
collaboration to revolutionize not only the way we work, but how we live, learn, create and
care for each other. The nearly 1 billion people online worldwide, along with their shared
knowledge, social contacts, online reputations, computing power, are rapidly becoming a
collective force of unprecedented power. For the first time in human history, mass
cooperation has also an economical meaning. "There's a fundamental shift in power
happening," says Pierre M. Omidyar, founder and chairman of the online marketplace eBay
Inc. "Everywhere, people are getting together and, using the Internet, disrupting whatever
activities they're involved in". (Pierre M. Omidyar, 2002). Peer production becomes crucial
for the economy. More than two centuries ago, James Watt's steam engine ushered in the
Industrial Revolution, made powerful corporations that had the capital to achieve economies
of scale. Now cheap computers and new social software and services are starting to give
production power back to the people. Thus empowering people is a key word today. They
interact in online communities, while influencing each other in order to solve a certain
problem in that respective community.
(2)Why is the studied matter important? How can collaboration among social
networks help us?
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In a general sense, mass collaboration unites people with similar ideas and concepts.
Online communities are used to garner support for an idea or to protest against government’s
decisions, thus people become more confident as they realize that their ideas are supported by
their peers. Moreover, it provides an easier method of data collecting and cataloging. For
instance, let’s say you have a large project one which requires a lot of knowledge being
updated as the project goes along. Mass collaboration allows for this to happen and ends up
becoming a well-documented database that can be accessed by anyone involved to better
understand what has been done, what needs to be done, and how they can apply that
information to their duties so they can in turn add their results to the overall database. A
concrete example of how beneficial mass collaboration can be is the innovative idea of Luis
von Ahn. As an entrepreneur and an associate professor in the Computer Science Department
at Carnegie Mellon University, von Ahn is working on Duolingo, a project that aims to
coordinate millions of people to translate the Web into every major language. Duolingo is a
free language-learning website and crowd sourced text translation platform. Crowd
sourcing is a distributed problem-solving and production process that
involves outsourcing tasks to a network of people, also known as the crowd).
The service is designed so that as users progress through the lessons, they
simultaneously help to translate websites and other documents. Currently, the site offers
Spanish and German courses for English speakers. They plan to add French, Italian and
Chinese. Duolingo launched in private beta on November 30, 2011, and has accumulated a
waiting list of more than 100,000 users. As of January 19, 2012, the service has translated
over 45,000 sentences (Luis von Ahn 2001). This example shows how large numbers of
people collaborate efficiently in order to achieve a common goal and for no financial
compensation, only an intellectual one.
(3) How does the author intend to answer to this matter?
In order to answer the main matter of the paper, it had been design a survey that can
help researchers to analyze how people belonging to different age groups use the Internet and
whether they are part of an online community or not. Details are provided later within the
body of the paper. At the end of the research there had been suggested some ideas that could
be practically implemented in Romania.
(4) What is the relation between the paper and the already existent specialized literature
In order to illustrate the connection of the paper with the already existent specialized
literature the author had include a special part dedicated to present a brief literature review
that provides a general background regarding the approach dedicated to the topic within the
international literature.
2. BRIEF LITERATURE REVIEW
Social networking sites (Trusov et al., 2009) allow users to build and maintain a
network of friends for social or professional interaction. Each user can create and manage his
individual profile by adding personal information, images, lists of interests and links to music
or other content. Affiliated profiles are called “friends” or “connections”. Dweyer et al. point
out that within social networking sites privacy is often not expected or is undefined (Dwyer et
al., 2007). Social networking sites record data corresponding to each interaction and use it for
social data mining and potential commercial purposes. Through the representation of the own
person in the form of a profile, users are managing their online presence (Richter and Koch,
2008). Furthermore, users with similar interests are able to interact digitally over social
networking services even if an interaction would otherwise be difficult due to social or
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geographical barriers – thus administering their online contacts. Apart from this private use,
social networks are also used for supporting the exchange of implicit knowledge within and
between enterprises. The utility of social networks for companies is also evident for human
resource or acquisition activities and marketing or sales (Cyganski and Hass, 2008).
Communication platforms can promote dialog with customers regarding products and
services. The resulting constructive and innovative input can help companies to orient
themselves even more on customer needs. The social networks can also be helpful as a source
of information by observing the marketplace. According to Lenhart et al. (Lenhart et al.,
2010) 73% of wired American teens used social networking websites in 2009, a significant
increase from previous surveys. Just over half of online teens (55%) used social networking
sites in November 2006 and 65% did so in February 2008. An increase was also registered for
adults: 47% of online adults used social networking sites, up from 37% in November 2008.
As statistics show, Americans spend almost a quarter of their time online on social
networking sites, their most popular social network being Social media networks (Kessler,
2011). Romanian internet users (webactiv.ro, 2011) prefer spending time online (64% of the
time) than watching television (35,7% of the time). From the time spent online, 21% of it is
dedicated to social networking. Similar data describes the online usage patterns of Europeans
(futurebuz.de, 2011): 11,7% of the time spent online is on Social media networks. Further,
84% of the internet users go online in order to visit social networking sites. Only the search
for information and research tops this number (91%). Social media networks can be used for
different purposes, two of the main ones being communication and socialization. The public,
consisting of a mass of individual or group Social media networks users, mostly socializes.
As our topic is mass-collaboration I referred also to other most well-known authors on this
subject, Don Tapscott and A. D. Williams who wrote the best sellers Wikinomics (D. Tapscott
& A. D.Williams, 2006) and Macrowikinomics (D. Tapscott & A. D.Williams, 2010).
The first book, Wikinomics, explains how companies can use the new Internet 2.0 to
reduce transaction costs and sometime even develop new products or make huge research
with little effort through the use of mass-collaboration and the Internet. The second book,
Macrowikinomics focuses on society and how mass-collaboration between individuals for a
common goal can bring incredible results. Another very useful book is Dennis List’s book
called Know Your Audience - A Practical Guide to Media Research (D. List, 2005). The book
provides a comprehensive and usable guide on topics like: Audience Research, Audience
Research Methods, Audience Survey, Survey Reports, Audience Analysis, Audience
Evaluation, Radio Audience Research, Television Audience Research, Qualitative Research
Software, Content Analysis, Survey Data Analysis, and Desk Research Methods. It contains
interesting issues such as:
Planning: types of audience research, how research is done, planning a research project,
some findings about audiences;
Sampling: populations, sampling frames, samples, principles of random sampling,
choosing a sample size, selecting starting points for surveys, selecting respondents within
households;
Questionnaires: planning the questionnaire, types of question, question wording, how to
write a questionnaire, program testing, questionnaire layout, testing questionnaires;
Fieldwork: choosing the place of interview, finding interviewers, training interviewers,
identifying the right respondent, interviewing techniques, finishing an interview, verifying
interviews, paperwork for interviewers;
Analysis and reporting the findings;
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Monitoring and response cultivation: if you can't afford a survey, a partial substitute is to
encourage more audience feedback;
Observation: how to do a survey without talking;
Internet audience research;
Using research well: barriers to using research, and ways of overcoming them.
These literature resources are the foundation of the paper. Based on these resources it
had been developed a specific research methodology that tries to follow the methodology
applied internationally and to adopt it for Romania.
3. RESEARCH METHODOLOGY
Within this paper the author’s most important goal was to research how the Internet
and social networks affect interaction and collaboration, leading to ideas that may have an
important impact on the economy and decision making of the country. Out of the traditional
research methodologies, I have focused on the quantitative research methodology used to
measure the feelings and thoughts of people and focuses on why certain things are done. In
order to collect data for our quantitative research I have chosen the survey method and select a
sample from a population and administers a standardized questionnaire to them. In order to
demonstrate how mass collaboration works in the Romanian society, with the help of some of
my students to whom I am grateful we have conducted a survey on a sample of 52 people.
Choosing the sampling unit
First, in order to choose our sampling unit I questioned people of different ages and
then I split them into three group ages:
‣ 18-30 which represents 41.17% of our sample;
‣ 30-60 which represents 33.33% of our sample;
‣ 60+ which represents 25.49% of our sample.
To diversify the research and make it as accurate as possible I have questioned both
men and women. 21 persons belonging to the group age 18-30 had been interviewed, out of
which 11 were men and 10 were women. For the group age 30-60 a total number of 18 people
had been questioned, 10 of them being men and 8 being women. Belonging to the group 60+,
13 persons had been I interviewed, out of which 6 were men and 7 were women. For this step
of the research I disregarded other demographic indicators such as religion or educational
level because I didn’t find them relevant for our survey since the main idea of this research is
to find out how the Internet unites different people who want to achieve common objectives.
When it came down to choosing our sample size I considered that in order to make a
good survey and to obtain accurate results, I needed to interview at least 10 persons for each
group age, which would lead to a total number of at least 30 persons. In the end I interviewed
52 persons, but the distribution of them in each of the three group ages wasn’t equal for
various reasons:
‣ the young persons (the group age 18-30) were more willing to answer to our questions
than the older persons were;
‣ in the place and at the time when I conducted our survey (Piata Romana, in the afternoon)
I couldn’t find as many persons belonging to the group age 60+;
‣ a lot of people with the age between 30-60 years old were in a hurry.
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A step by Steps approach
Because I wanted to obtain accurate results, I choose a step by step approach for
which I consulted the previous mentioned book-Dennis List’s book Know Your Audience.
(List, D., 2007)
Step 1. Planning the questionnaire
1.a. Working out what I needed to know
It seems to be a natural human tendency to jump directly into action: to start writing a
questionnaire the moment one decides to do a survey. However, better questionnaires result
from planning the structure before starting to write any questions.
In order to avoid finding out too late that maybe some important questions were omitted and
other questions were not asked in a useful way, first I focused on what exactly I wanted to
know. I wanted to find out how mass collaboration influences people behavior in Romania.
After I have worked out what I wanted to know and with what priority it was the time to
begin writing the questionnaire.
1.b. Choosing a questionnaire type
There are two main types of questionnaire: spoken and written. With a spoken
questionnaire, interviewers read the questions aloud to respondents, and the interviewers fill
in the answers. With written questionnaires, there are no interviewers. Respondents read the
questions, and fill in their own answers. According to the purpose of the paper a spoken
questionnaire had been chosen and each member of the target group has been interviewed.
The main advantages of this kind of questionnaire were:
fewer questions unanswered;
results that came back to us more quickly.
1.c. Deciding the questionnaire length
The length of a spoken questionnaire is the time it will take people to answer, on
average. There can be tremendous variation between respondents, but since our questionnaire
was fairly brief, with no more than 11 questions, it took between 5-10 minutes to get the
answers from the persons interviewed.
1.d. Sequence of questions
The first few questions will set the scene for the respondent. It’s important, at the
beginning, to have some questions that are both interesting and easy to answer. As rapport
gradually builds up between interviewer and interviewee, more difficult and personal
questions can be asked. In the questionnaire used for this paper the questions flowed in a
logical order and they moved gradually from general to specific.
Our first set contained general questions through which I wanted to find out in what
proportion the Internet and social networks are present in people’s lives.
With the second set of questions I wanted to dig deeper and to find out whether or not the
usage of social networks determined them to take any kind of action in order to make a
change in the political regime in our country.
Our third set of questions was very specific because I wanted to see the people’s opinion
about a recent issue of public interest which is ACTA (ACTA stands for Anti-
Counterfeiting Trade Agreement).
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Step 2. Types of questions
2.a. Filter questions
In most surveys, there are some questions which do not apply to everybody. For
example, if some respondents have not heard about a specific thing or event, there is no point
in asking their opinion of it. Thus a set of several filter questions had been used, such as: Q4:
Do you use social networks? Yes/ No. If the answer was Yes-go to Q5, if the answer was Noskip
right to Q9.
2.b. Demographic questions
Most questionnaires include a number of demographic questions. For this initial study
there had been a focus on questions about the age group and gender considered to be relevant
for the study.
Step 3. Questions format
Regarding the format of the questions I have chosen to use multiple-choice questions:
e. g.: Q2: How often do you use the Internet? : a) every day; b)5 times a week; c) 2 times a
week; d) seldom. I also used the multiple-answer questions:
Q3: What is the purpose for which you use the Internet? : a)socialization;
b)entertainment; c) news; d) other.
Step 4. Choosing the place of the interview
Traditionally people can be interviewed in three main places: at their homes; at their
workplaces; in public places. For this survey I had chosen to interview people in a public
place, specifically in Piata Romana, Bucharest. I had choses this area because it’s a crowded
one and I found a lot of people willing to answer to the questions.
Step 5. Analyzing survey data: Data entry and data cleaning
Checking and editing
Though completed questionnaires should already have been checked by interviewers,
they need to be checked again before or during data entry. I thoroughly checked my
questionnaire, making sure that:
Every question which is supposed to have only one answer does not have more
No question which should have been skipped has an answer entered.
Data entry
After the questionnaire has been checked and edited, it was ready to be entered into
the computer.
Principles of data entry
Data entry is a computerized way of filling in a large table of codes.
‣ Each row or line of the table represents one respondent or questionnaire;
‣ Each column represents one field.
To enter the data of the questionnaire into the computer I used a spreadsheet program,
specifically MS Excel. I focused the entire questionnaire in a table, making it easier
to follow the data and to make statistic considerations based on it.
Main results
The survey that I conducted is the main and most important asset of my research and I
consider that through the way the questionnaire had been attentively structured I managed to
gather enough data which allows me to make a good interpretation of the results. In the next
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section I am going to present the actual results of the survey, along with some graphs, charts
and the conclusions drawn based upon the people’s answers.
4. RESEARCH RESULTS
Based on the research, it results that nowadays, the main source of information that
people use is the Internet. I compared this result with international statistics proving that the
Internet usage has grown from 16 million users in December, 1995 (0.4% from the world
population) to 2,267 million users in December, 2011 (32.7% from the world
population/http://www.internetworldstats.com/emarketing.htm). The increasing popularity of
the Internet can be explained mostly based on:
easy and free access to information;
new business opportunities: residual income, more access to potential customers;
easy, fast, long-distance and free communication with others;
improved expression of ideas;
more sources of entertainment.
Email is an important communications service available on the Internet. The concept
of sending electronic text messages between parties instead of mailing the traditional
envelopes stands at the creation of the Internet. Pictures, documents and other files are sent as
email attachments. But along with the evolution of society, people wanted even more speed.
And so, the instant message was born (e.g. Yahoo! Messenger, Skype). Then, people wanted a
place where they can be heard, where they can let people know who they are, where they can
get in touch with people from all over the world. Nowadays, that place is called social
network. Collections of personal web pages published by large service providers remain
popular, and have become increasingly sophisticated. Even though operations such as
Angelfire and GeoCities have existed since the early days of the Web, newer offerings from,
for example, Facebook and Twitter currently have large followings. These operations often
brand themselves as social network services rather than simply as web page hosts. This
information is back-upped by the survey done for this paper, where:
• 80% of the people who claimed that they use social networks declared that they are using
Facebook;
• only 20% declared that they are using other social networks (e.g. Twitter, Linked In,
Google+, MySpace).
One of the most important benefits offered from the wide applications of the internet
is communication. The Internet managed to eliminate distances and provide people with a
unique opportunity to talk, watch and have fun with their loved ones, friends or
acquaintances. Chat rooms, messenger services, emails and conferencing programs are the
most common uses for communicating over the internet. People can enjoy the benefits of the
cheap communication and maintain close contact with loved ones from all over the world.
According to the survey’s results, we have gathered the following information:
1) From where people get informed. The Internet is the main source of information.
As illustrated in figure 1, the results conducted from the survey, shown that:
66% of the population prefers using the internet for searching information;
The radio and television are used by 14% respectively 11% of the population;
While only 9% mentioned that they use the newspaper as a source of information.
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Figure 1: From where people get informed: The Internet is the main source of
information
• Age differences
As anybody might suspect, the usage of Internet does not have the same appeal among
teenagers as does among adults or older people.
Out of the 21 young people interviewed (the age group 18-30) all of them have responded that
they prefer the Internet as a source of information and they all admitted that they use it every
day. The people belonging to the age group 30-60 that I interviewed (18 people) seemed to
use both the television and the Internet as main sources of information. When it comes to the
older than 60 years, they admitted that their main source of information is the television.
Some of them use the radio and the newspaper as well. Out of the 13 people belonging to the
group 60+ that I interviewed, only one uses the Internet as a source of information.
• Why People use the Internet?
One of the questions from our survey was: «What is the purpose for which you use the
Internet?” There was a prominent contrast by age, which however was not surprising. The
teenagers answered that they mostly use the Internet for socialization and for entertainment,
while the adults with ages between 30 and 60 said they mostly use the Internet to read the
news, to check their e-mails or for other purposes like purchasing products online. Most of the
people interviewed use Facebook as a social network. Since the most important goal of the
paper was to find out how the Internet and social networks unite people with similar ideas to
achieve common goals through mass collaboration, I considered that the word socialization
was the most representative and I discovered through the questionnaire that out of the 33
people interviewed said they use social networks, 15 of them actually use the networks for
socializing and communicating with each other.
The results from this paper are quite consistent as compared to other surveys such as
the survey conducted with a sample formed only by students, regarding the usage of the
Internet as a source of information, published in October 2006
(http://www.educause.edu/EDUCAUSE+Quarterly/EDUCAUSEQuarterlyMagazineVolum/H
owChoiceCoCreationandCultureA/157434). This survey and has shown that:
72 % of college students ranked search engines as their first choice for finding
information;
2 % use library Web sites as the starting point for an information search;
67 % learn about electronic information resources from friends (when excluding
search engines);
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53 % believe information from search engines is as trustworthy as library
information;
36 % use librarians to cross-reference information for validation;
80 % use other Web sites with similar information as a validation tool, slightly more
than those who use instructors for validation (78 %).
• How many people participated at public debates?
I believe that a debate is important because it helps one learn how to stand your
ground on your point of view and how to use the necessary information to back it up. Plus, it
helps you gain more of an understanding and knowledge of a certain area.
Out of the 53 people interviewed, only seven persons participated at public debates, 6 of them
being teenagers. The results are illustrated in the graph below.
Figure 2:Particpants at online debates by age
• The effect of online debates on political decisions
The conclusion drawn from the graph below is that that the population aged 18-30
years old, representing 39% of the sample consider that online debates would have an effect
on governmental decisions. The same idea has been accepted by 19% of the sample,
representing the persons between 30-60 years old. In the case of the population over 60 years
old, over 35% believe that online debating has an effect on governmental decision.
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Figure 3: People who consider that online debates have an important effect on political
decisions
In an article called “Political activities on the Internet: Slacktivism or political
participations by other means?” written by Henrik Serup Christensen (Henrik Serup
Christensen, 2010), it was examined whether the Internet activities do affect real-life political
decisions, or their main effect is actually to enhance the feel-good factor for participants. The
relationship between the Internet and civic engagement has been debated both in public and
among scholars and Iwanted to find out through our survey the opinion of the people that I
found in Piata Romana, about the impact of the Internet debates on the political decisions of
the Romanian government.
About ACTA
The results conducted from the survey have shown that 81% of people who have heard
of ACTA haven’t signed any petitions against it, while the other 19% have done so. The
ACTA concept caused disagreements among the population of Europe, who have gathered a
number of 2.4 million signatures in order to prevent ACTA from happening.
Figure 4. People who have heard about ACTA and signed a petition against it
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My opinion is that all these Internet activities are at worst harmless fun, but without
any considerable effect on real–life politics. However, they may help raise awareness about
political issues and even mobilize citizens to take other forms of action outside the virtual
world, so people shouldn’t overlook the online debates they are invited to take part in.
CONCLUSIONS AND MAIN IMPLICATIONS
As the topic of mass collaboration is been discussed more and more frequently and as
new ideas of collaboration arise day by day, based on the survey results I have come up with
some proposals. Traffic surveyor is a web platform which gathers information from people in
Bucharest and other major cities in Romania about traffic flow and especially about jams and
crowded intersections.
It works with user content, so people who are stuck in traffic jams or who just want to
add content about the flow of cars in the city can enter the site and insert data on a road-map
on the platform that can be used both for inserting data and for seeing the expected traffic
flow at a specific time of a specific day in an intersection. This way, when you are stuck in a
traffic jam you can use a mobile device (smart phone, laptop, tablets) and supply data, so that
everybody benefits, including you. Also you could provide the data later with the condition of
specifying the hour. Data is centralized and it can always provide an overview of the hot spots
and rush hours for us to avoid the jams. People are also encouraged to find alternative routes
that will be displayed on the map. This paper needs to be continued and I am happy to ask for
co-operation other researchers that might be interested about this fascinating debate. Future
research will come for sure with better research results to demonstrate that smart people
realize the importance of co-operation mostly under the circumstances mediated and
facilitated by friendly social networks that make us to communicate much easy and also to cooperate
based on common field of interests. I consider from this perspective the future is
bright!
REFERENCES
1. Agichtein, E./ Castillo, C./ Donato, D./ Gionis, A./ Mishne, G. (2008), Finding High-
Quality Content in Social Media, Proceedings of the WSDM Conference 2008, Palo
Alto, California, USA.
2. Bălaşa, Ana, Despre inovaţia socială în literatura de limbă franceză, Institutul de
Cercetare a Calităţii Vieţii, Revista Inovaţia Socială nr.1, 2009
3. Bernatchez, J., L’innovation sociale et l’université au Quebec: le défi de rendre
operatoire un concept polysemique, Second International Colloquium on Research
and Higher Education Policy, Paris, 2006
4. Bouchard, C., Recherches es sciences humaines et sociales et innovations sociales.
Contributions à une politique de l’inmatériel, Québec, 1999
5. Cloutier, J., Qu’est‐ce que l’innovation sociale?, Centre de recherche sur les
innovations sociales, Montreal, 2003
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6. Cyganski, P./Hass, B.H. (2008), Potenziale sozialer Netzwerke für Unternehmen. In:
Hass, B./Walsh, G./Kilian, T. (Hg.), Web 2.0. Neue Perspektive für Marketing und
Medien, Springer Verlag, Berlin Heidelberg.
7. Dwyer, C./Hilz, S.R./Passerini, K. (2007), Trust and privacy concern within social
networking sites: A comparison of Social media networks and MySpace, Proceedings
of the Thirteenth Americas Conference on Information Systems, Keystone, Colorado,
USA.
8. Empowering people, driving change. Social Innovation in the European Union,
publications Office of the European Union, Bureau of European Policy Advisers
(BEPA), 2011
9. Goldenberg, M., Social Innovation in Canada: An Update, Canadian Policy Research
Networks, Ottawa, 2009
10. Kessler, S. (13 September 2011), Americans Spend 23% of Internet Time on Social
Networks, Social Networking Watch,
http://www.socialnetworkingwatch.com/2011/09/americans-spend-23-of-internettime-on-social-networks.html.
11. Lenhard, A./Purcell, K./Smith, A./ Zickuhr, K. (2010), Social Media & Mobile
Internet Use Among Teens and Young Adults, Pew Internt & American Life Project
Report.
12. Lévesque, B. (coord.), Inovations et transformations sociales dans le developpement
économique et le developpement social: approches théoriques et politique publiques,
CRISES, Etudes theoriques, nr. ETO507, 2005
13. List, D., Know Your Audience - A Practical Guide to Media Research, 2005
14. Neamtan, N., Downing, R., Social Economy and Community Economic Development
in Canada: Next Steps for Public Policy, Québec, 2005
15. - Nussbaumer, J., Moulaert, F., L’innovation sociale au coeur des débats publics et
scientifiques, Presses de l’Université du Québec, Québec, 2007
16. Phills, J., Deiglmeier K., Miller D., Rediscovering Social Innovation, Stanford Social
Innovation Review, 2008
17. Shapson, S., Leading Wisely, Leading Boldly, Leading Collectively. Social Innovation:
University and Community Partnerships, York University, Toronto, 2009
18. Richter, A./Koch, M. (2008), Functions of Social Networking Services, Proceedings of
the 8th International Conference on the Design of Cooperative Systems, Carry-lerouet,
France, Institut d'Etudes Politiques d'Aix-en-Provence, pg. 87-98.
19. Tapscott D., & Anthony D.Williams, Wikinomics: How Mass Collaboration Changes
Everything, Portofolio Trade, 2006
20. Tapscott D., & Anthony D.Williams, Wikinomics: How Mass Collaboration Changes
Everything, Portofolio Trade, 2010
21. Tremblay, H.P., L’innovation sociale: entre la theorie et la pratique, Chicontimi,2003
22. Trusov, M./Buckling, R./ Pauwels, K. (2009), Effects of Word-of-Mouth Versus
Traditional Marketing: Findings from an Internet Social Networking Site, Journal of
Marketing, Vol. 73, No. 5, pg. 90-102.
23. Von Ahn L.,How The Creator of CAPTCHA Will Translate The Entire Internet,
FastCompany. 2011
24. Yeung, M., Social Innovation in Canada, Research Paper, Toronto, 2007
25. Westley, F., Nino, A., Making a Difference. Strategies fos Scaling Social Innovation
for Greater Impact, The Innovation Journal: The Public Sector Innovation Journal,
Vol. 15(2), 2010
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On line sources
1. http://www.dknmu.org/Research%20Methodology%20-%20I.pdf
2. http://www.internetworldstats.com/emarketing.htm
3. http://www.internetworldstats.com/stats.htm
4. http://www.educause.edu/EDUCAUSE+Quarterly/EDUCAUSEQuarterlyMagazineVo
lum/HowChoiceCoCreationandCultureA/157434
5. Cat timp petrec si ce cauta romanii pe Internet,
http://www.webactiv.ro/Cat+timp+petrec+si+ce+cauta+romanii+pe+Internet
6. http://www.futurebiz.de/artikel/12-prozent-onlinezeit-verbringen-nutzer-auf-social
media networks /
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CONVENTIONAL AND JURISDICTIONAL IN DISPUTE SETTLEMENT.
THE LEGAL NATURE OF THE TRANSACTION CONTRACT
Georgeta-Bianca Tărâţă (Spîrcheyi);
University of Craiova,
ABSTRACT
The Alternative Dispute Resolution, whose Romanian traditional pattern is the
transaction contract, is an instrument worth to be considered, in order to capitalize the rights
in optimal conditions. Parties should settle their dispute before going to Court, wherever
possible. Where litigation could not be avoided, then the parties should attempt to settle their
dispute, demanding a consent order from the Court. It is the purpose of this article to provide
an analysis of the legal nature of the transaction contract and to emphasize the role of the
judge in giving such a consent order. In order to achieve these objectives, we have examined,
mainly, the Romanian legislation and doctrine, confirmed by the case law.
Key words: transaction contract, dispute settlement, consent order, mediation.
1. INTRODUCTION
The legal concept of the “transaction contract/agreement” is polysemantic.
In its economical meaning, often used, the transaction contract is an agreement, a convention.
This is the extensive significance.
In a strict, legal meaning, the transaction agreement is a specific contract by which the
parties settle the dispute between them. It is, as it was remarked (von Ihering, 2002), “that
point in which coincide the calculation of the probabilities established by both sides”. Thus,
further citing the mentioned author, the problem of “the fight for the rights” is reduced to a
simple arithmetic calculation, in which there must be weighted the pros and cons of both
sides, respectively the risks associated to the trial, according to which there is adopted the
decision to initiate or to waiver the trial, or else to avoid it through a transaction agreement.
So, the transaction contract, in this latter meaning is our subject of study.
This legal mechanism is based, primarily, on the freedom of contract that governs the
private law, freedom of contract that allows the parties to settle amicably and no longer
subject to the traditional rules of the standard procedure.
It is worth mentioning here, as it was stressed out in the specialized literature (Clay,
T., 2006), that the family of contracts related to the dispute resolution is substantiated by the
following fact: the contract/agreement and the trial should not exclude each other, but should
be combined.
By its conventional nature, the transaction is examined as a contract, as it is subjected
to the common law rules forming conventions; nevertheless through its function and effect it
is closer to a judicial act.
This special contract is, as expressed in the doctrine (Malaurie, Ph., 2007) at the
junction between the right of obligations and the private judicial law. Inclusion of the
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transaction into the judicial contracts category places this legal act on the border between the
substantive and the procedural law. Hence, the need to determine its legal nature.
The analysis of the legal nature of the transaction contract is designed to help clarify
the issue if this instrument is subject to the legal jurisdiction of the state, through the
intervention of the judge, in some cases, or is related, mainly, to the contract law and to the
rules in this area.
Such an approach involves, first of all, to make a difference between the two forms of
the transaction contract: the judicial and extrajudicial form.
The extrajudicial transaction involves a disputed right, over which a settlement is
reached before the judicial proceedings are issued.
2. LITERATURE AND LAW REVIEW
Firstly, in relation to the judicial contracts category, in which is included the judicial
transaction contract, a few conceptual explanations are necessary.
According to Art. 1166 of the new Romanian Civil Code, similar to the old regulationcovered
by Art. 942, “the contract is the agreement of wills between two or more persons
intended to constitute, change or extinguish a legal relationship”. In other words, the bilateral
or multilateral agreement, which distinguishes it from the unilateral legal act, which is the
product of one will, is decisive for an agreement (Stǎtescu, C. and Bîrsan, C., 2002).
About the judicial contract, it has been written recently (Deleanu, I.,2005) that “it is
the convention admitted to the parties during a trial and before the judge”, it is “a legal
agreement by object and conventional by source”. It has been highlighted (Mitea, V., 2011)
that their characterization is dominated by the quality of being the product of the parties’ free
will in the trial.
The idea of judicial agreement firstly took shape in France, where the case law
recognized the agreement that interfered during judicial proceedings its nature of judicial
contract (Constantinescu, M.G., 1983).
In the monograph dedicated to the study of judicial agreements, M.G. Constantinescu,
having as criterion the procedural function fulfilled by these contracts, these have been
classified into:
-legal judicial agreements, which can only arise with the justice contribution;
-judicial enforcement contracts, occurring as a consequence of legal forms and
-proper legal contracts, agreements of parties in court proceedings.
At their turn, the legal contracts themselves are divided into legal contracts as far as
forms of judgment are concerned (examples of voluntarily extension of competence,
voluntary litis consortium s.o.) and legal contracts on the law merits, this category covering
the transaction acknowledged by the consent decree. The indication is that this last hypothesis
refers to the judicial transaction, where the parties’ agreement is governed by the contractual
rules and the judge work, signally based on case law is “the second phase” in the performance
of the judicial contract
Thus, on the one hand we have a conventional element-the parties’ agreement and on
the other hand a judicial element - judicial acknowledgement, the judge confirmation, who
findings the parties’ will either validate it or not (the parties disposal procedural right
combines with the judge’s active role).
So, in the case of judicial settlement, the court neither judges, nor adds anything to the
effects of the transaction agreement, but only checks the legality of the agreement between the
parties, the expedient decree acting as authentication of such agreement, as any legal decree is
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assimilated, in terms of evidence as authentic paper (as ruled by C.A. Craiova, Civil Section,
decision no.8683/1999, in Terzea, V., “Codurile adnotate. Codul Civil”, vol. III (art.1405-
1914).
3. THE TRANSACTION CONTRACT AND OTHER SIMILAR CATEGORIES
The transaction is not the only way by which disputes can be settled amicably. There
are several alternatives to the court (the so-called “ADR’s – Alternative Dispute Resolution).
Also among the common principles of this family of contracts relating to litigations, we find
others as well, such as, the fact that they meet the two types of loyalty: contractual and
procedural loyalty (Clay, T., 2006).
A distinctive feature is that these models other than contracts related to litigations refer
to different realities, as though they all aim at avoiding the judicial lawsuit by the use of the
contract, they do it in different ways.
Speaking of contracts relating to the dispute, we refer to conciliation, mediation and
transaction; they are mainly processes aiming to get closer the opposing parties while
arbitration is above all a right to settle the dispute without seeking to have the parties’
agreement. The first does not lead to success unless everyone agrees; the second exists even if
all parties are in disagreement. The first ones tend to “compromise”, the second by decision.
Generally speaking, how can we distinguish the transaction from the close institutions?
To provide an answer to this question, we start from the three elements of the
transaction: contract, dispute and mutual concessions. But, the notion of dispute is vague and
the mutual concessions characterization is not easy. Even the simplest of the three, apparently,
the notion of contract may cause difficulties.
In this approach we appreciate that not the name the parties give to their agreement of
will, should be the criterion of distinction but especially the analysis of the parties’ will. Thus,
we must investigate the cause of the legal act concluded, the dominant intention of the parties
– the mediated cause.
The transaction is a contract. This idea allows to attempt at differentiating the
divestment transaction and the legal court order.
The absence of conventional nature, also, allows distinguishing the consent/acceptance
transaction, whereby one party recognizes the grounds of the other party’s claim, except that
the acceptance could be a procedural consequence of a transaction.
Transaction and court order: The transaction and the decree end the dispute; so we
may claim that these have substantially the same effect: the uncertain subjective right
becomes a certainty right (Vǎduva, D., 2002).
A feature of judicial acts is that they are the result of checks made by the court on the
merits and legality of claims. In the expedient decrees, the check conducted by the court only
refers to meeting legal requirements and will not look at the parties’ claim.
The main element of differentiation resides in the proceedings effects of the court
order that is equivalent to an authentic act, is enforceable and acts as res judicata. However,
this difference vanishes when “a legal act with the object of cutting a dispute associates the
convention and the court intervention” (Malaurie, Ph. et al., 2007). This applies to the legal
transaction acknowledged by the expedient decree, by which the act keeps its conventional
nature, but the judge’s ascertainment confers its authentic and enforceable nature.
The former provisions of the Romanian Civil Code (Art.1711), according to the
French legal model, used to assign res judicata to the transaction. French theorists used to
admit that it was about a diminished authority, which actually, has been called “res
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completes” to distinguish it from that which derived from a court decision. The transaction
can only have the binding force of a contract and not that of a court order, its authority arising
thus from the parties’ will (Vǎduva, D., 2002). That is why the new Romanian Civil Code, the
former article 1711 has no counterpart.
The explanation/argument for this appears in the case law as follows: “the parties’
agreement, even if transposed in a court order, is not the result of the contradictory discussion
before the court and does not establish a cause to be under control in relation to the evidence
taken or the laws that cover such situation; it is not thus a court judgment, based on evidence,
on which the presumption of truth relies on and that is the basis of res judicata (Supreme
Court, Civil section, decision no. 750/1981, in Terzea V., “Coduri adnotate. Codul Civil”, vol.
III-art.1405-1914).
The transaction and the acknowledgment of claims, namely their divestment: It is
obvious that these two procedural acts – acknowledgment and divestment assume as specific
elements a litigating situation and the legal waiver operation. However, these are not to be
taken for the transaction because are not the result of the consistent desire of the parties, being
unilateral legal acts.
Transaction and arbitration clause: Both agreements focus on the dispute the parties
decide to circumvent from the judge (Malaurie, Ph. et al., 2007).
The difference resides in the fact that while the transaction acts as preventing or
extinguishing the dispute between the parties, based on mutual concessions, the arbitration
clause refers only to the jurisdiction of dispute settlement, which is assigned to an arbitrator.
In the case of transaction, the subjects directly agree on their rights, while by the
arbitration clause the commitment is indirect, since the judges will decide instead of the
parties.
Transaction and partition: The transaction and the amicable settlement show
similarities. Thus, the amicable partition is an agreement by which the joint parties decide to
end the joint possession, assigning each one of them an exclusive right over an asset that
belonged to the joint assets. Not every amicable partition is necessarily a transaction, because
it does not always involves a dispute. If there is litigation, a dispute between co-owners, the
partition ending the joint possession and solving the conflict between the parties, could be
described as a transaction (Malaurie, Ph. et al., 2007).
A priori, any amicable partition seems to correspond to a transaction, its purpose being
to avoid the complaints of a judicial separation. Generally, the case law refuses such
assimilation. Not every divergent opinion on the composition of the joint mass or on the
allocation of lots has necessarily a contentious nature.
CONCLUSIONS AND IMPLICATIONS
The parties’ agreement, even if transposed in a court order, is not the result of the
contradictory discussion before the court and does not establish a cause to be under control in
relation to the evidence taken or the laws that cover such situation; it is not thus a court
judgment, based on evidence, on which the presumption of truth relies on and that is the basis
of res judicata
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University of Bucharest
REFERENCES
1. Clay, T., Transaction et autres contracts relatives aux litiges, in La transaction dans toutes
ses dimensions, Dalloz, 2006;
2. Constantinescu, M.G., Contractele judiciare, Publisher “Universul”, Bucharest, 1983;
3. Deleanu, I., Tratat de procedurǎ civilǎ, vol. I, Publisher: All Beck, 2005;
4. R. von Iherinh, Lupta pentru drept, translation by A. Florea, Publisher: All Beck, 2002;
5. Malaurie, Ph., Aynes, L., Gautier, P.Y., Contractele speciale, coordinator of the Romanian
edition M. Șcheaua, translated by Dǎnişor, D., Publisher: Wolters Kluwer, 2007;
6. Mitea, V., Privire asupra contractelor judiciare în procesul civil, in “Law” Reveu no
3/2011
7. Romanian Civil Code adopted by Law no. 287/2009;
8. Stǎtescu, C., Bîrsan, C., Drept civil. Teoria general a obligaţiilor, ed. a-VIII, Publisher: All
Beck, 2002;
9. Terzea, V., Coduri adnotate. Codul Civil, vol. III (art. 1405-1914), Publisher: C.H.Beck
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E-GOVERNMENT ON LOCAL LEVEL
CASE STUDY: MUNICIPALITY OF KORCA
Marinela Teneqexhi
University”Fan S.Noli” Korce
Eleni Vangjeli
University”Fan S.Noli” Korce
Gentisa Furxhi
University”Fan S.Noli” Korce
ABSTRACT
E-Government refers to the use by government agencies of information technologies
that have the ability to transform relations with citizens,busineses and other fields of
government.These technologies can serve a variety of different objectives:better delivery of
government services to citizens,improved interactions with business and industry,citizen
involvement through access to information,more efficient government management. The
achieved benefits can be less corruption,increased transparency,greater convenience,revenue
growth,cost reductions. This study is focused on some elements of E-government in Korca
Municipality. The project concerning the implementation of an Intranet in the Municipality of
Korca was completed in November 2007. This project included the installation of two or more
computers in one office based on working demand. All of them were connected through a
single intranet network and were able to access this network.
Before starting this project in the Municipality of Korca, none of office computers
were connected in a network with one another. Actually, all the Municipality’s computers are
connected in a network and everyone has access in the Municipality’s network. Through its
web page, the Municipality of Korca aims to increase civic participation in local government
and promote the town’s image .One of the most important conclusion is that E-Government
will reduce bureaucracy and corruptive actions by improving of the progress of the public
sector.
Key words: e-Government, transparency, information technology, government
services, effectiveness on government
1. INTRODUCTION
E-Government means to transform the way of governing the people. This process
requires a strategy which begins with an analysis to the political will, resources, regulatory
environment and ability of population to use certain technologies. The success of E-
Government requires radical changes towards how the governance functions and how the
population perceives the way of government assistance to it.
In order to realize such a successful transformation of government through E-
Government the following five elements are necessary: reform process, leadership,
investments, cooperation and civic involvement.
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In the Albanian reality, a good share of local governance problems is connected to the
lack of Information Systems or bad administration of Information Systems. Related to this we
can mention some facts: Althought many information gathered at national and central level
legally or institutionally, must be furnished to the local administrations, most probably it
doesn’t happens; The gathered informations at every level, usually is considered as“personal”,
instead of beeing considered as a public component and as a base for realizing a service or a
public function; The existent databases at central level are not developed according to
common standarts and moreover for different reasons are not completely usable at local
levels; The nowadays Information Systems in In the Albanian reality, a good share of local
governance problems is connected to the lack of Information Systems or bad administration of
Information Systems.
The nowadays Information Systems in, and especially at local level does not respond
to the contemporary needs and in general are based on old concepts and technologies. The
majority of services are delivered in a traditional manner through public corporations
established both by the municipalities and the government. In the case of market-based
economies and ongoing administrative reforms, arguments for contracting out public services
generally are tied to demands to improve the quality of public services and to satisfy citizens’
needs. However, legislation on local governments is not focused on the demands and
preferences of citizens as the criteria for the choice of and priorities in public service delivery.
The citizen’s choice is still neglected in the formal regulation of public service delivery.
Public services and their effective distribution have a great impact on the economic and social
development of a country. During the transformation process into a knowledge based society
that a country undergoes, it is very important to offer those services effectively, promptly and
in a transparent manner in line with the needs and demands of the citizens and businesses
(Kooiman, 2003). The importance of transparency in government is widely acknowledged,
both to promote greater public confidence in the policy-making process and to maximize
accountability. The evidence demonstrates that more and more local government departments
and public sector agencies are using the web to publish and distribute official information and,
to a lesser extent, to facilitate the delivery of online services.
Public participation at the local government level includes both community and
stakeholder involvement processes. The community is comprised of a distinguishable subset
of stakeholders (for example, residents and small business owners whose property, property
values, or economic welfare is adversely affected by the decisions). Stakeholders include
parties with a legitimate interest or stake in the issues or impending decisions about the local
economy, resources, planning (for example, site owners and users, government regulators,
members of the community, industry and business, government at different levels).
2. LITERATURE REVIEW
An important step in understanding how governments are using e-government services
is to define “egovernment”.
Several definitions exist, each emphasizing different aspects of different technologies
that governments use to reach the public. Some authors include internal networking and filesharing
capabilities as a part of the e-government provision (Moon 2002). Brown & Brudney
(2004) include in their definition that e-government specifically targets “citizens, business
partners, employees and other government entities.”Another definition of e-government
according to West (2004)is:
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“E-government refers to the delivery of government information and services online through
the Internet…Unlike traditional structures, which are hierarchical, linear, and one-way,
internet delivery systems are nonhierarchical, nonlinear, two-way, and available 24 hours a
day, seven days a week.” (West 2004).
Electronic government, or “E-Government,” has been a rising topic for public
administrators since Internet technologies exploded into the 1990s. The Internet is not the first
communications technology to have a drastic impact on the workings of government, but
Internet technologies have been adopted much more quickly than the telephone, radio, and
television technologies of the past.
Attempting to theorize the changes that e-government has had and will continue to
have on governments, several dichotomies have been drawn between the traditional models of
public administration and the new customer-service models driven by online service provision
(Ho 2002;
Melitski 2003; Musso, Weare & Hale 1999).
Melitski (2003) outlines two competing paradigms that frame how governments
operate their egovernment service: the Information Technology (IT) paradigm and the public
administration (PA) paradigm. The IT paradigm arose during the 1980s and early 1990s.
During this time, before the advancement of the Internet, governments’ IT functions were
limited to a few large mainframe computers which could be used only by technically trained
IT managers. Since these IT managers were the sole users of the government technologies,
they planned, designed and implemented technologies based on their preferences and
technical abilities alone. The newer PA paradigm, on the other hand, arose with the
widespread adoption of the Internet in the late 1990s into the twenty-first century. As more
and more people began using the World Wide Web, technical knowledge grew among
government employees and citizens. As employees and citizens became familiar with
technologies, they began demanding increased e-government services.
Though these two distinct paradigms developed decades ago, they both still remain in
conflict today. In the IT paradigm, sophisticated technologies provided through e-government
are rationally analyzed for efficiency and effectiveness in delivering services to the citizens.
Technologies are evaluated based upon cost, upon how they will help the government
streamline processes, and upon whether the IT managers have the skills and abilities to
develop. The new PA paradigm, on the other hand, focuses new technologies on the demand
from the citizens, placing less emphasis on rational analysis.
Research from other authors has continued to focus on the new customer-service
centered.
3. LOCAL E-GOVERNMENT
E-government is about putting citizens and customers at the heart of everything governments
do, and building service access, delivery and accountability around them. It is about using
technology to break down social exclusion, and supporting the transformation of public
agencies into more open, accountable bodies, which can enable and encourage citizens and
local communities to exercise their rights and responsibilities, and to contribute to the
modernization. Local e-government is the realization of this vision at the local level, at the
point where the vast majority of services are delivered. Customers and citizens have
overlapping, inter-related needs. Local e-government can assist in transforming experts’
knowledge of dealing with public services in local areas. It can help transform the way public
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service providers do business, bringing huge gains in the efficiency and effectiveness of
services. It can also make genuinely integrated, open and accountable government possible.
In the Albanian reality, a good share of local governance problems is connected to the
lack of Information Systems or bad administration of Information Systems.
3.1 STAGES WHERE E-GOVERNMENT GOES THROUGH
E-Government is not just a simple procedure of providing employees with computers
and automation of old practices. Automation of bureaucratic procedures will not bring greater
effectiveness on government process or encourage citizens to participate in governance.
Technological solutions alone that are not followed by appropriate strategies cannot
change the bureaucratic mentality which affects administrations in every country. If we were
to explain it correctly, we would say that E-Government uses the technology in order to
increase transparency, avoid distance and other barriers and enabling individuals aiming their
participation in democratic processes which affect increasingly their lives.
Generally, governments have different strategies in applying E-Government. Some of
them created long term and comprehensive strategies; others are mostly concentrated on a few
elements looking for their immediate implementation. However, in practice has been noted
that the most successful countries in applying E-Government began implementing small
projects by taking small but firm steps.
-First stage: Publication
Each government produces a great amount of information which is necessary for
individuals and businesses. Interne and other advanced communication technologies can bring
information faster and directly to the citizen. Implementation of this stage generally changes
the concept depending on the country, but developed countries began this stage by publishing
online information of all public institutions from requested documents to forms to fill, special
requests and every kind of application following its regulatory legal frame. Such kind of
comparison avoids time consuming for citizens who can find online the information they
need, avoiding going there or staying in long queues.
Web pages of these institutions provide information on government and governance.
Therefore, they serve as foregoing to E-Government.
-Second Stage: Interaction
Encouraging and Developing Civil Society Participation in Governance
Creation and publication of web pages, although rich in information and content, is
only the first step. E-Government has the potential to involve the citizens in governance
process through increasing the civic interaction with policy makers in every step of this cycle
in every possible level. This contributes of course in increasing the public confidence in
governance process.
Interacting level of E-Government involves a reciprocal communication which starts
with basic functions such as informing e-mails and forms or questionnaires which enable their
users to express their attitudes and comments concerning the proposals of executives or policy
makers.
This stage of E-Government could include creation of civic-government as it is the
case of the Republic of Armenia. These for a constitute online communities where people
exchange ideas, raise the awareness of public opinion on several issues and ensure that
physical distance is not a barrier to participation. In Armenia, citizens are encouraged to give
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their opinions from participation on political level to problems concerning the environmental
issues.
-Third stage: Sharing
Enabling government services online
Moreover, the Government may create web pages which enable online sharing. Just as
the private sector in developed countries which uses such technologies for online sharing,
government services as well could be seen under this view. Use of Internet and other
instruments of e-commerce, results in cost reduction for these services, higher confidence in
information process and increase of long term productivity.
Such an online sharing webpage is a direct connection to services provided from
public institutions in a suitable time for its user. In the past, such services like land
registration, renewal of ID cards or different certifications were time consuming and citizens
spend hours in long queues. Citizens were faced every day with the bureaucracy and possible
corruptive actions. By making automatic such processes like tax payments, governments
which apply to this stage expect to reduce the bureaucracy and diminish corruptive cases.
Sharing web pages can increase productivity on both public and private sectors. This
can be achieved by making faster, free and simpler all the processes requiring the presence or
approval of government institutions. However, the Government should understand that
implementing such a project would not be easy and cheap. As a result, creation and working
for such web pages require changes in legal framework and education of civil employees or
those who work in public agencies.
3.2 E-GOVERNMENT IN THE MUNICIPALITY OF KORCA
The project concerning the implementation of an Intranet in the Municipality of Korca
was completed in November 2007. This project included the installation of two or more
computers in one office based on working demand. All of them were connected through a
single intranet network and were able to access this network.
Before starting this project in the Municipality of Korca, none of office computers
were connected in a network with one another. Actually, all the Municipality’s computers are
connected in a network and everyone has access in the Municipality’s network, but not
everyone has the right to access the Internet. In fact, 90% of computers in the Municipality of
Korca have access in Internet and has been made possible a second back-up system which
enables this institution to have Internet access every time it needs to. It is worth mentioning
that the Internet quality and speed have been increased considerably.
Considering that some offices such as the finance office are specialized on specific
and important tasks, the main goal is to protect the computers from possible Internet virus
attacks.
In the municipal information system have been installed excellent antivirus systems as
protective means for the system; have been activated firewalls which serve as barriers in
protecting the information from malicious individuals outside the system. It has been
considered that some offices which possess critical and important information be more
protected by not accessing the Internet.
Almost all the directories in the Municipality of Korca operate together through one
single network and share information with each other. This has made the work easier and
increased the efficiency among directories.
This system is based in connecting the computers, creating a database and internal e-
mail services.
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In 2010 the Directory of Incomes was computerized. Actually the whole information
concerning Korca businesses is electronic already and easily verifiable. This is the reason why
tax payments are easily manageable and enables to notify businesses through a mobile
message about the date of payments.
The whole businesses are easily verifiable online on Municipality web page in “Stop
Informality” banner at: http://www.bashkiakorce.gov.al/site/companies.php
The advantages and benefits from implementing the information system in municipal
computer systems are:
♦ Improving work quality
♦ Rapid response to citizens
♦ Cost reduction of printing and distribution
♦ Facilitating the work of public employees
♦ Reducing time consume in moving from one office to another
♦ Focusing on more important objectives and projects
♦ Improving relations among employees
♦ Decentralization
♦ Less bureaucratic procedures in the institution
♦ Faster exchange of information from one office to another
♦ Municipal clerks are able to find information in a shorter time and when they need it
♦ Improving the relations with business and public
♦ More transparency concerning the most important activities
♦ Higher involvement of citizens by giving them the right for more information
Actually, effects from implementing the system are obvious to the municipal staff.
Their work has been made very easy, but there is much to be done concerning the public
relations, as the infrastructure does not allows for direct public communication. However,
improvement of relations among businesses which operate in Korca is evident.
It is worth the fact that public procurements now on will be fully transparent to the
stakeholders and the public as well, since they will be published on Municipality’s web page
and the conditions for being part of this process. Other aspects of the work of the
Municipality are intended to become transparent too.
-Internal communication
The information is shared continuously from one office to another. Before this was
handled thorough hard copies of documents, but now it is enables through network reducing
thus time consuming and other costs related directly to information exchange. It is worth
mentioning the fact that Municipal managers delegate tasks through internal e-mail services
and also other information could be shared through the same forms such as calls for meeting,
etc. also, we could mention that each office is obliged to have its e-mail service controlled and
is responsible in cases of lack of correctness.
-External communication
In order to avoid the citizens’ lines in municipal offices in asking for information and
for becoming more transparent, the Municipality of Korca has published on its own web page
all the requested information from the citizens in order to make them get it with no costs. This
is the reason why in the Municipality hallway a terminal has been established where the
municipal web page can be accessed in every moment.
Every municipal department has the right to publish information on the web page
indirectly. Since there is an employee who is in charge of the esthetical information aspect,
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the procedure which comes to use in such cases is that each department selects the
information to publish, puts it on the system and the above mentioned employee after making
the necessary arrangements, publishes it
-What is www.bashkiakorce.gov.al?
This is a web page of the Municipality of Korca where a great deal of information is
published. Such information is related to the work of the Municipality, its activities, programs
on future activities and other information which aim to help the citizens.
By publishing such information on Internet, the Municipality aims to increase the
civic confidence becoming more transparent and open to them.
Also, it aims to improve the general image of the town by displaying its most positive
aspects. One of the advantages of this web page is the right given to citizens for making
petitions or complaints concerning their dissatisfactions on the work of Municipality or other
reasons.
Also, citizens’ requests or petitions could be posted directly on the municipal e-mail.
Another special point to be mentioned related to the municipal web page is the newsletter
where everyone is invited to get the latest information and news.
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E-Government in the Municipality of Korca aims to increase the civic involvement in
local government. Therefore, it has been published on the municipal web page information on
a Municipality’s program which arranges meetings on specific dates where citizens take the
floor.
It is important to work on E-legislation where as technologies are developed further,
the need to process a regulatory frame and amend the existing laws increases too. Therefore,
IT will be better integrated with all the activities kinds and business practices as well as
government policies or activities. Some of the areas where E-legislation plays a special role
are as following:
♦Data collection, public information, confidentiality.
♦Technical standards, tariffs and licensing.
♦E-Commerce.
♦Electronic signature.
♦Cybernetic crime and security.
♦Registration of “domain names”.
♦Intellectual ownership and author’s rights.
IT have been quickly developed, therefore processing the new legislation should be
made on careful evaluation basis of the “existing barriers” as care should be taken for IT not
to be “very regular” but space to be left for further developments.
The technology used in establishing the intranets in different institutions aims to
reduce the inefficiency, improve the general institutional productivity, improve the services it
offers, make the work of public employees easier and reduce the corruption.
CONCLUSIONS:
●E-Government makes the governing process more open, easier to access and more credible.
●E-Government will reduce bureaucracy and corruptive actions by improving the progress of
the public sector.
●The presence of E-Government in Albania is obvious in some areas, but necessary
infrastructure for its total expansion does not exist yet.
● In the Municipality of Korca, Intranet connection has been implemented for the first time in
1997.
●This network facilitated the job of municipal employees, reduced bureaucracy within the
institution, increased the speed of exchanging information, etc.
●Through its web page, the Municipality of Korca aims to increase civic participation in local
government and promote the town’s image.
●An important task to the Government is to create the electronic legislation which will
strongly support the process of E-Government.
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REFERENCES
1. Bozdo.E, E.Martiri;A.Grepca. E-government: Development program "General institutional
management"
2. Klosterboer Kevin ,Local e-governments trends April,2011
3. Kooiman,J.(2003).Governing as governance.Sage:London
4. Law,Edvin(2004),”Stategic implementation of e-government in OECD countries:major
challenges”,12 NISPAcee Annual Conference.
5. Sejdini Imelda ,E-government implementation in Albania as a tool to increase citizens
participation and benefits . International journal of e-business and e-government studies
Vol 2,No 2,2010 ISSN:2146-0744
6. Ralph M.Stair.Management Information Systems
7. www.bashkiakorce.gov.al
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THE EVOLUTIONARY PATH OF CORPORATE SOCIAL RESPONSIBILITY IN
THE LAST CENTURY
Toma Sorin-George
University of Bucharest;
ABSTRACT
Since the last century, corporate social responsibility has become an important topic
for scholars and researchers from different fields of study. Based on a literature review, our
paper seeks to describe and synthesize some of the main contributions to the emergence and
development of corporate social responsibility. The aims of our paper are to trace its
evolutionary path and to highlight some of its various approaches.
Key words: corporate social responsibility, business organizations, business, society
1. INTRODUCTION
In the past decades, Corporate Social Responsibility (CSR) has become a major focus
of interest both for researchers, academics, consultants, and businessmen (McWilliams, 2006;
Jenkins, 2005; Craig Smith, 2003). The prominence of CSR is clearly demonstrated by the
fact that it has been one of the leading topics at the recent world forums and meetings such as
the World Economic Forum (WEF), the International Business Leaders Forum (IBLF), the
Copenhagen Summit or the World Business Council for Sustainable Development (WBCSD).
During the last centuries the relationships between businesses and society have changed
profoundly. The modern history of the social and environmental concerns of business
organizations is divided in three main periods, namely the First Industrial Revolution, the
twentieth century welfare state and the globalization era (Blowfield, Murray, 2011).
With the emergence and development of industrialization, the impacts of business
organizations on society within which they functioned assumed an entirely new dimension.
On its turn, the growing interdependence of various institutions (e.g., government, businesses,
public organizations, non-governmental organizations) provoked new societal debates about
the role played by business organizations in society.
Since the last century, the issue of CSR has become an important one for scholars and
researchers from different fields of study (e.g., management, sociology, marketing,
philosophy, economics, law, theology, etc.). The enthusiasm for the CSR subject has been
highly echoed in the recent business literature (Brammer, et al., 2012; Rangan, et. al., 2012;
Carroll and Shabana, 2010; Basu and Palazzo, 2008; Campbell, 2007; May, et. al., 2007).
Based on a literature review, our paper seeks to describe and synthesize some of the
main contributions to the emergence and development of CSR. The aims of our paper are to
trace the evolutionary path of CSR and to highlight some of its various approaches.
2. THEORETICAL BACKGROUND
Numerous definitions of CSR have been proposed in the literature, but there is no
universally acceptable definition of CSR. One of the main reasons is the fact that the
evolution of the CSR concept suggests rather a multidimensional construct worthy of
multidisciplinary approaches (Toma, et. al., 2011). CSR has been defined as:
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“a situation where firms goes beyond compliance and engages in actions that appear
to further some social good, beyond the interests of the firm and that which is requires
by law” (McWilliams, 2006, p. 1).
“a concept whereby companies integrate social and environmental concerns in their
business operations and in their interaction with their stakeholders on a voluntary
basis” (Commission of the European Communities, 2006, p. 1).
a concept that addresses “the reconfiguration of the balance between institutions that
together make up society” (Habisch, et. al., 2005, p. 2).
All these above mentioned definitions belong to one or another approach as follows:
the agency theory, the stakeholder theory, the stewardship theory, the resource-based view of
the firm, and the institutional theory. However, they stress that business organizations have
social and environmental duties in addition to their economic goals.
3. THE EVOLUTION OF CSR IN THE LAST CENTURY
By most authors, CSR represents a product of industrialization and, more recently,
globalization (May, et al., 2007). The diversity and the dynamics of CSR are strongly linked
to its historical evolution in the last century.
The creation of the large business organizations in the late 1800s and the beginning of
1900s led to the intensification regarding the appropriateness of the corporate actions.
Moreover, governments promoted o series of laws (e.g., the antitrust legislation) aiming at
controlling the power of big corporations. However, based on the corporate paternalism of the
nineteenth century, some business organizations developed industrial welfare programs in
order to provide education, health, and training to their employees. Also, the International
Labour Organization, founded in 1919, brought together government representatives, business
and trade unions leaders in order to find remedies to an unjust economic order. In the 1920s,
the ‘New Capitalism’ movement advocated the idea that business organizations should
voluntarily run their activities in a beneficial way to society.
The modern era of CSR started in the post World War II period when different
approaches to managing the business-society relationships were adopted. The Western
welfare states were concerned about finding and implementing solutions towards a more
equitable distribution of the benefits of economic growth.
Since the late 1950s, a plethora of ideas related to the CSR field emerged in the works
of H. R. Bowen, K. Davis, W. C. Frederick or A. B. Carroll. On the other hand, international
non-governmental organizations (e.g., Greenpeace), group of activists, and advocacy groups
raised different issues such as environmental protection, equality in the workplace, or racial
non-discrimination.
In the globalization era, several corporate scandals (e.g., Enron) were associated with
a culture of excessive corporate greed and, therefore, caused a growing deficit of trust in
businesses. The current financial and economic crisis also eroded public confidence in
business organizations. That is why, more than ever, business organizations have to devote
“substantial resources to various social initiatives, ranging from community outreach and
environmental protection, to socially responsible business practices” (Du, et al., 2010, p. 8).
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4. CONCLUSIONS AND IMPLICATIONS
Our paper shows that the evolution of CSR in the last century is connected with the
nature of the relationships between business organizations and society. CSR involves the
voluntary integration of social and environmental concerns into the business philosophy of a
company, and helps businesses to gain and/or regain public trust. In today’s socially
conscious market environment, CSR represents a valuable interface between business and
society. Our paper, limited by its aims and size, represents a starting point for a further larger
research related to the CSR evolution.
ACKNOWLEDGEMENTS
This paper is supported by the Sectorial Operational Programme Human Resources
Development (SOP HRD), financed from the European Social Fund and by the Romanian
Government under the contract number SOP HRD/89/1.5/S/62988.
REFERENCES
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Social Responsibility Across Europe. Berlin-Heidelberg: Springer, 2005.
12. Jenkins, R. “Globalization, Corporate Social Responsibility and poverty,”
International Affairs 81-3 (2005): 525-540.
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13. May, S., Cheney, G., and J. Roper (editors). The Debate over Corporate Social
Responsibility. New York: Oxford University Press, 2007.
14. McWilliams, A., Siegel, D. S., and P. M. Wright. “Corporate Social Responsibility:
Strategic Implications,” Journal of Management Studies 43-1 (2006): 1-18.
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and How to Build It,” Harvard Business School, Working Paper 12-088 (2012): 1-31.
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ACCOUNTANCY REFLECTION OF SOCIAL AND ENVIRONMENTAL
PERFORMANCE – RESULT OF SOCIAL RESPONSIBILITY POLICIES
Ungureanu Mihaela
“Alexandru Ioan Cuza” University of Iasi
ABSTRACT
The economic practice has shown that speculative businesses are leading to tensions
in relationship with social and natural environment, resulting in even endangering of the
continuity. Economic prosperity can not exist without respect and concern for people,
environment or community as a whole. Reporting social behavior of the company in a similar
annual reporting of financial matters, supports the establishment of a social report (corporate
social reporting) between the entity and the community to which it belongs.
This paper aims to present application of the social responsibility concept in modern
companies, by covering social and environmental costs and benefits in the traditional
accounting system. In this regard, is considered the opportunity of implementing two tools
recently introduced in the economic practice: social balance sheet and environmental balance
sheet. The paper also seeks their role in presenting the social and environmental performance
of an enterprise as a mitigating factor for economic performance and financial.
Specialized literature does not provide enough theoretical and practical information
on environmental and social impact of economic activities. Authors in the field have divided
opinions, there are not offered some clear solutions to the debated problems, so business
practice is proving reluctant and powerless to understand and manage social and
environmental aspects.
Key words: social responsibility, social balance sheet, environmental balance sheet,
costs, benefits.
1. INTRODUCTION
In the socio-economic climate, strongly influenced by phenomena such as
globalization, modernization business, financial markets and the opening work, a company no
longer belongs to its owners only, but to the entire community in which they operate.
Responsabilitatea socială reprezintă o abordare strategică, ce permite unei entităţi economice
să prevadă şi să rezolve problemele sale cu terţii, pentru succesul proiectelor lor. Astfel,
reputaţia devine un activ inestimabil care, deşi intangibil, trebuie administrat cu prudenţă.
The economic environment is increasingly intertwined with the social, so that the
performance of a company no longer refers only to the financial one, being also considered
the social and environmental ones. Nor can one speak of increasing organizational value
ignoring the interests of shareholders, employees, business partners, state etc. Given the
economic and competitive changes caused by the acceleration of globalization, companies
must remain competitive in the long term and quality of goods and services and maximize
short term profits are not sufficient conditions anymore. Socially-responsible behavior is
increasingly becoming a key success factor, since different companies on the market, being
preferred the ones which contribute to sustainable development. Not just business partners,
but also civil society expects from companies both high quality and measures to protect the
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environment by decreasing consumption of natural factors and reduce the volume of waste
discharged or obtain biodegradable.
This paper is based on studies offered by the literature about the concept of social
responsibility, through what means the relationship between companies and their social and
natural environment. In the context of the phenomena of globalization and
internationalization, are gaining concerns and pressures to preserve the natural environment
and quality of life. This is reflected in the number of articles and published studies, but which
fail to meet the practical requirements in this regard, so that the solutions implemented are
few and the results are far from those expected.
2. LITERATURE REVIEW
Literature captures various aspects of social responsibility concept, the authors treated
it for a more accurate definition and understanding. For example, Werther and Chandler
(2010) show that the concept of the company's social responsibility (Corporate Social
Responsibility) is relatively new in our language, although the U.S. system works nearly three
decades. They also stated that social responsibility implies that managerial decisions and
actions comply with certain standards in order to obtain favorable effects for all parties
involved in an entity. Also, the concept is characterized by a number of requirements that lead
to policy decisions of conduct consistent with the objectives, demands and values of society.
This view is shared also by Othman (2011) presents different moments of contemporary
history to demonstrate the need to implement policies of social responsibility and
development of this concept at the micro and macro. Thus, an important step is to ask the
companies to rethink their business strategies, bearing in mind their relationship with social
and natural environment, including economic impact.
Jasch (2010) believes that a more accurate assessment of the results is necessary for
further development of social responsibility activities. Performance evaluation of economic,
social and environment is also a prerequisite for developing appropriate CSR reports of
different audiences. Measurement of these three dimensions of corporate social responsibility
is known as the triple bottom line (TBL). The same author concludes that in order to have
some reliable and comparable results, some basic principles should be considered: motivation
matters and affects the measurement, the contribution must be charitable, otherwise it should
not be included, contribution to the cost to be assessed for the company and not to the price
that would otherwise be paid by the beneficiaries; clear objective of the project (what is trying
to achieve?) finally, how the world be better as a result of this project? As a last step is
presented the results to the general public and CSR initiatives. This is ignored by many
companies, especially SMEs, for various reasons such as lack of financial resources and time
and misunderstanding the importance of communication.
Caraiani et al. (2007) explains the concept of triple bottom line as a set of impact
analysis of actions on the natural environment, economy or the impact of technology. The
results are converted into corrective action based on feedback provided on the size of the
reporting sites. Some natural phenomens can not be estimated beyond analysis tools and
reports so these tools must be integrated over time both in the political environment and
business. Often though, these respective environments do not take all required reporting TBL
indicators and even tries to ignore or alter data. These behaviors begin, however, be regulated
by the feedback provided by stakeholders.
Approaching social responsibility and social relations, Hopwood and Unerman (2010)
use the concept of social capital which they define as a set of rules and values that determine
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the individuals to act collectively: solidarity, reciprocity, generosity, obedience to authority
are the cognitive skills or predispositions arising from membership of certain rules or values.
However, social capital approach as a sociological concept, associated concept of growth as
its presented by the author, can create strong confusions in the reader’s mind. Although CSR
has a growing role in the growth process for the professional accountant social capital is still
the funding source that expresses the concept of assets and business of an economic entity,
which derives from its shareholders or members.
Implementation of social policies, assumed by the company incurred expenditure
called social costs. Werther and Chandler (2010) present social costs as the main strategic
target of a CSR plan. Usually they occur when communities are compensated for damage
caused by the business. But they also are considering the externalities, when costs were not
yet internalized (damage to the surrounding communities, crops, water, etc.).
Merali (2010) presents the social costs and expenses that concern stakeholders. They
are related to: investors, creditors, of course, customers, governmental organizations or NGOs
in the field, etc. It is noted therefore that although the concept of CSR tends to be discussed
primarily in the private sector organizations, its principles are taken into account in the public
sector and NGOs. As a consequence appear terms such as “ethical”, “social responsibility”,
“public accountability”, “citizen-oriented” and others. According to both authors, to maintain
good relations with stakeholders, a company seeks to avoid unwanted conflicts on social and
environmental issues.
Burritt and Schaltegger (2010) describe the concept of sustainability by the fact that
economic activities should not be extended over the ability of total capital –including natural
– keeping a stock of capital is a safe measure to ensure sustainable increase in benefits. Given
these things can be said that the assessment costs of maintaining natural capital becomes more
necessary as a main feature of economic transformation is irreversible.
Ferreira et al. (2010) believes that organizations which produce social and
environmental reports (eg, sustainability reports) are able to develop better systems of internal
control that lead to the best decisions. It presents the opportunity to appear among the benefits
and savings resulting from continuous improvements in corporate image and better relations
with stakeholders.
Currently, the concept is used in a more complex and modernized form, under the
name of corporate social responsibility. Othman (2011) captures the fact that many companies
seem to neglect the importance of this sensitive area. This behavior is characteristic of family
firms in particular, which does not consider reporting CSR as an important direction to
enhance their reputation. The author advocates the need for regulatory efforts to support the
demarche to foster CSR reports and strategies as tools for managing a company's reputation.
3. PAPER CONTENT
OVERVIEW OF THE CONCEPT OF SOCIAL RESPONSIBILITY
To create a dynamic sustainable development, adapted to business needs in the context
of globalization, is widely recognized at European level, the necessity to clarify issues of
social responsibility in companies.
The concept of enterprise social responsibility (Corporate Social Responsibility) has
its origins in the United States since 1950, while in Europe its use is later, somewhere in the
early 80s. Father of this concept, Howard Bowen defines a number of obligations that lead to
policy decisions and guidelines of conduct consistent with the objectives and values of
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society. Organisation for Economic Cooperation and Development (OECD) deepens the
concept in terms of three aspects:
- first aspect is essential to the responsibilities of business functions (production, employment
and growth);
- the second includes expanded notion of responsibility, sensitive to society’s expectations
towards environmental issues, social relations or consumer information;
- the third takes into account the requirements for improving the social environment, such as
jobs for disadvantaged communities.
Evolution of the concept of social responsibility had as main effect the enterprise’s
need to meet the social pressures. That becomes more and more a prerequisite for a continous
work on a larger time horizon. Social responsibility is discussed in terms of two distinct
visions:
- American approach, which refers only to philanthropic actions not related to the economic
activities of the entity;
- European approach, which considers these actions outside the scope of CSR, defining this
concept as the voluntary integration of companies' social and environmental concerns in their
activities and relations with stakeholders.
Another notion that is operating in this area is the triple-bottom-line, according to
which sustainable development requires consideration of three aspects: the economic
(increased property company), the ecological (conservation) and the social one (equity to all
social groups).
Orientation towards social responsibility should be encouraged, not forgetting that that
sense of being of an enterprise, of a business is getting profit. Thus, any entity expects that
social policies and environmental benefits to outweigh the costs involved. However, few of
them really understand what these benefits. Most managers expect immediate gains in cash,
without realizing that short-term social benefits (reputation, strengthen relationships with
partners and employees, improving public image, etc.) turns in the long run, into economic
benefits.
REFLECTING SOCIAL COSTS AND BENEFITS INTO FIRM ACCOUNTING
Social costs are the main strategic target of a social responsibility policy implemented
by a company, having the role of a compensation to the community when there are some
damages caused to it. In the same category are to be found also the costs of other
stakeholders: investors, creditors, customers, suppliers, employees, etc.
Among the main social costs can be listed those with safety and health. The
importance of this issue has increased in recent years, both social and economic reasons.
Work accidents transfer responsibility over employees but also over the enterprise. Accidents
costs and benefits of prevention activities, illustrates the diversity of financial gains and
losses, being required a social and economic evaluation for such events. The determinant
factors of social costs are identified according purpose of assessing, the possibilities of the
entity to collect an appropriate amount of data, its economic activity, interests of stakeholders
etc. When, following the accident, the victim fully recovers, having a limited period of
incapacity, costs can be expressed more easily. At enterprise level, these costs are determined
by the immediate effects on health of employees involved, but also on the production
interruptions. It thus appears that prevention activity determines not only a reduction of
potential damage but also a technological modernization.
Consumption and production decisions of an entity is generally based on the costs and
benefits for it. Some decisions generate costs and benefits also for other businesses. Thus,
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shall be distinguished between private values and social values. In the same way it is possible
to distinguish private costs and benefits (generated for an entity by an activity undertaken by
it) of social costs and benefits (generated for other economic entities or community). Private
benefits can take the form of income when the company conducts its activities to maximize
profit or satisfaction, while the work is focused on customer needs. Social benefits can be
exemplified in different ways: when an entity that uses in its activities heavy machines paves
the access roads to headquarters or branch offices, it gets a private benefit, by a physical
protection and an easy access for the machines. The private benefit, along with reducing
pollution and protecting the health of people living or working nearby constitute the social
benefit. Speaking of costs, usually the social ones generated by an economic activity are
higher then the private ones, due the drawbacks caused to the natural environment.
Analysis from private and social costs and benefits is based on the concept of
externality. This means that the activity of an agent A brings services or disservices to an
agent B, but the first does not consider these issues in its decisions related to such activity.
Agent A will direct its attention to the problems caused by agent B, if it will require
compensation. In both cases agent A has internalized its activities’ benefits and costs and
externalities occur when the costs or social benefits are higher than the private ones, resulting
in that way negative externalities, respectively positive.
SOCIAL BALANCE SHEET – MODERN ACCOUNTING TOOL
Enterprise represented and will represent, especially on free markets, a conflictual are
in a lesser or greater degree. Conflicts can be regarded as normal phenomenas and even
desirable, to a certain point, as a progress factor. Social responsibility constitutes also a
subject that arouses fierce controversy between a firm and the external environment, but also
the internal one. Interpretation of the same economic results differs for social policies
implemented for those involved. For example, shareholders appreciate a dynamic social
policy, with favorable implications in medium and long term on the enterprise’s economic
and financial performances.
Worldwide is recognized a tool to promote the amelioration of these conflicts: social
balance sheet. Social balance sheet comprises two parts: an assertion of social policy,
objectives and measures for their implementation and a report on the adjusted value obtained
by the entity and its distribution on the national economy.
The “balance” term does not make of this report what it means an accounting balance
sheet. Social balance sheet represents a document prepared as a panel that contains a number
of information exclusively quantitative expressing the social status and working conditions of
the enterprise. So, it can be understood as an inventory, a statement, similar to a health check.
Acceptance of such a method of presenting social data was performed for the first time in
1977, in France. So, it was created a new social dialogue in the company, based on objective
indicators, which remain constant each year. Currently, the complexity of social problems
involved in economic activities makes that the development of this balance sheet to involve a
broader range of indicators and actors within the company. Thus, management control is
essential in making preparation of social balance. In this regard, is neccesary to divid the
related indicators into structural indicators, which express the patrimonial situation at some
time (eg. number of employees) and performance indicators, showing recorded variations (eg.
Promoted employees). Through their analysis can drawn conclusions on the measures taken
by the entity. For example, if 50-60% of employees were aware, by conducting special
courses, on the need of health and work safety compliance, about risks of work accidents and
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if the rate of the latters decreased by 10-15% it may be considered that there is a profitable
relationship between the action taken and result achieved.
By adding the social balance sheet data, the effect of the efforts made by the entity can
be translated as a reconciliation between result indicators and resource indicators (eg. the
impact of increased security spending to the rate of work accidents or the effect of training
costs on raising qualification level). However, the link between resources used and result
achieved is not always easy to determine: how to interpret, for example, finding low levels of
pay or insufficient recruitment, on the one hand, and financial difficulties on the other hand?
The use of social balance sheet may differ, depending on its role and purpose. So, it may take
the form of:
• information tool, when acting in environments in which is done the dissemination of its
information. Advantages of a wide dissemination are limited of the abstract of presented
numbers, the absence of comments, so a prerequisite is the holding of financial and
accounting knowledge to understand and interpret the content of indicators and the
method of analysis. Without regard to prospective the social balance sheet is an
incomplete information tool – not presenting the projects on staffing change etc. – and
does not define the strategy of the company, instead, provides elements of social policy
evaluation, contributing to social diagnosis of the entity;
• settling conflicts tool, in that it satisfies the need for accurate social information and
facilitates the establishment of agreements between different stakeholders;
• social management tool, providing a diagnostic of strengths and weaknesses of the
social subsystem of the enterprise. Remedial measures are then integrated into a
comprehensive social planning and management.
Social balance sheet provides the basis for a social rating that allows the risk assessment
by investors and, by its discriminatory nature, is probably to operate a differentiation of
firms.
Accounting is proving unable to translate in terms of costs a social malfunction, such as
the absence of a worker, or the lack of motivation of staff. Absences, failure to
technological specifications of equipments or to product quality, are increasing, in a
inefficient way, the production cost.
MEASURING ECONOMIC PERFORMANCE THROUGH COST AND
ENVIRONMENTAL BENEFITS
Over the last century, characterized by industrialization, thick smoke and
contaminated water were regarded as a necessary evil and even as a confirmation of the
industrial activities’ success. Nowadays, civil society demands protection for natural
environment by reducing pollution and conserving natural resources. For this purpose are
made more and more sustainable development policies, eco-efficiency, for environmental
information dissemination. Awareness of these problems is not a topic featured locally or
regionally, but globally. It might even say that, in fact, environmental problems are first
expressed globally through the voice of some NGOs and associations working in this field, to
then try assuming them on a regional and national levels. Environmental protection expresses
all the actions taken under internal and external regulations of the company, whether
voluntary or compulsory. Compliance criterion is not an economical one, but is intended to
prevent or reduce environmental impact.
Environmental cost is an economic category universally accepted and represents that
part of the resources uses that offsets consumption of raw materials and labor force to obtain
an environmental service. It expresses in value terms all the factors consumed in the
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production of environmental services and consists of the expenditure incurred by the
manufacturer. Identification and recognition of environmental costs are significant in making
good management decisions. So, it can be exemplified as environmental costs:
costs of alignment with the environmental legislative requirements;
costs for environmental remediation, pollution control equipment, non-compliance
fines;
other costs related to environmental protection activities, even if they are not explicitly
required by applicable law.
There are cases when it is difficult to separate the environmental costs of those for
health and safety or risk management. Here can be considered the cost of “clean”
technologies, the cost of monitoring the categories of raw materials and suppliers etc.
Costs caused by the economic impact on the natural environment, include
environmental protection costs and charges for passing. The first can be separated into
prevention costs and restoration costs and those for passing in avoidance costs and treatment
costs.
An environmental accounting may more accurately reflect the impact of human
activities on nature and the environment has value only to the extent that people appreciate the
operating results of its resources. So, current serious problems such as depletion of deposits of
oil or disappearance of forest cover, could be even partially resolved through a more effective
use of these resources by traditional accounting. An evaluation of resource efficiency in the
future can solve current environmental problems.
Rules governing these aspects favor internationalization of additional environmental
costs. Costs must be known by companies so that they meet environmental standards, to
comply with monitoring costs and reducing pollution, as well as the documents and reports
required. Entities need to understand the potential monetary rewards gained by implementing
environmental performance, having an important role in this respect, the work of professional
accountants. They can influence management decisions, may propose to implement economic
policy that take into account the environmental damage from the use or natural resources.
Economic activities should aim to reduce costs and waste, both natural and financial
resources.
Implementation of environmental performance in large companies led to identification
of products and services required to implement green business, the possibility of adapting to
environmental changes and maintaining good relations with donors, local communities etc.
Organization which effectively monitors environmental pressures, being concerned with costs
and benefits, require various types of expertise: technical, environmental, financial,
accounting, marketing, management. Professional accountants have again a significant
contribution, because they have access to internal information, can check their level of quality
and they can use them in the investment decisions.
If activities and resources employed can be measured by costs, then the costs and
benefits of environmental problems managing are more easily perceived by managers.
The most common environmental impact induced costs are related to raw materials affecting
the natural environment, to fines, penalties, waste products etc. Generated obligations are
related to costs incurred by remediation of some affected sites and damages caused by
disputes about the environmental impact. These obligations may be of a fiscal nature, such
expenses for carbon dioxide emissions (emission taxes), while using green technologies
generates tax revenue.
One can also speak about environmental assets, which according to standards are
included in the category of tangible or intangible assets and environmental liabilities. These
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are obligations that require future payments due to past events or to compensation of a third
party injured by environmental damages and may be employed or possible. In the financial
statements shall be accounted any environmental objective that has as result operations
involving other parties or current or future financial obligations involve known and estimable.
Environmental assets and liabilities are usually integrated into accounting posts, legal norms
do not require separate presentation excepting those elements which must be reflected
separately in the notes.
Accounting regards environmental issues from two perspectives:
- functionalist approach, which ignores environmental issues in the accounting process,
excluding natural resources or any others that can not be reliably measured. So, people are
considered more important than nature, and also the profits made more important than
invested capital, tangible assets more important than the intangible ones;
- green approach, reflects the concerns of the environmental protection in the accounting
process.
Financial accounting theory does not recognize the environmental costs as part of
production and management of an enterprise, so they are not recorded in specific accounts,
but are considered overhead costs. So, there is a tendency for their separation of products,
processes or activities which cause them.
ENVIRONMENTAL BALANCE SHEET – TOOL FOR INFORMING AND
AWARENESS RAISING ON SUSTAINABILITY
In most developed countries, companies carrying out activities with impact on the
natural environment must obtain operating permits from various authorities in the field.
Usually, obtaining this approval is preceded by elaboration of a environmental balance sheet.
It represents a continuous improvement tool which provides the image, at a certain time, of
reality on the impact of economic activities on environment and sustainable development and
environmental performance achievied by a company.
Environmental balance has some similarities with the social one, firstly by definition,
both are monitoring tools which provide the opportunity to intervene for correcting
weaknesses. Secondly, again the term of “balance” can be misleading. This is not an
assessment in the accounting sense, a tabel which reflects, in a parallel way, the amount of
existing resources and consumption recorded, trying to maintain a balance. As the social one,
environmental balance sheet is a report actually showing present or future impact of an
enterprise activity on natural environment. Depending on the nature and size of business,
environmental balance sheet may take various forms:
– a simple characterization of the activity sheet;
– an extensive study, an analysis of available information on environmental conditions and
economic activities conducted on a particular location;
– a study accompanied by technical investigations by sampling of water, air, soil and various
measurements of the site.
Generally, an environmental balance sheet includes items related to:
description of the natural site of activity;
- identification of potential pollution factors, with the implementation of pollution scenarios
confirmed or denied by special measurements (research of soil, water etc.);
- emergency safety measures already implemented or planned for the future;
- monitoring the impact of harvesting site, including a preservation program;
determining the residual risks, by creating a conceptual scheme that site.
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Elaboration of such a balance sheet is based on environmental indicators used in
environmental reporting. The OECD framework presents three types of indicators:
- “pressure indicators” that highlights the economic activities and social pressures on the
environment and presents the causes of environmental problems (eg industrial production,
energy consumption, waste produced);
- “status indicators” emphasizes physical changes or developments in the environment (eg. air
quality, concentration of nitrites)
- “response indicators” showing the efforts made by a company to improve its environmental
degradation or decrease (eg expenses for alternative energy, protection costs, recycling costs,
penalties, fines.
An environmental assessment may be required also for reorganization or liquidation of
a company whose activities have an impact on the environment, in addition to the balance
sheet and, where appropriate, of the social one. It is made either at the request of the manager,
investors or to the syndic judge’s request, if necessary.
Managers, shareholders as well as other stakeholders, to which the company has a
certain social responsibility, acquire, through the accounting system, information on the
effects of economic growth on environmental opportunities. Ideally, all what means the
impact of an entity on community and natural environment should be presented in a separate
accounting system. In practice, only a small part of the externalities are internalized,
voluntarily or by coercion rules. Without this information, decision making system can not
operate in a consistent manner in the conduct of business and capital management. Worse
than the absence of an item is the erroneous internalization of which may directly affect the
economic performance indicators.
So, one can speak about a conventional accounting like an informational system, with
the aim of measurement, in a performant manner, of past economic events and to document
the current economic performance.
CONCLUSIONS AND IMPLICATIONS
A rigorous strategy to internalize the externalities related to social and environmental
impact of an economic entity, results in obtaining economic and environmental benefits to the
entity (direct interest), but also for interested parties (indirect interest). Internalisation of
social and environmental costs directly affects the current result (economic, social or
environmental) cost by determining present costs and future obligations.
Desire of a direct and immediate earning ignores the possibility of a future benefit of
business and economic sustainability, social and environmental. Current techniques of
organizational governance indicates serious concerns about the medium and long term
strategies.
It is expected from the companies quality products and services, and measures directed
towards social needs and environmental protection, such as a rational use of natural factors,
but also a low impact achieved by reducing the volume of waste discharged or production of
biodegradable waste.
Tools like managerial or environmental accounting are useful for identifying
environmental externalities to be treated as current income, through internalization or
conversion into future liabilities.
Cost-benefit analysis are methods to determine the indicators of social and
environmental performance, parameters increasingly required, both of internal and external
environment of the company, to have better relationships with those involved in its activities
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(employees, suppliers, creditors etc.) and civil society (community in which them operate and
the general public).
REFERENCES
1. Burritt, Larson and Schaltegger, Stefan. “Sustainability accounting and reporting: fad or
trend?”, Accounting, Auditing & Accountability Journal, Volume 23 Issue 7 – Latest Issue
(2010): 829-846, http://www.emeraldinsight.com/0951-3574.htm (accessed April 7, 2012).
2. Caraiani, Chiraţa et al. “Triple Bottom Line Reporting (TBL). Vision and strategy by
accounting for socio-economic and environmental”, Review accounting, auditing and
business expertise, no. 9 (2007): 39-42.
3. Colasse, Bernard, Enciclopédie de Comptabilité, Contrôle de Gestion et Audit, Paris:
Editions Economica, 2009: 403-426.
4. Ferreira, Lourdes et al. “Environmental management accounting and innovation: an
exploratory analysis”, Accounting, Auditing & Accountability Journal, Volume 23 issue 7
(2010): 920-948, http://www.emeraldinsight.com/0951-3574.htm (accessed March 12,
2012).
5. Hopwood, Anthony and Unerman, Jeffrey, Accounting for Sustainability: Practical
Insights, London: Earthscan, 2010: 48-61.
6. Jasch, C., Environmental and Material Flow Cost Accounting: Principles and Procedures,
New York: Springer, 2010: 72-83.
7. Merali, Faruk. “Does the explicit recognition of the commitment and contribution of staff
within an organisation’s CSR strategy matter?”, Social Responsibility Journal, Volume 6,
No. 4, 2010: 492-509, http://www.emeraldinsight.com/reprints (accessed April 9, 2012).
8. Othman, Suaini. et al. “The influence of coercive isomorphism on corporate social
responsibility reporting and reputation”, Social Responsibility Journal, Volume 7, issue 1
(2011): 119-135, http://www.emeraldinsight.com/journals.htm (accessed March 23, 2012).
9. Werther, William and Chandler, David, Strategic Corporate Social Responsibility:
Stakeholders in a Global Environment, U.S.A: SAGE, 2010: 89-103.
AKNOWLEDGEMENTS:
This work was supported by the the European Social Fund in Romania, under the
responsibility of the Managing Authority for the Sectoral Operational Programme for Human
Resources Development 2007-2013 [grant POSDRU/CPP 107/DMI 1.5/S/78342].
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THE ROLE OF INTERNAL CONTROL IN AN ENTITY’S RELATIONSHIPS WITH
ITS TRADING PARTNERS
Ungureanu Mihaela
“Alexandru Ioan Cuza” University of Iasi
ABSTRACT
The primary objective of a firm is maximizing its value through carried out activities.
Their success is conditioned by the interaction with factors present on the market, of which
most important are: dealing with current competitors, danger of the future ones, the
bargaining power of customers and providers. Long-term relationships with trading partners
are characterized mainly by providing accurate and timely information on economic
transactions, rights and obligations, which demonstrates the degree of seriousness of an
entity. Another necessary condition is that the disseminated information to be not only
accurate, but also complete. Thus, the internal control system have to ensure quality of
bookkeeping and make so that all items to be taken into account during their processing.
This paper aims to show how internal control acts to verify commercial settlements
and also its role in managing risks. By its specific techniques, internal control of settlements
with trading partners tries to correct or even prevent possible errors, thus ensuring
continuous commercial relationships of an entity.
Key words: internal control, trading partners, accountancy, settlements.
1. INTRODUCTION
Premise, and consequence of the need for accounting, the control constitutes the
measure through which are seeked uniform accounts, and therefore, correct results. So, from
ancient times until today, financial control has an undisputed importance, specific techniques
being developed over time by different institutions and public authorities, but also some
professional organisms. Currently, the most valuable good of accounting is the information.
Thus, an accurate and efficient accountancy is based on transparency and comparability. The
internal control activity is allowing entities to verify or certify all measures based on accounts
in order to monitor the preservation of property, capital, and also reliability, relevance and
quality of accounting entries underlying the development of summary financial statements.
In the market economy conditions the results of any enterprise are conditioned by
effective commercial settlements. These settlements are an important part in the normal
course of doing business transactions, ensuring minimization of insolvency risk, promoting
modern techniques of settlement, contributing to solve internal problems and efficient conduct
of activities. In this context, the role of internal control significantly increases in operational
decisions on long term, because information about the commercial settlements are provided
by accounting and confirmed by the control approach.
Without the existence of control activities, the management of a company could not
implement the necessary policies to achieve the objectives for more efficient economic
activities, which includes protecting assets, identifying existing errors and frauds and the
prevention of the potential ones. These achievements can only be obtained based on some
accurate and complete accounting information, conditioned by the accuracy and reality of the
technical process of informational and accounting system. Credibility and reliability of
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information provided depend on the internal controls reasonably designed and correctly
implemented.
So that, the need for internal control is increasingly felt within the companies that
promote, and request their responsibilities to stakeholders and the community. In this respect,
the entity is not satisfied to wait for an external control, but initiates, whenever necessary, an
internal control, to identify and solve anomalies of the activities, or to prevent the potential
ones.
This paper is based on articles and studies from international and national literature of
internal control field. There are contradictory opinions on the same theoretical or practical
construct divergences which most often fail to provide the answers sought by the economic
environment. The multitude existing articles are causing enough confusion, precisely through
different interpretations, some even erroneous, of the same ideas or concepts. A viable
solution of information is represented by legal regulations in this area, but these require an
assertion of interpretation and manner of application, so that the literature remains a constant
neccesary source both for theorists and practitioners. Presently, are however noted theorists
who seek to offer empirical studies, relevant solutions to the practitioners for the problems of
this complex domain.
2. LITERATURE REVIEW
Specialized literature provides two meanings of the concept of internal control. Thus,
in the French meaning the control represents a check, a careful inspection of the correctness
of an act. The Anglo-Saxon meaning defines control like the action of surveillance of
someone, of something, a thorough examination or power to lead as a instrument for
regulating a mechanism.
Tackett et. al (2006) notes that the most common meaning associated control
verification is frequently associated with the activity of knowledge management enabling
enittăţii coordinating activities in a more economical and efficient manner. The same opinion
I shared also by Zolnor (2009), who shows that the business practice has demonstrated that
control is an attribute of management, a means of analyzing the reality and correcting errors.
Bierstaker (2006) emphasizes, in addition to the above idea that, in terms of its mission,
control is an intrinsic part of management, but also a specifically human activity, which
serves as driving, parties/business partners and authorities public and even population. The
control has evolved and evolves by improving organizational and management systems and
the environment in which work and which, in turn, is in constant moving.
Several authors of the literature highlights two approaches on how to carry out the
internal control in general, and control of commercial settlements, in particular: the
departments and activity cycles. It is considered that the second variant is more practical and
rational, because allows for control procedures by carrying out some tests on commercial
transactions, but also by applying them on the balances of receivable and payable accounts,
with reciprocal links.
Florea et. al (2008) includes in the category of economic partners of a company those
economic entities primarily engaged in transactions as purchases or sales, generating debt or
debts to suppliers, respectively customers. Typically, such rights or obligations are based on
contracts or concluded orders, accompanied by various documents. Supporting documents are
basic for internal control processes. Especially the control of commercial settlement can not
be achieved without the existence of these documents.
In terms of actual deployment of control, Toma (2007) underlines as essential elements:
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- control environment, characterized by the general attitude and actions taken by company
management to control system and related procedures;
- control procedures established and applied in order to achieve management objectives.
Leitch (2008) reveals that this form of control is unusual, particularly by the need of
adapting to the specificity of each undertaking separately. Thus, developing good internal
control requires that, at the same time to exist:
- a hierarchical organizational structure and delimited to ensure the allocation of tasks and
supervision their deployment;
- a manual of procedures, work instructions and internal rules;
- an appropriate information system.
Given the internal control of settlements with economic partners, the literature
differently defines concepts as settlement, trade effect, trade receivables, trade payables. It is
considered that their approach in terms of accountancy, through established regulations,
eliminates users’ ambiguities.
Hightower (2009) considers that in international accounting practice, but also in the
autochthonous one, there isn’t a clear distinction between commercial receivable positions
and financial instruments, which presents different assertions in financial reporting. Aspects
of recognition and valuation of receivables and payables are different approached in the
literature and are poorly regulated in terms of legislation. Large enterprises, with a
considerable number of customers and suppliers do not comply with proper methodology
reflecting economic operations in the receivable and payable accounts, which are used as
interim accounts for the accountancy of cash flow transactions.
The literature provides a varied classification of commercial settlements, which are
based on different criteria: the payment time, place, payment technique. Each of these
classifications has certain advantages and disadvantages, but none of them can be applied
directly to local firms.
Domestic enterprises practice, for recording trade receivables and payables, different
registers – one for fiscal purposes and one for accountancy. This leads to an unjustified
duplication of information and an increased volume of accountancy work. In addition,
methodological difficulties can be encountered in accounting practice on the registration of
the differences amounts arising from transactions in conventional units with local residents.
3. PAPER CONTENT
INTERNAL CONTROL BETWEEN THEORY AND PRACTICE
The concepts of internal control and internal audit, although different, have some
elements that approach them and others that set them apart, which create confusion.
The economic crisis of 1929 had important effects on the accounting profession by
organizing Cabinets of Internal Audit, thus being defined two types of auditors: external and
internal. Only in the ’60s and ’70s, the French Order of Chartered Accountants, has
established and defined the concept of internal control as all measures that contribute to
control owning on the company in order to ensure heritage protection and information quality
and, on the other part to apply the management instructions for improving performances.
In 1978, American Institute of Certified Public Accountants considered that internal
control consists of organization plans and all methods and procedures adopted within an
enterprise to protect its assets, to control the accuracy of information provided by accounting,
to increase the efficiency and to ensure the application of management instructions.
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In 1990, U.S. consulting and auditing company KPMG (entered the Romanian market
in 1994), highlighted two essential features of information: it is based on financial indicators;
it is focused on internal comparisons and analysis. Certification of certain correct reports is
made by auditors, those experts from the entity's external environment. Internal intervention
plays a key role in monitoring internal entity’s accounts. A responsible management, both to
material assets and human component of the company, respectively employees, investors and
business partners.
Currently, in accordance with new regulations and accounting modernization at the
European level, the sense of the internal control concept represents all the rules, procedures
and methods by which people in charge within the company pursue the held economic events.
At the same time, it becomes an object of internal audit and an external audit tool. Internal
control is defined as all security activities that conserve, maintain and improve business
performance. Its aim is, on the one hand, ensuring protection, material integrity and certainty
of quality information and, on the other hand, ensuring the quality of practices of application
and motivation of the instructions given by the management to promote a continuous
improvement of the performance.
The overall objectives of internal control activities can be summarized as follows:
- achieving, at an appropriate level of quality, the duties of public institutions, established in
accordance with their mission, in terms of regularity, effectiveness, efficiency and
effectiveness;
- protecting public funds against losses due to error, waste, abuse or fraud;
- respecting law, regulations and management decisions;
- developing and maintaining systems for collecting, storing, processing, updating and
dissemination of data and financial information and management, as well as systems and
adequate procedures for public information through regular reports.
In relation to the company's accounting system, internal control activities have some
specific goals needed to be done to achieve the best results. These objectives are:
- all economic transactions are authorized by company management;
- all transactions are properly recorded as the sum and appropriate accounts in proper
accounting period so that financial statements to be prepared in accordance with an identified
financial reporting framework;
- access to documents and entries to be allowed with the management agreement, assets
entities are compared with existing assets at specified intervals, and any differences found to
be analyzed and to take necessary measures.
Internal control, as a tool to assist and and guide decision makers of the company, aims
mainly:
• checking compliance with the policies of the entity, its programs and management in
accordance with the legal provisions;
• evaluating the appropriateness and application of financial and nonfinancial controls
arranged and performed by management to increase effectiveness of the activities;
• evaluating the appropriateness of financial and non-financial data/information for the
management to know the internal reality;
• protecting property and off balance sheet items and identifying methods to prevent fraud and
losses of any kind.
At the same time, the control is a continuous surveillance moral and material, as well as
mastering a task, a situation.
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INTERNAL CONTROL OVER SETTLEMENTS WITH TRADING
PARTNERS
The only way for reaching a sustainable quality is to have reliable processes. The
client assess the reliability of his provider’s processes to be sure of its ability to maintain
quality over time. Managers of the modern companies have evaluation grids that allow
enabling auditing their suppliers ability to deliver products of adequate quality. But the
supplier may be subject to audits according to the number of customers. The need for a
common language between partners has led to ISO 9000 standards as a basis for quality
assurance insofar as they are agreed both by suppliers and customers.
Placing in the forefront of assessing the effectiveness and development the business
improvement for the customer at all levels of the company, requires a quality system for
measuring performance, because, ultimately, the success of products is reflected in the
number of customers attracted, and those retained.
Internal control of commercial settlement is made in order to certify the veracity of
information on claims and liabilities arising from relationships with business partners. In this
way, various users of information can be sure of a real image of the entity in connection with
suppliers or customers, reliability of information being the essential condition for an effective
decision making. Accounts of receivable and payable are of particular importance in financial
reporting, especially when trade takes place mainly on credit.
Given the economic transactions with various partners, the role of internal control has
the following issues:
• compliance with internal decisions and legal regulations on transactions and economic
events in relationship with other organizations;
• optimal and efficient use of resources, protection of assets by preventing and detecting
irregularities, errors and fraud;
• conducting accurate and complete accounting records, systematization and presentation of
information required by different categories of users of financial statements in accordance
with an accounting referential adopted.
IAS recommend confirmation of trade receivables under normal circumstances, there
exists the possibility of excluding confirmed trade receivables in the following cases:
- claims are insignificant;
- controller considers that the evidence provided by confirmations are not effective, because
the answers may be inadequate or unreliable;
- combined level of inherent risk and control is small, so that samples can be taken further.
In order to assess the qualitative aspects of fair solds of receivable and payable accounts, is
recommended making their confirmation in three steps: 1) planning requests for confirmation,
2) processing requests for confirmation, 3) generalization and assessing results.
Unlike the control of trade receivables, for debts are apply procedures to detect items
not recorded because they tend to underestimate. If differences are found, is a documentary
check for each supplier. In this way you can find reasons such as accounting errors or fraud
attempts. However, differences may arise due to stock in transit, the chronological gaps in
processing accounting data. Each amount must be analyzed in terms of case occurrence, age
and payment reality. Be noted that statistical survey is less used than in the control of
commercial debt claims, because it is more difficult to define and determine sample size.
Because the focus is on debt omitted it is considered important that the sample to include
potential liabilities.
An important internal control procedure confirms completeness debt, is the detection
of unrecorded ones. The main technique applied aims the examination of purchases and
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payments made before and after balance sheet date. Control tests enables controller to
analyze:
- organizational measures, noting whether responsibilities for recording transactions are
strictly determined by internal decisions and how they are met;
- competence and integrity of personnel - check that controls are performed hierarchical and
reciprocal, but also the way of preparation, processing and archiving data in the enterprise
accounting system.
Forms of control are exercised, according to the realization time, or pursued aim:
• preventive actions and forecasting: predicting events - management control;
• predicting behaviors, setting rules and procedures - internal control;
• by evaluation of actions and their results: in optical regularity - internal audit;
• in economical optic of effectiveness and efficiency - management control.
Existence of management control allows modeling, forecasting, restoring proper performance
of actions to obtain reliable information, condition for a proper foundation of operational
decisions.
SPECIAL FEATURES IN ROMANIAN COMPANIES
Speeding transactions between enterprise has conditioned diversification of trade
settlement applied in recent years. On the international, settlements take the form of
commercial effects, compensation operations, electronic and on-line settlements which are
quickly and entering into our country. Information on trade settlements are provided by
accounting, which has the prodigious task of collecting, processing and disclosure them to all
users.
It was found that, in Romania, the internal control of commercial settlement does not
fully correspond to information requirements, as in most companies the control is performed
by departments, which considerably increases the workload of the controller, decreasing the
efficiency of this approach and does not allow confirmation of certain financial information.
To achieve a more effective control, it requires a most judicious selection of tests, using the
most relevant ones and requires a verification on activity cycles of the enterprise.
Confirmation represents the most important test of trade receivables balances.
Confirmation procedures provide convincing evidence of the existence and accuracy of
balances, but are insufficient in terms of fullness aspect. The importance and need for requests
to confirmation of balances is reflected in the desire to meet targets for qualitative aspects
such as the existence and accuracy of claims. Controllers can perform procedures to confirm
the claims as detailed test procedures, according to a well organized plan. In this context, can
also be applied other complementary procedures: testing the internal control, using analytical
procedures, verification procedures of how the recognition of revenue etc.
The approach of internal control of settlements with economic partners, specifically of
the audit process is achieved by direct control of the accounts of customers and suppliers,
respectively the operations of sale and acquisition, of debts and liabilities. Direct control
compares the annual accounts figures supporting various elements that will serve as evidence:
notary documents, purchase invoices, bank statements, etc.. It helps to justify each amount by
an accounting document or other item of evidence. According to International Auditing
Standards, the mission of the controller of accounts is to obtain test samples by combining
different forms of control procedure.
The control techniques are reflected in:
- control over the supporting components and likelihood control;
- physical observation;
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- analytical examination.
Among the general objectives pursued in auditing the accounts of customers and
suppliers, respectively receivable and payable can be specified as follows:
• completeness/integrity, requires that all operations relating to the company to be accounted;
• the reality, all information presented in the accounts may be justified and verified;
• correct data accountancy and disclosure in underlying accounts.
Control of settlements with business partners seeks compliance with the methodology
of accurate reflection of the economic operations into entity's accounting system. Domestic
enterprises keep such records in different registers, for fiscal purposes and accounting ones.
Thus, difficulties arise from differences in recording transactions in conventional units with
local residents. In most times, in terms of commercial debts, control is performed on sections,
the workload being useless increased, without a reliable confirmation of the information
analyzed.
In general, such a control aims as economic operations related to be:
• accounted for the same period, according to the independence of exercises;
• properly evaluated, the amounts to be well defined, to comply with all rules and accounting
principles as well as valuation methods;
• registered in the appropriate accounts;
• properly totalized, centralized, so that a presentation be provided in the annual accounts
according to the existing rules.
Settlements with business partners can be found in accounts of the cycle of
exploitation and the specific objectives of control of these accounts, explicitly refer to:
- reality of debts and claims and their correct accounting;
- causes and justifications for late payment;
- examination of old balances and those that seem too large;
- including all balances;
- existence in the account balance of the still unpaid purchases only.
Audit activities and samples involved in the control of the accounts can be presented
as follows:
- achieving a brief situation for each account;
- reconciliation balances from analitical accounts with total synthetic accounts and analytical
trial balances;
- verification of amounts paid/received, the initial and final balances from analytical balances;
- observance of the independence testing exercises. Any errors in violation of this principle
directly affect the balance sheet, and profit;
- verification of a correct calculation of solds on contracts of purchase or leasing.
When a financial inspector investigates a company, he usually begins by assessing
strengths and weaknesses of the internal control to identify risks and to guide its search
(respecting the principle of separation of functions); if enforced no permanent inventory
procedure, stocks featured in the balance sheet value is less credible and possible confiscation
of stock are hard to control; if sales are madewithout invoices or bills are not numbered, it is a
risk of failure to declare sales for tax evasion.
CONCLUSIONS AND IMPLICATIONS
Definitions of internal control are numerous, using concepts such as device, means,
process, system, but are not essentially contradictory. All of them specify that internal control
does not require a single function, but a set of functions implemented at all levels of the entity
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to monitor activities as well as possible. A better control over activities aiming to achieve the
objectives set, means first of all risk management.
Meanwhile, practice has proved that there is no ideal form of internal control, safe
from harm, financial scandals of recent years clearly showing a loss of control of the entity
management on its collaborators, and also of the shareholders on the management. Internal
control participates to achieve an overall goal, represented by business continuity in case of
achieving its strategies, which can be divided into specific objectives.
Is not enough that information to be good, it is necessary that its accuracy can be checked. So,
any internal control must be provided with a system of evidence to offer a guarantee or a
certain justification.
Providing an effective evidence system of transactions and settlement with trading
partners, but also a fair view of the situation concerning commercial activities of an entity,
represents a success factor in maintaining the relationships with existing business partners and
attracting new ones. Since without trading partners, disappears the sense of being of an
enterprise, it should be the first interested in ensuring some fair transactions, through a more
effectively system of internal control, promoting a responsible behavior in this regard.
REFERENCES
1. Bierstaker, James and Thibodeau, Jay, The effect of format and experience on internal
control evaluation, Managerial Auditing Journal, Volume 21, Issue 9 (2006): 877-891.
2. Florea, Ioan, Florea, Radu, Macovei, Corina, Berheci, Maria, Introducere în expertiza
contabilă şi auditul financiar, ediţia a II-a, Bucureşti: CECCAR, 2008: 73-91.
3. Hightower, Rose, Internal Controls Policies and Procedures, New Jersey: Wiley, 2009: 37-
56.
4. Ittonen, Kim, “Investor reactions to disclosures of material internal control weaknesses”,
Managerial Auditing Journal, Volume 25, Issue 3 (2010): 259-268.
5. Leitch, Matthew, Intelligent Internal Control and Risk Management, England: Gower,
2008: 101-127.
6. Tackett, James, Wolf, Fran, Claypool, Gregory, “Internal control under Sarbanes-Oxley: a
critical examination”, Managerial Auditing Journal, Volume 21, Issue 3 (2006): 317-323.
7. Toma, Marin, Iniţiere în auditul situaţiilor financiare ale unei entităţi, ediţia a II-a,
Bucureşti: CECCAR, 2007: 52-67.
8. Zolnor, Matthew, “Internal control reporting regulation: a law and economics perspective”,
Journal of Investment Compliance, Volume 10, Issue 2 (2009): 54-66.
AKNOWLEDGEMENTS:
This work was supported by the the European Social Fund in Romania, under the
responsibility of the Managing Authority for the Sectoral Operational Programme for Human
Resources Development 2007-2013 [grant POSDRU/CPP 107/DMI 1.5/S/78342].
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RISK PERCEPTION IN INVESTMENT DECISION MAKING
Virlics Agnes
“Lucian Blaga” University, Sibiu, Romania
ABSTRACT:
The aim of the paper is to show that psychological factors play an important role in
investor’s risk perception and in the whole process of investment decision making. Risk
perception is subjective. The investor’s decision is based on the results of the complex
investigation of the potential investment and its risks and this investigation is guided by the
effects of the psychological factors.
Key words: risk perception, decision making, investment
1. INTRODUCTION:
Risk exists by itself as a factor in investment processes, but in an investment decision
risk exists conform how that is percept by the investors. To understand and study the
investment decision processes and how is decided that an investment will be made or not, the
investors perception of risks should be understood and analyzed. Risk exists, but risk has a
decisive role in an investment decision when that is taken in consideration in the decision
making and that risk is perceived in some way. Investments are expenditures now to make
future profits, and they are necessary for an enterprise to develop and to grow.
The concept of risk can’t be neglected when we talk about investments. It is important
to be able to identify and evaluate correctly the risks to be able to make a proper investment
decision. Risks are born from the uncertain future outcome of the investment. Investors may
have some expectations and views regarding the future payoffs, but they necessarily have to
make their decision after they have done a risk analysis. To be able to do that information is
needed. The quantity and quality of information regarding that particular investment can
influence the risk evaluation and the whole investment decision.
In this paper it will be discussed that risk perception how can be observed and
evaluated and what role has in the investment decision making. The second issue which is
presented is that psychological factors play an important role in the risk perception and the
decision making process. These factors can’t be ignored if economists want to have a more
punctual picture about how investment decisions are made.
2. RISK PERCEPTION IN INVESTMENT DECISION MAKING:
The traditional economic theory has a limited understanding regarding individual
investors’ behavior regarding investment risks. In the perspective of the behavior economy we
can have a better interpret of the individual investment process. Chen and Tsai (2010) affirm
that external and psychological factors are needed to examine their effect on investment
behavior.
The risk perception in a decision context depends on the situation of uncertainty in the
data, as well on the degree of risk that the decision-maker is already familiar with, according
his previous experience. (Popescu 2004)
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Risk perception shows that an action’s danger how is perceived. Investors perceive
risk as a result of unfavorable loss probability, but with a gain attached. In investing, risk can
be acceptable if it is compensated with additional benefits that can be predicted with a
probability. (Ionita 2001) An investor’s behavior in investment decisions depends on his risk
perception which depends on his risk tolerance. Risk tolerance means that how he can accept
and tolerate the presence of risk and its level in an investment project.
The final decision of the investor regarding his investment will be based on next to the
results of his risk analysis on the influence of other factors too within subjective factors as
well referring on his risk perception. (Pedro Belli et al. 1996) In a financial investment
decision according to Chen and Tsai (2010) the “financial risk tolerance is defined as the
maximum amount of uncertainty that someone is willing to accept when making a financial
decision.” (Chen and Tsai 2010, 5) This is a personal attitude toward risk-taking. “In terms of
different risk perception or risk tolerance level, individual investor may show different
reaction base upon their psychology factor and economic situation, which would lead to
heterogeneous portfolio choice for individual investors.” (Chen and Tsai 2010, 5-6)
About financial risk tolerance it is important to pay attention on the demographic
determinants and risk attention. Chen and Tsai (2010) define these socio-economic status
variables which influences risk tolerance. According to them, these are the age, where risk
tolerance decreases with it; then the gender, where females have a lower preference for risk
than males; the education, in which case risk tolerance increases with education level; then the
income levels, where risk tolerance increases with income level and net assets; and marital
status, in which case single (unmarried) investors are more risk tolerant than married ones.
Chen and Tsai (2010) present some interesting interconnections between these socioeconomic
factors. According to their research there is a negative relationship between age and
risk tolerance, so the younger investors prefer the riskless investments than the elder.
Regarding the gender it is noted that is a powerful determinant of the investing decision, and
females have lower risk tolerance than males. The female investors are more detail oriented;
they want more information to have a better understanding before decide. The education level
has a positive relation with the higher risk tolerance. The increasing income level and wealth
generate an increased level of the risk tolerance. Regarding the marital status of the individual
investors’ the researchers have different views. One is that the unmarried investors are more
risk-tolerant than the married ones, because the married people have more social risks and
responsibilities toward their family. The other point of view is that the married investors have
a bigger propensity for risky investments than the unmarried ones, because they have a greater
capacity to handle the unpleasant outcomes. There is another interesting fact regarding the
marital status, that the decision of the married investor may reflect the couples’ risk
preference in some degree. (Chen and Tsai 2010)
Risk perception may be influenced by the environment, like in a period of global
economic crises, when investors might be more pessimists and might “extensively curtail
their costs and investment programmers in order to become more resilient to any further
deterioration of their business environment” (Caracota Dumitru and Mihalascu 2009, 20)
Knowing some background information about investors’ social status which can affect
his personal risk perception, I would tell that researchers in economics, who analyze risks
concerning investments, may have a better understanding regarding risky investment
decisions.
The risk of investments has two sides in my view. One is the objective risk, which
exists in an investment project independently who is the investor who will make the decision.
The other side is the subjective side of risk, which refers on the risk of the investment project
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in the investor’s “eyes”. The same investment risk is perceived different by every single
investor. That is why is necessary to analyze and study investment risks from the investment
project’s view, the objective side and the investor’s view, the subjective side. For both there
are analysis methods, evaluating and measurement methods.
Investments and insurance are close to each other connected by the risk of
investments, in which case the insurer overtake a part or the hole of the investment risks,
which the investor is willing to share. The other connection between investments and
insurance is when the insurer become investor when is managing other’s portfolios, assets.
In Eeckhoudt et al.’s (2005) studies is presented that risk-averse investors may like
risky investment if the expected payoffs that they yield are large enough and if the expected
returns exceed the risk-free rate. Risk-averse investors may not pay to insure their investments
if they think that that’s too costly to acquire. To find the compromise between risk and the
expected profit, the investors should quantify the effect of risk on their prosperity. Insurance
is a type of risk-transfer strategy of the investor and it is named as hedging strategy.
(Eeckhoudt et al. 2005) Empirical results shows that most decision maker are often risk
averse, because they try to limit their risks and an indirect evidence for the existence of riskaverse
decision maker majority is the presence of active insurance markets. (Chavas 2001)
According to the research of Eeckhoudt et al. (2005) “insurance allows for
disentangling investment decisions from risk-taking decisions. Without it, we would certainly
not have experienced the historical economic growth of the last century. Ford, Solvay,
Rockefeller and others would not have taken the investment risks that they actually took
without the possibility of sharing the risk with shareholders and insurers.” (Eeckhoudt et al.
2005, 45)
The insurer has a responsibility for investment risk management. It has to be
accounted the insurer’s risk profile and the size, nature and complexity of the business.
Insurers are risk transformers, mainly risk mitigating. In investment decision-making they
have to consider all risks. Insurers need information systems and analytical techniques for risk
measurement and they should understand all of the information about the risks which the
business contains. (Investments Subcommittee 2004) The insurance companies are sort of risk
managing experts regarding investments.
2.1 MEASURING RISK PERCEPTION:
The goal in a risk analysis in an investment project is to predict future return, risk and
correlation accurately with time series models. Because the pure judgmental, subjective
approach is not punctual, this led the most risk management systems to rely on quantitative
models strictly. But these models are very punctual and sophisticated mathematically, they
can’t reflect the real world events. These model structures are not behavioural. The economic
logic can explain and describe the events. (McFall 2000)
In the previous part I presented a full collection of risk measures, which are
quantifying risk pure from objective view. My opinion regarding the risk evaluation and
measure is that next to the objective risk measures, is necessary to pay attention on the
subjective side of risks too, referring on the risk perception and risk preference of the investor.
The risk perception and preference differs at every investor.
The risk of an investment depends how that is perceived and evaluated and studied. It
is essential to study and evaluate a risk from both sides, in the investment project’s view and
the investor’s view. The investor’s decision regarding his investment project will depend on
the objective risk measures results and the investors’ perception and reaction.
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It is much simpler to evaluate and measure risk only from objective view, using the
risk measure tools. But risks have subjective components and factors. These subjectivity
springs from the fact that in every investment decision the decision maker is a human. This
fact cannot be neglected, therefore for a complex risk evaluation it is absolutely necessary to
evaluate risk perception. In this subchapter I will present some quantitative evaluation
methods to measure and evaluate risk perception conform to some recent research studies
regarding to this topic.
According to De Weerdt’s (2005) research economists should measure expectations
and they should not make any unsubstantiated assumptions. He notices that for a better
understanding of savings and investment behavior it is needed to be understood the risk
environment in which the economist acts. There is a data collection method wherewith it can
be measured households risk-perception and it can be made a statistical analysis. In this
method it is used direct questions about how the respondent associates the perceived risk with
a particular activity. This kind of direct questioning is rear in the economists’ researches, they
preferring to use secondary data or prior information. It is important to collect data from those
whose view is relevant in the researcher’s perspective. De Weerdt’s (2005) research the
respondents are asked to name an activity and describe realistic intervals of production. A
disadvantage of the research is that it won’t take account of the income sources, which is
important for complete risk assessment. He is focused on the problem why and how to
measure risk perceptions. The quantitative and qualitative researches can be classified in
different degrees. There are three ways: triangulation, sequential mixing and simultaneous
mixing. (De Weerdt 2005)
“When both methods are applied independently and conclusions are, afterwards, put
together, we speak of triangulation (e.g. Chambers, 2001). When qualitative work assists in
formulating hypotheses to be tested during quantitative work; or when interesting quantitative
observations and seeming anomalies are taken back to the field to get input from the
respondents, this can be called sequential mixing (Ravallion, 2001). While triangulation and
sequential mixing are advised, if not essential ingredients for sound economic research,
labeling them as “integrated” may be stretching the term a little. Some recent attempts have
been made at taking the integration process one step further by what has become known as
simultaneous mixing.” (De Weerdt 2005, 5)
Usually the information regarding risks is collected after the shock happened and
rarely is examined the information based on the expected shock perceptions. Better to ask
people directly how they feel about a question, than to predict the future behavior based on
past outcomes. The respondent’s perception of risk can change in time influenced by personal
or environmental factor changes. (De Weerdt 2005) “In any case, the economist’s practice is
at odds with one of its own favored paradigms for expectations modeling, rational
expectations, whereby all information available to the researcher has to be taken into account,
beyond past events.” (De Weerdt 2005, 7)
My opinion is that it is not exactly negligible the past events, because it can give a
base to understand better the present, and using the combined information can give us closer
to the truth. A person’s action in the past regarding to an investment and his thoughts how he
will act in the future regarding a similar investment, this two information has to be compound
for a better estimation of the future outcome.
Morgan and Henrion discussed this problem of risk perception through Kahneman et
al. work; they named some heuristics that people use to choose probability. One is the
heuristic of availability, “which implies that a person’s probability judgment is driven by the
availability of previous occurrences of the event, or by the ease with which the occurrence of
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the event can be imagined” (De Weerdt 2005, 7). People overestimate some events’
probability because they are influenced by the media, which pays distinctive attention to the
events. Another is the heuristic of representativeness. The person thinks that the structure of
the event contains information on its representativeness. The third is the heuristic of
anchoring, where the respondents may be influenced by any number, value that is suggested
to them. De Weerdt(2005) developed a risk perception module which one is showing a
probability distribution of possible outcome of particular activities. This module is related to
the Manski’s and Hardaker’s et al. modules. “Manski (2004) uses a cumulative approach,
whereby the respondent is asked to state the likelihood that the variable will be lower than a
certain number. Hardaker e. a. (1997) asks respondents to assess the likelihood of the value
falling inside a certain interval.” (De Weerdt 2005, 9) Data on risk perception can help to
determine some effect of risk on people’s choice. It is relevant and possible to collect
perceptions on ex-ante. The De Weerdt’s (2005) research was made with groups of 3
respondents, and it was collected common perceptions on risk. Theoretically is better to
collect data on individual level, but that needs more resources and may increase measurement
error. There are two options in-between individual and group: first case the groups could be
stratified according to variables like age, wealth, experience etc., which can influence risk
perception; the second case could be that the whole exercise and explanation is in group, but
the respondents answer individually. (De Weerdt 2005)
Chen and Tsai (2010) use two methodologies, survey for collecting data about the
individual investors’ investment behavior, and conjoint analysis to analyze the data and to
find the relations between risk tolerance, risk perception, and socio-economic factors. To
measure investor’s risk tolerance and risk perceptions Chen and Tsai (2010) use survey,
which has four parts. The first part is focused on measuring the individual investors risk
tolerance and risk perceptions degree. The second is a questionnaire about the respondents’
investment decisions regarding the portfolio choice and they socio-economic status. In the
third section it’s investigated the behavior of investors, and the final one is focused on the
investors’ preference about asset management institution attributes. Chen and Tsai (2010)
designed a questionnaire with what is collected the information about the individual investors’
socio-economic status, and then investigated the relationship between these demographic
factors, risk perceptions and risk tolerance regarding investors’ portfolio choice. (Chen and
Tsai 2010)
“We use of survey is a widely accepted method, according to Grable and Lytton
(2001) for assessing financial risk tolerance score and financial risk perceptions score.
Because of the complexity of the attitudinal on risk tolerance and risk perceptions construct, a
sophisticated psychological testing instrument like risk measure is required (Callan and
Johnson 2003).” (Chen and Tsai 2010, 11) The structure of the questionnaire’s question
distribution is designed regarding the socio-economic variables. According to Grable and
Lytton (2001) the results of the level of risk tolerance gained by different items, are similar.
To show that the investment choice is not indifferent from any other portfolio choice, Chen
and Tsai (2010) designed some different portfolio choices to find which the investor’s
favorites are.
The portfolio attributes, risk tolerance, risk perception, socio-economic status and
other variables are random utilities. The interaction between these random utilizes help to
obtain the individual investor’s total utility. The conjoint analysis is used to model the total
utility, and to express the investor’s preference for different investment opportunities. This
has to incorporate various attributes and characteristics. It can be found the preferred portfolio
choice over the others in a simplified financial market environment. (Chen and Tsai 2010)
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According to Chen and Tsai (2010) the survey procedure is made in few steps. First
the questionnaire was tested on a small sample of people before it was used in the main study
to find if there is any kind of problems in filling it or evaluate it. Then the data collection was
done in a form of survey, where the respondents had to choose between some alternatives.
The data analysis for the risk tolerance and risk perception survey is obtained by a descriptive
statistics. There are used four risk measures for examining each attributes level: semivariance,
expected value of loss, probability of loss and standard deviation. The final part of
the risk perception measuring is the result of the research, the evaluation of the
questionnaires. The descriptive statistics presents the socio-economic background and the risk
attitude of individual investor on portfolio choice. Then the impact of socio-economic status
and risk tolerance on investor’s portfolio choice can be examined. Finally the impact of socioeconomic
status and risk perception on investor’s portfolio choice can be presented. (Chen
and Tsai 2010) It is important identifying the key factors which influence the investor’s
decision regarding portfolio choices and investment risks for a better understanding of his
investment behavior.
According to Hanna et al. (2001) research the decision regarding risk-taking in
investments depends on the household situation and subjective factors. The risk-tolerance
measurements “should determine emotional responses to varying situations about money and
decisions one might make in a given financial circumstance.” (Hanna et al. 2001, 53)
Investment choice measures: Sung and Hanna analyzes some risk tolerance data of the
Federal Reserve Board’s Surveys of Consumer Finances (SCF). The interviewed persons had
to answer that how much risk they are willing to take for investments. Only a minority of
respondents (4%) were answering that they would take a surplus of risk for a surplus of
return, but almost the half of the respondent households (40%) did not want to take any
financial risk. Risk tolerance is higher at the higher educational level and income, and male
respondents are more risk tolerant than the females. (Hanna et al. 2001)
Hanna et al. (2001) uses mixed measure, a questionnaire including investment and
subjective questions. The results are a reflection of the investor’s actual situation and limited
information. Assessing actual behavior based on economic models: the risk tolerance is the
reverse of risk aversion, when one increases the other decreases. The risk aversion measures
the unwillingness of risk-taking. There are two kinds of coefficients, the coefficient of
absolute and relative risk aversion. Quoting Hanna et al. (2001) regarding risk aversion they
say that “using equity premium data (the equity premium is the difference between the return
on stocks and the return on risk-free assets such as Treasury bills), studies have found that a
coefficient of relative risk aversion needs to be as high as 30 to 40 in order to explain the
historical patterns of equity premium in the U.S. (Mehra & Prescott, 1985; Siegel, 1992a;
1992b). The fact that the required level of relative risk aversion to explain the equity premium
is too high, both in its theoretical implication and in comparison to empirical estimates using
consumption data, is called the equity premium puzzle (Siegel & Thaler, 1997)” (Hanna et al.
2001, 55) The conclusion is that “as the retired population grows substantially in the next 10
years, measurement of risk tolerance in a way better linked to economic theory will become
even more important for those giving advice to consumers about investing.” (Hanna et al.
2001, 59)
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3. INVESTOR’S BEHAVIOR REGARDING RISK IN INVESTMENTS:
3.1 RISK EVALUATION:
To make the best investment decision it is needed to evaluate and manage the
investment risk. For an effective investment risk management it’s important to name the
methods and tools used for measuring and controlling the risks existing in the investment
project. These risk measurement methods help to determine the risk of the investment and the
risk tolerance too. For both, investment risk and investor’s risk perception, exists quantitative
evaluating methods.
According to Chavas (2004) the probability theory is the theory which can describe
and represent risky events. A risky event is that its outcome is unknown for sure ahead of
time. An event might be riskier or less risky depending on the ability to measure it, control it
and to obtain information and the cost of this information. (Chavas 2004)
To recall Balzer’s (2001) thoughts about risk measurement in investment process,
these should satisfy the “relativity of risk, multidimensionality of risk, asymmetry of risk, and
nonlinearity” (Guerard (2010, 649). There is a large arrival of risk measuring methods, but
there is no ideal one in general. Rachev et al., in a paper in Guerard’s (2010) book, define that
the best choice of risk measure fully depends on the preference of investors, and there is no
ideal measure because all of the methods possesses only some of the properties of the
investment risks.
Risk arises from the uncertainty surrounding the investment project’s factors. To
evaluate these risks investors should identify and understand the uncertainty and to have tools
and methodology to evaluate and process their investment risk.
Usually past data is used to predict possible future outcomes of an event. If from an
array of probable outcomes of the investment only a single value is selected, and this is
assumed to be certain, that results that the outcome of the project is certain without any errors.
Although, the values projected are not certain, therefore sensitivity and scenario analysis are
needed to be made. Sensitivity analysis means that the value of a variable is changed, and the
impact of the variable on the final result has to be tested. The scenario analysis allows
simultaneous change of values of variables. Scenarios can be either pessimistic or optimistic.
(Savvides 1994)
An important fact is that risk can be evaluated and analyze from the investor’s view,
his risk perception view and also without precise information about the decision maker’s risk
preferences. “Stochastic dominance provides a framework to rank choices among alternative
risky strategies when preferences are not precisely known.” (Chavas 2004, 53) For an optimal
investment decision under uncertainty the decision maker has to evaluate the risks and the
role of risk in his investment project.
Quantifying risk is not easy and the acceptability of risk indexes is pretty subjective,
therefore personal utility and risk preferences have to be introduced in the risk measurement
process. (Levy 2006)
Every investor and decision maker has to choose that risk measure or set of risk
measures which is the best for his investment project and his own preferences. In my view an
investor should study the possibilities and risk measure tools. In this way the investor can
deeper understand risk types and background risks and the ways to quantify and identify them
as punctual as they can. Investigating the risk types in the particular investment project might
help the investor to select that risk measure which includes those qualities what the investor
needs for that investment.
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3.2 PSYCHOLOGICAL FACTORS WHICH INFLUENCES RISK
PERCEPTION AND THE INVESTMENT DECISION MAKING:
Barberis and Thaler (2003) present some psychological factors which are present in
the investment decision making processes. Beliefs are specifying how agents form their
expectations in the market. Investors might have some beliefs which are wrong, like they
seem to believe that the mean dividend growth rate is more variable than it actually is, and
investors’ exuberance push the prices up relative to dividends. Here can be noticed the
existence of the representativeness, mostly for low numbers, for example investors see many
good periods on the stock market and they might believe that earnings growth will continue to
be high, adding to the return volatility. These beliefs are based on public information.
Investors might have some beliefs based on private information. He might become
overconfident about the private information he gathered. The overconfident investor will push
up to high the price if his private information is positive, adding to return volatility.
Representativeness in this case is present when the investor is framing beliefs on his past
returns. (Barberis and Thaler 2003)
The overconfidence can be very much present in people’s behavior for example in
estimation of quantities or probabilities of the investment’s outcome. Investors might have
some beliefs based on private information. He might become overconfident about the private
information he gathered. The overconfident investor will push up to high the price if his
private information is positive, adding to return volatility. Representativeness in this case is
present when the investor is framing beliefs on his past returns. (Barberis and Thaler 2003)
Optimism and wishful thinking is mostly the agent’s unrealistic positive view about
themselves. Then the representativeness is named, which is when people tend to determine
something by the characteristics of the group or class to which this something belong.
Representativeness can have some biases next to his positivity. These biases are the base rate
neglect and sample size neglect.(Barberis and Thaler 2003) “When judging the likelihood that
a data set was generated by a particular model, people often fail to take the size of the sample
into account: after all, a small sample can be just as representative as a large one.” (Barberis
and Thaler 2003, p. 1067)
According to Barberis and Thaler (2003) conservatism is the over-emphasized base
rates relative to sample evidence and the belief perseverance is present when people tend to
stick to their beliefs and not modify it for a long time. “In the context of academic finance,
belief perseverance predicts that if people start out believing in the Efficient Markets
Hypothesis, they may continue to believe in it long after compelling evidence to the contrary
has emerged.” (Barberis and Thaler 2003, p. 1068) Anchoring refers to the fact that people
often estimate similar values to the initial values when they have to form some estimates.
Then it is important to mention the availability biases, when people have to judge the
probability of an event, they use their own memories and personal experiences for more
information. These memories are not equally available in time and this can cause some biases
in judging the probabilities conform these memories. “Economists are sometimes wary of this
body of experimental evidence because they believe (i) that people, through repetition, will
learn their way out of biases; (ii) that experts in a field, such as traders in an investment bank,
will make fewer errors; and (iii) that with more powerful incentives, the effects will
disappear.” (Barberis and Thaler 2003, p. 1068)
Emotions and feelings play role in the perception of risks and in condition of
uncertainty. People tend to react emotionally to risky choices and they risk preferences might
be influenced by these reactions. Fear is a strong emotion, which can have a big role in the
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perception of risk and the perception of the investment’s outcome’s probability. Risk taking is
sensitive to the investor’s feelings regarding that uncertain situation. (Loewenstein, Weber
and Hsee 2001)
According to the Prospect theory of Kahneman and Tversky (1979), this might be the
best theory for financial applications, trying to capture people’s attitudes to risky gambles. It
is about investor’s preferences and how they evaluate risky gambles. The value function of
the outcomes is concave for gains and convex for losses, meaning that people are risk averse
over gains and risk seeking over losses. This function has a greater sensitivity for losses than
for gains, named as loss aversion. In the prospect theory is presented that small probabilities
are over weighted. Gains generally produces risk aversion and losses produces risk seeking,
but in the case of a very small probability of a large gain or loss, the over weighting will lead
to risk seeking for gain and risk aversion for losses. Prospect theory can explain why people
make different choices in situations with identical final wealth levels. (Kahneman and
Tversky 1979)
“Optimal decision-making often require a prediction of future tastes, and future tastes
may differ from current tastes due to such factors as habit formation, day-to-day mood
fluctuations, social influences, maturation, and changes in the environment.” (Loewenstein,
O’Donoghue and Rabin 2003)
CONCLUSION
Psychological factors are very present in the investor’s risk perception and decision
making processes. It is a very influential factor in the final decision. It has to be discovered,
noticed and studied for a better interpretation of the risk perceptions and the investment
decision making process.
We can observe that risk perception is subjective. The investor’s decision is based on
the results of the complex investigation of the potential investment and its risks. It is
necessary to study what can influence the investor’s decision, what factors might be involved
in his risk perception. Resulting form that the decision maker is a human being it is evident
that there are psychological factors involved in his risk perception and in his decision making
process. Because of this fact it can be useful to research that how psychology is involved in
the economics in investment decision making in the economical literature.
It is necessary to make further research in this issue to have a more complete view of
the investors’ behavior in investment decision making. In that case the economical prediction
and analysis will be more close to reality and can have more punctual picture about how
investment decisions are made and how is the risk in that process perceived and taken in
consideration in the investment’s outcome.
REFERENCES:
1. N. Barberis and R. Thaler, “A survey of behavioral finance” in Handbook of the
Economics of Finance, ed. G.M. Constantinides, M. Harris and R.M. Stulz
(Amsterdam: Elsevier, 2003), Ch. 18, 1053-1128
2. Pedro Belli et al., Handbook on Economic Analysis of Investment Operations, (World
Bank, 1996) Online at
http://rru.worldbank.org/Documents/Toolkits/Highways/pdf/82.pdf accessed on Nov
16 th 2011
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3. M. Caracota Dumitru and R. Mihalascu, “The impact of investments in global
financial crisis”, Economia. Seria Management, Vol.12, No. 2 special, (2009): 19-25
4. Jean Paul Chavas, Risk analysis in theory and practice, (USA: Elsevier Academic
Press, 2004)
5. Sheng-Hung Chen and Chun-Hung Tsai, “Investment Preference, Risk Perception, and
Portfolio Choices under Different Socio-Economic Status: Some Experimental
Evidences from Individual Investors”, Asian Finance Association, International
Conference (2004)
6. De Weerdt, Joachim, “Measuring Risk Perceptions: Why and How”, Social Protection
Discussion Papers Series, No. 0503, (Washington DC: World Bank, 2005): 1-30
7. Louis Eeckhoudt et al., Economic and Financial Decisions under Risk, (New Jersey:
Princeton University Press, 2005)
8. Investments Subcommittee in consultation with members and observers, “Guidance
paper on investment risk management”, International Association of Insurance
Supervisors, Guidance Paper No. 9, (2004): 1-30
9. John B., Jr. Guerard , Handbook of Portfolio Construction: Contemporary
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de eficienta”, Informatica Economica Journal, No. 2 (18) (2001): 105-110
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under Risk”, Econometrica, Vol. 47, No. 2 (Mar., 1979): 263-292
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(USA: Springer Science+Business Media, 2006)
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Psychological Bulletin, Vol. 127, No. 2 (2001): 267-286
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DYNAMIC CAPABILITIES – KNOWLEDGE MANAGEMENT-BASED
CHALLENGES OF ROMANIAN FIRMS
Orlando Voica
Academy of Economic Studies Bucharest
Marin Burcea
University of Bucharest
ABSTRACT:
The aim of this paper is to highlight the necessity of the organizational knowledge
management to stimulate the dynamic capabilities in Romanian companies. A set of three
hypotheses are tested in order to identify the links between KM components and dynamic
capabilities dimensions such as coordination, innovation and integration.
The results show that in the Romanian firms the KM strategy and systems does not
support the development of the dynamic capabilities, and hence, the organizational dynamism.
Key words: knowledge management, dynamic capabilities, innovation, organizational
capital
JEL classification: L23, D83, O44, M0
1. INTRODUCTION
The economic crisis revealed the importance of the Romanian companies’
productivity, which is related to the effectiveness of their operational routines. However, as
long as the crisis has not reached its final, it becomes extremely important the firms’ ability to
rapidly adapt to the changing environment.
Knowledge management (system) is the fundament for a firm’s operations, but also
for further development of the organization. The organizational learning processes of
exploration and exploitation are important for the development of dynamic capabilities who
(re)combine resources and operational capabilities and generate the organizational agility. It is
necessary for the fulfilment of organizational mission and achievement of goals, even within
the environmental turbulence conditions.
The paper relies on the previous work of Zahra, Sapienza and Davidsson (2006),
Pavlou and El Sawy (2011) and Newey and Zahra (2009) on dynamic capabilities as well as
on the work of Cepeda and Vera (2005) and Simsek and Heavey (2011) on knowledge
management.
This paper aims to capture some aspects of the manner in which KM in Romanian
companies contribute to the building of organizational capabilities that generate the
operational routines as well as the organization’s dynamic capabilities. It briefly highlights the
role of some components of the organizational knowledge management system to engender
the dynamic capabilities of Romanian companies. The paper comes up to fill a gap in the
literature and to propose further methods and instruments that stimulate the organizational
agility of the Romanian companies.
A set of three hypotheses were tested during the research, using primary data obtained
through a questionnaire-based survey.
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The first part of the paper briefly presents some theoretical elements of knowledge
management and dynamic capabilities. The second part of the paper treats in detail the
research methodology used. The results are analyzed and interpreted in the last part, followed
by final conclusions.
2. THEORETICAL BACKGROUND
Two terms commonly appears in discussions regarding the organizational best
strategies to maintain organizational fitness and achieve the goals: ‘knowledge management’
and ‘dynamic capabilities’.
Perceived as a crucial strategic process, knowledge management is considered the
only sustainable competitive advantage by authors like Nonaka (1991) and Grant (1996).
Knowledge has a “situated”, “distributed” and “temporal” nature (Butler, 2006), therefore the
processes of transforming tacit knowledge into explicit knowledge (known as knowledge
spiral) contributes to the increase of the existing knowledge base as well as to the amount and
utilization of the knowledge within organization.
The effectiveness of this chain of knowledge management is influenced by the
organizational infrastructure capabilities, such as technology, structure and culture.
Organizational structure and IT infrastructure allow the gathering, storage, sharing and
dissemination, while the cultural elements such as the social processes are determinant in
creation, calibration, sharing, modeling, integration or reuse of the knowledge. Knowledge
management research focuses on providing solutions to create, retain, transfer and use the
organizational explicit and tacit knowledge (Cepeda, 2005). It is paying attention to the
organizational internal characteristics (including structures and procedures) as well as to the
forms of knowledge or tasks that influence the suitability of knowledge management
initiatives (Spender, 1996).
The dynamic capabilities perspective highlights the organizational capacity for a rapid
reconfiguration of the existing resources and capabilities, spawned by changes in the internal
or external environment (Zahra, Sapienza and Davidsson, 2006). It characterizes the
organization’s “ability to integrate, build, and reconfigure internal and external competences
to address rapidly changing environments” (Teece, Pisano and Shuen, 1997, p. 516). Dynamic
capabilities emphasize the importance of human capital, social capital, and organizational
capital as drivers of the firms’ performances (Sirmon and Hitt, 2009).
Dynamic capabilities are best defined based on the obstacles they have to address
(Kesting and Smolinski, 2007). However, Pavlou and El Sawy (2011) proposed four dynamic
capabilities as tools for reconfiguring the existing operational capabilities: sensing, learning,
integration, and coordination. Also, innovation and corporate entrepreneurship are considered
dynamic capabilities by Simsek and Heavey (2011).
Dynamic capabilities and knowledge management have recognized the mutual
importance of each other. Winter (2003) researched the relationship between knowledge,
resources, routines and capabilities and has differentiated a 3-level, inter-related, capability
hierarchy: zero-level (operational), first-order (dynamic) and second-order (learning)
capabilities. Within organizations the learning capabilities act as the source of dynamic
capabilities, while operational capabilities are the visible outcome of dynamic capabilities
(Easterby-Smith and Prieto, 2008).
The scholars agree that dynamic capabilities and knowledge management are
overlapping fields of organizational capabilities. Moreover, the dynamic capabilities can be
facilitated by knowledge management (Cepeda and Vera, 2005), but also they influence the
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organizational knowledge management. Easterby and Prieto (2007) identify the process of
learning as a central mechanism that links together the concepts of knowledge management
and dynamic capabilities.
However, there is a gap in the studies regarding the relative importance of KM and
dynamic capabilities for an organization: there is no clear picture of organizational priorities
toward implementing KM vs. the development of organizational dynamic capabilities.
This gap in literature will be filled up by investigating a fundamental research
question: under what conditions knowledge management contributes to the development of
dynamic capabilities and vice versa. By finding the answer at this question, organizations
might find easier to stimulate the knowledge-awareness behaviour and to decide on which
capabilities to focus to develop first: KM capabilities vs. dynamic capabilities.
This study aims to capture some aspects of the manner in which KM in Romanian
companies contribute to building organizational capabilities, designed to generate the
operational routines as well as the organization’s dynamic capabilities.
There are some questions on corporate action towards implementing KM and the
efforts to create the proper environment for the development of dynamic capabilities. They
are:
• What is the relationship between organizational KM systems and infrastructure
(organizational capital) and the Coordinating capability?
• What is the relationship between KM technical processes and the Integrating
capability?
• What is the relationship between KM tactics /strategy and the Innovation capability?
To get answers to these questions there was used a methodological approach based on
a sociological survey (Rotaru and Ilut, 2006).
The objective of this article is to briefly highlight the importance of knowledge
management in the development of the companies’ dynamic capabilities. A set of three
hypotheses were tested during the research, using primary data obtained through a
questionnaire-based survey.
The first part briefly presents some theoretical elements of knowledge management
and dynamic capabilities. The second part of the paper treats in detail the research
methodology used. The results are analyzed and interpreted in the last part, followed by final
conclusions.
3. RESEARCH METHODOLOGY
The purpose of this paper is to highlight the role of the organizational knowledge
management to engender the dynamic capabilities in Romanian companies.
The objective of the study is to identify:
O1. the degree of involvement of the organizational KM systems and infrastructure
(organizational capital) in the organizational coordinating capability;
O2. the degree of involvement of KM technical processes in integrating capability of
organization.;
O3. the role of KM tactics and strategy in generating the organizational innovating
capability.
Based on the objectives formulated, the authors formulated the following set of assumptions
for the Romanian firms:
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1. The more people realize the nature and sequence of tasks to be accomplished, the
more they share knowledge and opinions on the organization’s course of business.
2. The more the KM specific tasks in the organization are clearly defined and known, the
more people become aware of good practice in the diversity of their individual
experiences.
3. Higher degrees of acceptance of organizational failure stimulate the organizational
creativity.
In order to check the suppositions, managers from Romanian companies were
requested to provide answers to an on-line questionnaire.
Table 1. Distribution of the responding companies by their size
Size of companies Number of Average number of
companies employees
Small enterprizes (10-49
18
22
employees)
Medium enterprizes (50-249
99
17
employees)
Big enterprizes ( > 250
1338
16
employees)
Total 55 423
The activities performed by firms included in the survey were very different. In the
selection of firms, our research tried to capture the diversity of fields of activity. Thus, there
were covered 24 fields of activity, among which 15 companies were operating in the
secondary sector, 12 in the tertiary sector and 28 in the quaternary sector.
The average number of employees differs by sector, as follows: the firms in the
secondary sector have an average number of 511 employees, firms in the tertiary sector have
an average of 477 employees while companies in the quaternary sector have an average 355
employees per company.
The questionnaire was developed by the authors and tested on a number of five
companies. It was completed following the investigation pilot. Based on the research
hypotheses, it was divided into 38 items, thus creating syntax for labeling the variables and
response codes.
The online filling of the questionnaire succeeded the contacting phase of respondents.
During the preliminary session, participants were informed about the study goal. Data
collection took place between 2 to 8 April 2012. The respondents were HR managers,
managers or directors of companies.
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4. DATA PROCESSING AND INTERPRETATION
The data obtained were processed using the program Statistical Package for Social
Sciences (SPSS) 12.0. Figures and graphs presented are performed in Microsoft Excel.
The first hypothesis tested the relationship between the organizational KM systems
and infrastructure (organizational capital) and the Coordinating capability: The more the
employees realize the nature and sequence of tasks to be accomplished, the more they share
knowledge and opinions on the organization’s course of business.
The answers shows that in the analyzed organizations people realize at a greater extent
the nature and sequence of tasks to accomplish than discuss and share individual knowledge
on how to conduct them (see Table 2)
Table 2. The extent to which people realize and transpose knowledge
Avg.
Greatest
extent
At
great
extent
a
At
asmall
extent
Lowest
level N/A Total
Q10.1 People are aware of
activities around them (what
happens, when, where, why)
Q10.2 People discuss and share
individual knowledge on the
conduct of activities
2.05 23.6 50.9 21.8 3.6 .0
2.24 10.9 56.4 30.9 1.8 .0
100.0
100.0
The analysis of responses reveals correlations between variations, associated with
different levels of intensity of the two variables (see Table 3).
Table 3. Percentage distribution of responses to variables Q 10.1 and Q 10.2
Q10.2 People discuss and share individual
knowledge on the conduct of activities
Q10.1 People
are aware of
activities
around them
(what
happens,
when, where,
why)
Greatest extent
At a great extent
Greatest
extent
At
great
extent
a
At
small
extent
a
Lowest
level
Total
30.8% 69.2% 100.0%
7.1% 67.9% 25.0% 100.0%
At a small extent 25.0% 75.0% 100.0%
Lowest level
50.0% 50.0% 100.0%
Total 10.9% 56.4% 30.9% 1.8% 100.0%
Due to the sample size of 55 cases and the fact that variables used are ordinal, we used
the bivariate correlation coefficient Kendall's tau-b for hypothesis testing. The coefficient is
0.593, which leads to the conclusion that the hypothesis is verified (see Kendall correlation
analysis, table 4).
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Table 4: Correlations Kendall between variables Q10.1 şi Q10.2
Kendall'
s tau_b
Q10.1 Correlation Coefficient
Q10.1 Q10.2
1.000 .593(**)
Sig. (2-tailed) . .000
N 55 55
Q10.2 Correlation Coefficient .593(**
1.000
)
Sig. (2-tailed) .000 .
N 55 55
** Correlation is significant at the 0.01 level (2-tailed).
The second hypothesis tested the relationship between the KM technical processes and
the integrating capability of the organizations: The more the individual tasks / responsibilities
are clearly defined and known, the more people become aware of good practice in the
diversity of their individual experiences.
Frequency distribution analysis on the two variables shows that technical processes
(q9.2) is present in a greater extent than the integrating capability (q10.3) (see table 5).
Table 5: Percentage distribution of responses to variables: Q 9.2 and Q 10.3.
At a At a
Greatest
Lowest
Avg.
extent
level
great
extent
small
extent
N/A Total
Q9.2. Specific tasks for members
of the organization
1.9 25.5 54.5 18.2 1.8 100.0
Q10.3 People realize the good
practices within the diversity of 2.24 7.3 61.8 27.3 1.8 1.8 100.0
individual experiences
The analysis of correlations between response variations reveals a split in the
distribution of ordinal variables used (Q9.2 and Q10.3) in hypothesis testing (see Table 6).
Table 6. Crosstabulation of Q 9.2 and Q 10.3
Q10.3 - habit of people to recognize good
practice in diversity of individual experiences Total
At a At a
Greatest
great small Lowest level
extent
extent extent
Q 9.2 Specific Greatest extent
100.0
14.3% 42.9% 42.9%
tasks for
%
members of the At a great extent
100.0
organization
6.9% 72.4% 20.7%
%
At a small extent
100.0
70.0% 30.0%
%
Lowest level
100.0
100.0%
%
Total 10.9% 7.4% 63.0% 27.8% 1.9%
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The correlation coefficient Kendall's tau-b is 0.037 which leads to the conclusion that
the hypothesis is not verified (see Kendall correlation analysis, table 7).
Table 7: Correlations Kendall between Q9.2 şi Q10.3
Kendall'
s tau_b
Q9.2. Q10.3
Q9.2 Correlation Coefficient 1.000 .037
Sig. (2-tailed) . .771
N 55 54
Q10.3 Correlation Coefficient .037 1.000
Sig. (2-tailed) .771 .
N 54 54
The third hypothesis tests the relationship between KM tactics / strategy and
innovation: higher degrees of acceptance of organizational failure stimulate the organizational
creativity. The average and the distribution of responses shows a low degree both for failures
acceptance practice and for stimulation the creativity with application in the organization (see
table 8).
Table 8: Distribution of answers on the two variables included in the analysis (Q 9.8 and Q 7)
Q9.8. accepting failure
Q9.7 stimulating
organizational resultoriented
creativity
Avg.
Greatest
extent
At
great
extent
a
At
asmall
extent
Lowest
level
N/A Total
2.5 5.5 54.5 27.3 12.7 100.0
2.2 18.2 52.7 12.7 14.5 1.8 100.0
The distribution of responses by categories showed a dispersion of the ordinal
variables used (Q9.8 and Q9.7) in hypothesis testing (see Table 9).
Table 9: Crosstabulation (Q9.8. and Q9.7)
Q9.7. organizational result-oriented
creativity
Total
Greatest
extent
At
great
extent
a
At a small
extent
Lowest
level
Q9.8. Greatest
accepting extent
33.3% 66.7% 100.0%
failure At a great
extent
20.0% 60.0% 13.3% 6.7% 100.0%
At a small
extent
6.7% 53.3% 13.3% 26.7% 100.0%
Lowest level 33.3% 16.7% 16.7% 33.3% 100.0%
Total 18.5% 53.7% 13.0% 14.8% 100.0%
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The value of the bivariate correlation coefficient Kendall's tau-b is 0.233 which leads
to the conclusion that the hypothesis is not verified (see Kendall correlation analysis, table
10).
Table 10: Kendall Correlations between variables Q9.8 şi Q9.7
Kendal
l's
tau_b
Q9.8.
accepting
failure
Q9.7.
stimulating
organizational
result-oriented
creativity
Correlation
Coefficient
Sig. (2-tailed)
N
Correlation
Coefficient
Sig. (2-tailed)
N
Q9.8.
accepting
failure
1.000 .233
. .055
55 54
.233 1.000
.055 .
54 54
Q9.7. stimulating
organizational
result-oriented
creativity
CONCLUSIONS
The study tested three hypotheses, as follows:
1. The more the employees realize the nature and sequence of tasks to be accomplished,
the more they share knowledge and opinions regarding the organization’s course of
business.
2. The more the KM specific tasks in the organization are clearly defined and known, the
more people become aware of good practice in the diversity of their individual
experiences. / People become more aware of good practice in the diversity of their
individual experiences when the KM specific tasks in the organization are clearly
defined and known.
3. Higher degrees of acceptance of organizational failure stimulate the organizational
creativity.
The first hypothesis is valid and demonstrates that the more people realize the nature
and sequence of tasks that has to be accomplished, the more they discuss and share their
knowledge and opinions regarding the organization’s course of activities. Sharing knowledge
is essential for setting up the ground for the coordinating capability, so the result generate a
straight link between the organizational KM systems / infrastructure and the coordinating
capability for further organizational development.
In the analyzed organizations, employees realize at a greater extent the nature and
sequence of tasks to be fulfilled than discuss and share knowledge on how to conduct them.
This case shows that sharing of experiences and personal knowledge of the Romanian
companies’ employees is not carried out at the same extent they are aware of the activities
they carry. This element affects the transformation of tacit knowledge into explicit knowledge
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and, therefore, the organizational knowledge on long term. As result, the dynamism, as an
organizational capability, is hard to achieve under these conditions.
The second hypothesis has not been verified. The result shows that within the
Romanian organizations people does not become aware of good practice in the diversity of
their individual experiences even though the KM specific tasks in the organization are clearly
defined and known. The employees are aware of good practices they have met individually
but fail to obtain other views for the improvement of the processes in which they are
individually involved.
The third hypothesis has also not been verified. Even thought a higher degree of
failure is accepted within organizations, it does not generate the presence of a higher degree
of creativity within organizations. Basically, the failures at the work-place do not contribute to
the stimulation of organizational growth or creativity. This result stems from the fact that the
study does not make a clear distinction between failures within the regular operational
routines and failure caused by involvement in new or first-time-developed projects. Thus,
failure caused by involvement in new situations is assimilated to regular mistakes and
influence the development of new trials and of the creativity applied at work. Also, the study
did not differentiate between creativity applied to improve processes that deliver results and
superior organizational performance and the creativity aimed to deliver individual, but not
performance-related benefits.
However, a few strategies and directions of activity arise from this study. First,
organizations should set up procedures to share the knowledge and opinions related to the
tasks that should be accomplished within organization. This sharing process should be
developed at both informal and formal level and has to involve all employees. It also should
be followed by learning processes, with a focus on results, their context and lessons learned.
Following the implementation of the learning procedures, the companies should start
stimulating the results-oriented creativity of their employees.
This research, limited by its scope and size of the sample, is a starting point for further
studies of the relationship between KM and the capabilities of the Romanian companies.
This work was partially supported by the strategic grant POSDRU/89/1.5/S/62259,
Project “ Applied social, human and political sciences. Postdoctoral training and
postdoctoral fellowships in social, human and political scences” cofinanced by the European
Social Fund within the Sectorial Operational Program Human Resources Development 2007-
2013.
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manage what they know. Boston: Harvard Business School Press
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4. Easterby-Smith, M. and Prieto, I. M. (2008) Dynamic Capabilities and Knowledge
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Dynamic Capabilities, Decision Sciences Journal, Volume 42 Number 1, pp 239 –
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ASSESSING AND MEASURING THE IMPACT OF GLOBALIZATION
ON PUBLIC POLICIES
Zulean Marian
University of Bucharest
ABSTRACT
The main goal of this paper is to briefly describe the most important indicators to
measure globalization as complex phenomenon and its impact on national public policies.
This is a short paper, a work in progress to build the methodology able to explain how
globalization influences public policy.
Key words: globalization, public policy, globalization index, indicators,
methodology.
1. INTRODUCTION
Globalization is a multidimensional phenomenon, a total social fact that influences all
the aspects of everyday life. Concepts such as “territory”, “power”, “government” and
“national security”, specific to the national state of the Wesphalian system are touched by the
its effects. Globalization and public policy seems to be two concepts in tension and
contradiction: while globalization brings competition and private stakeholders into
governance, the public policy is the concept that designates the actions and strategies of
sovereign state.
Hay identified four topics of external influences on public policy: trade, foreign direct
investment, finance and global commons (Hay, 2006). I explored the impact of globalization
on national public policies and tried to identify a theory that will understand beneficial
influence of globalization on public policies for development (Zulean, 2011). However, it
proved to be very difficult to find a methodology, a system of indexes and indicators able to
asses and measure the impact of globalization on national public policies.
The main goal of this paper is to briefly describe the methodologies to assess the
impact of globalization on national public policy and governance.
2. GLOBALIZATION INDEXES AND INDICATORS: LITERATURE
REVIEW
Bellow we tried to review the main indexes and indicators that measure the
phenomenon of globalization as well as its impact on national state and governance.
The A.T. Kearney/Foreign Policy Globalization Index
One of the important methodologies has been provided by AT Kearney Consulting
and Foreign Policy Journal, assessing changes in four key components of global integration,
incorporating measures such as trade and investment flows, movement of people across
borders, volume of international telephone calls, Internet usage, and participation in
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international organizations. The 72 countries ranked in the 2007 Globalization Index account
for 97 percent of the world’s gross domestic product (GDP) and 88 percent of the world’s
population. But the study hasn’t been replicated after the global crisis in 2008.
The KOF Index of Globalization
The KOF Index on 208 countries covered the economic, social and political
dimensions of globalization. The indexes on economic, social and political globalization as
well as the overall index are calculated employing the weighted individual data series instead
of using the aggregated lower-level globalization indices (Dreher, 2008). KOF 2010
conclusion was that a country which globalized more experienced higher growth rates;
however it is not enough for poor countries simply to globalize their economies to spur
growth rates and reduce poverty.
The EU Globalization Indicators
The European Union, through Eurostat, built its own set of indicators in this context
that the Europe 2020 strategy, in order to exploit the potential of globalization, to boost
growth and employment in the EU. The selected indicators make use of data which already
exist in Eurostat, but casting them in the light of globalization. The 25 indicators which have
been selected are grouped around the persons, technology, goods and services, global
responsibility and business.
OECD Economic Globalization Indicators
OECD Economic Globalization Indicators includes indicators on: capital movements
and foreign direct investments, international trade, the economic activity of multinational
firms and the internationalization of technology. The 2010 Report concluded that
“Globalization results in a more efficient allocation of resources across countries and
generates important welfare effects, including higher productivity and efficiency, increased
average incomes and wages, greater competition, lower prices and increased product variety
and quality. At the same time, the process of globalization also raises concerns in many
countries, and needs to be well managed to ensure its benefits are widely distributed” (OECD,
2010).
The Global Creativity Index (GCI)
The Martin Prosperity Institute (MPI) is a leading think-tank that takes an integrated
view of prosperity, looking beyond traditional economic measures to include the importance
of quality of place and the development of people’s creative potential. As stated in its recent
report, “the GCI assesses the prospects for sustainable prosperity across 82 nations according
to a combination of underlying economic, social, and cultural factors that we refer to as the 3
Ts of economic development—Technology, Talent, and Tolerance”.
The Worldwide Governance Indicators (WGI) are provided by a WB project led by
Kaufmann, Kraay and Mastruzzi, and measuring six dimensions of governance: Voice and
Accountability, Political Stability and Absence of Violence, Government Effectiveness,
Regulatory Quality, Rule of Law and Control of Corruption. The sources are multiple (about
30 sources) from private and public sector and NGOs. The graph bellow displays Romania’s
performance between 1996 and 2010 in the six governance dimensions mentioned above.
3. CONCLUSIONS AND IMPLICATIONS
The brief review evidenced the critical task of measuring globalization and assessing
the impact of its multifaceted aspects on designing a public policy. From the first four indexes
it can be drawn the conclusion that economic globalization is very clear measured. Such
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THE INTERNATIONAL CONFERENCE IN ECONOMICS AND ADMINISTRATION
● ICEA – FAA 2012 ● June 8-9 th , 2012 ● http://conference.faa.ro ● ISSN: 2284 – 9580 ● ISSN-L: 2284 – 9580
The Faculty of Business and Administration
University of Bucharest
aspects of economic globalization as trade, foreign direct investment, finance and global
commons are easily translated into indicators. However the methodology expanded to
measure the impact of globalization on national governance and public policy, indicators as
GCI or WGI filled the methodology gap. The research above will continue to take into
consideration the impact of globalization on Romanian public policy, drawing conclusions
from the methodologies.
Acknowledgements: This work was supported by the strategic grant
POSDRU89/1.5/S/62259 project “Applied social, human and political science. Postdoctoral
training and fellowship in social, human and political science” co-financed by ESF within
SOPHRD 2007-2013”
REFERENCES
1. Dreher, A.l, Noel G. and Pim M. (2008), Measuring Globalisation – Gauging its
Consequences (New York: Springer).
2. European Commission, Eurostat, Globalisation Indicators, available at:
http://epp.eurostat.ec.europa.eu/portal/page/portal/globalisation/indicators
3. Hay, Colin, (2006), “Globalization and Public Policy” in Public Policy, Moran (ed),
Oxford University Press,.
4. OECD, OECD Economic Globalisation Indicators, available at:
http://www.oecd.org/dataoecd/22/25/45954526.pdf
5. Zulean, M., "The impact of globalization on public policies for sustainable
development" in Management of Technological Changes (MTC 2011) Proceedings
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